Since Federal student loans were created in 1958 under the National Defense Education Act (NDEA), we have been slowly heading toward a national crisis. This past week, it culminated with President Biden forgiving up to $20,000 in loans for certain borrowers. The problem? It does nothing to actually solve the problem.
President Biden’s executive order
Ultimately, the EO authorized forgiveness of loans up to $10,000 for borrowers that did not receive a Pell Grant, and up to $20,000 for borrowers that did. In order to be eligible, the individual must be making less than $125,000 per year, and $250,000 if married or head of household. Income from either 2020 or 2021 can lead to eligibility, but 2022 income will be excluded. Additionally, only loans created prior to June 30, 2022, will be forgiven if all other criteria are met.
Congrats to everyone getting assistance
Before I spend the rest of this article talking about how terrible this is, I want to say congrats to the people who are getting some relief here. I get it, the student loans have been difficult. My only words to you: wait until you starting making mortgage payments and replacing hot water heaters, air conditioning units, and doing complete roof replacements. No one is coming to pay those loans off, so you better buckle up. Also, try having a little compassion for the people who worked hard to payoff their loans in the past.
With that said, virtually everyone can acknowledge that this is absolutely a tragedy, and it is one that was directly created and promoted by the U.S. Government. Just think, with Federal student loans, 17 and 18 year-old kids can walk into an office and announce that they’re going to major in North American Affirmation of Gender Constructs (partially joking, not sure if this specific degree exists, but you get the point), and subsequently receive $200k in student aid to do so. No one thinks that degree is going to lead to anything but a poverty-level job. Nobody.
Now let’s take a look at the numerous problems with forgiveness.
All of the problems wrapped into one solution
For years, colleges have continued creating degree programs that offer little-to-no value, yet, raise tuition continuously to cover those bloated associate professor salaries. Did the executive order do anything to stop this? No. In fact, some economists are projecting that college tuition will rise as a result.
The solution for this is REALLY simple: eliminate the federal student loan programs. That’s right, get rid of the program completely. Private banks or “college lending funds” can start making their own loans. The student we mentioned earlier who was majoring in Gender Constructs, would have to sell the idea to the bank underwriting that loan. Good luck.
In turn, colleges would almost immediately stop offering garbage can degree programs. Obviously, right? I mean, if no one is getting approved for the loans to study Ancient French History, will the degree continue to exist? The answer is no. Instead, colleges will start offering only the degrees that provide the best value after graduation. Their very existence will literally rely on being able to do this effectively. Banks will certainly know what degrees are sought after, and will tailor their lending to that.
Lastly, this will help struggling entry-level and trade industries by keeping a large group of kids out of college. That’s right, not everyone should go to college (sorry to all you motivated guidance counselors who sell it to everyone)! We have tons of trade jobs available today, including journeyman-type paths. There are also various industries with mostly service-type jobs that are not finding workers. This group mostly includes restaurants, fast food, retail, and customer service jobs.
I’m not saying this is the only solution Okay, clearly this is the only solution. This has to happen. Now.
Round 2 of loan forgiveness forthcoming
President Biden’s EO also took steps to help lower the student loan payments for borrowers. What isn’t being said, is that doing this will stretch out the timeframe it takes to payoff said loan. This is exactly how some borrowers saw their balances double over the years, and certainly won’t prevent it going forward.
What does this mean, you might ask? Any logical individual can see that this paves the way for a future administration, or even a second term Biden, to forgive more student loans. Let’s just continue the circular process of the Federal government promoting student loans, then creating them, followed by eventually forgiving them because they fully know they’re worthless. Sounds great. What could possibly go wrong long-term?
More fuel on inflation
We’ve touched on inflation several times over the past few months. In the current environment, it would have been difficult to ignore. But yet, that appears what happened last week when nearly half of the country supported the student loan forgiveness. Roughly 50% of American’s basically acknowledged having no clue about what drives inflation. This is terrifying, and is the exact reason we created this website. By understanding basic economic principles, you can begin to realize how various things impact your finances, even if you don’t immediately realize it.
What you should do about this
Take care of yourself. Ultimately, your decisions should be the best for you, your family, and loved ones.
- Don’t take any student loans unless the degree leads to a career with good pay prospects (examples: computer science, engineering, business, accounting & finance, nursing, etc.) In fact, even teaching in some states can be a solid career choice, financially speaking.
- If you have loans, don’t make the minimum payments. By doing this, you’ll have loans forever. Don’t wait for more bailouts. Take charge of your situation and clear that debt.
- Invest always and invest often. Inflation will continue to rise and the only way to combat this is through investing. Whether it be the stock market or real estate, you need to find viable investments.
- If you realize your entire loan balance is about to be paid off by forgiveness, do not start spending this money! Invest instead.
Finally, keep reading our content here at Wealthy Idiots! We’ll try to give you the best financial tips to stay out of these sticky situations in the first place.