Recently President Trump issued an executive order intended to wipe out the student loans of around 25,000 permanently disabled veterans. Student loans have been a hot-button issue with the media in recent years and now with the political season upon us, it’s only being magnified with some politicians spewing their loan forgiveness rhetoric in an effort to secure votes. Proposals to cancel America’s student loan debt – which now hovers around $1.6 trillion – seem to always be a rallying cry for candidates around every presidential election cycle. Additionally, the COVID-19 pandemic has resulted in a new push for student loan forgiveness to be included in economic stimulus packages.
Every time I see headlines like – How wiping out $1.5 trillion in student loan debt would boost the economy – I shake my head in bewilderment. There are many reasons why this is flawed logic. Let’s break down a few of them.
Debt Forgiveness Won’t Solve the Problem
I’ve heard many so-called experts say that forgiving student loan debt will help stimulate the economy. Then I immediately laugh out loud. Here’s the major issue with forgiving anyone of any type of debt – it doesn’t solve or correct the problem/reason why the individual got into debt in the first place. And, dare I say, where does personal responsibility come into play? Gasp! If you do not know how to manage your personal finances and pay your debts, forgiving you of your debt is only going to be a band-aid solution. It’s a form of enabling like trying to help an alcoholic stop drinking by banning him from one bar. Guess what? He’s just going to go find another bar.
If you waive someone’s debt, they are going to get back into debt again. Why? Because they haven’t changed their mindset and behavior toward money management. They haven’t been educated on how to budget, save, and pay their bills responsibly. Did you know that only about 14 percent of Americans even have student loan debt – a fact that is conveniently omitted from the media because it doesn’t fit their narrative or agenda. So if you are going to forgive everyone’s student loans, you’re only “helping” a small percentage of the population. This is the reason why it won’t stimulate the economy.
What about all the future college students that will take out student loans? Will student debt forgiveness be offered in perpetuity? I sure haven’t heard this question asked or answered. Will it just be free loan forgiveness until the end of time? I’m sure no one would ever think of taking advantage of a system like that. Why would anyone pay cash for college if they can just max out student loan debt and not have to pay it back? What kind of message is this sending?
Who Pays
Remember, presidential candidates will do and say anything to get your vote. I equate this to verbal clickbait. If you are drowning in student loan debt and seriously think that our government is going to bail you out, I have some questions for you: Where do you think the money is coming from? Who do you think is going to pay for it? You know, the $1.6 trillion that’s going to magically disappear. If you guessed: “Taxes,” you are correct. The government is going to get their money one way or the other. If the government erases student loan debt, taxes will increase somewhere else (or new taxes will be created) to defray the cost. It’s that simple.
Unrealistic Cost of College
Perhaps an even more egregious problem is the astonishing cost of college which has resulted in making student loans necessary for many. When my dad was in school in the 1970s he paid about $100 a quarter. Since 1975 the cost of college has skyrocketed more than 1,600 percent. We’ve reached a crossroads in that potential students need to really think hard and ask themselves what the value of a degree truly is. Will obtaining a bachelor’s degree be worth coming out of school with $30,000+ in debt and spending the next 20 years of your life paying it off? Or, are there other options you can explore such as community college, technical/trade school, applying for scholarships and grants, working for companies that offer tuition reimbursement, or simply working a few years and saving money to pay for college in cash.
My Dad Says
I was recently venting to my dad about this topic. I wasn’t expecting much of a response since he went to college before student loans existed, but he surprised me with some pertinent comments:
Today, student loans may be a necessity but it’s also an obligation because if you borrow money for an education the federal government expects you to pay it back. And, oh by the way, the money that they loaned you is the money that I paid into my taxes and I also expect you to pay it back.
The frustrating thing regarding student loan debt is that a lot of people don’t understand where the money comes from. They don’t understand where the government gets its money. And those who don’t want to pay it back now act as if it’s no big deal. It’s not money that the government just printed for you to go to school. It’s money that everyone paid into their taxes. So any of these politicians promising to forgive student loan debt – it’s not fair to the people who worked hard to pay off their loans and it’s not fair to the taxpayers.
What about Tim?
When the media pumps out these stories about wiping out everyone’s student loan debt, I immediately think of my friends Tim and LeAnn Norris who spent the last four years of their lives paying off over $400,000 in student loan debt. They took responsibility for their debt and made enormous sacrifices to pay it all off while also raising a newborn. They even wrote a book about it called The Debt Slayers. Their story is inspiring and encouraging. I highly respect them for this momentous accomplishment. They have radically altered their future and the future of their offspring by their esteemable actions.
I wonder how would the Norrises, or my wife who paid off her $60,000+ of student loans, or anyone else who paid their debt feel about this? In fact, I’d be curious to know what percentage of the American population has paid off their student loans. You sure don’t see that fact reported in the media. Perhaps this group might be asking for refund for the debt they paid, in an effort to stimulate the economy of course, as long as everyone else’s debt is going to be forgiven. Hey, while we’re at it, let’s just pay off everyone’s home mortgages! And on, and on, and on. You can see how this would really open Pandora’s box.
Bottom Line: Don’t Bet on Student Loan Forgiveness
Remember, even if your favorite candidate who promises student loan forgiveness gets elected, it doesn’t mean it will actually happen. Keep in mind any proposal of this sort would have to pass both the House and the Senate, which could prove challenging.
My advice: Figure out the best way to aggressively pay off your debts as quickly as possible and move on with your life. You certainly don’t want to put yourself in a position to rely on and wait for the government to take action – you might die first.
Jason is the author of Margin Matters: How to Live on a Simple Budget & Crush Debt Forever.