Student Loan Forgiveness?  Just Say No!

The back of a womans head who is wearing a graduation gap. Her fellow graduates are our of focus in the background.

You know, my three kids have heard me say to them since birth “There’s no such thing as a free lunch”. This phrase applies in so many situations and so many areas of life, whether it’s personal, business, or politics. Jill and I have tried hard over the years to help Maeve, Phoebe, and Sophie come to their own conclusions that nothing is free, and someone always must pay a price. A perfect example of this is a discussion Jill and I recently had with our twins.  The discussion circled around President Biden’s growing consideration to potentially offer some loan forgiveness for “certain” college students. 

Biden is wrestling over ordering a cancellation of student loan debt, despite pressure from Democrats — including Vice President Kamala Harris – who may be eager for a political win before midterm elections, according to several people familiar with the matter.

While he said in April that he’s considering “some debt reduction,” Biden has not made up his mind about many details of the plan, including how much debt to forgive per borrower. And though White House officials have debated the forgiveness program internally for more than a year, there doesn’t appear to be any real consensus on the best path forward. 

Some progressive lawmakers, such as Elizabeth Warren, are urging the White House to cancel at least $50,000 in debt per borrower, if not the entire loan portfolio held by the Education Department, which totals more than $1.6 trillion₁. Biden is reportedly considering capping forgiveness to those who earned less than $125,000 or $150,000 as individual filers the previous year. For couples filing jointly, the cap would be around $250,000 or $300,000.

As the issue is being considered by a select few, however, most Americans see the policy as unfair. “While some may view this debt forgiveness as a slap in the face to people who were responsible and paid off their student loans, this is a bigger slap in the face to those Americans who never went to college,” Will Bach, a financial advisor based in Ohio, told Yahoo Finance. “How can we honestly ask people who did not go to college to subsidize the lives of those who did decide to go to college?” Bach added. “To my knowledge, everyone with student loans voluntarily took them. Every instance of a student loan was a voluntary choice that person made₂.”

So, while there are current policies in place to help debtors by utilizing an income-driven repayment system, they just aren’t working. There are still far too many struggling to repay their debts. But I believe that canceling, say, $10,000 or $50,000 across the board is not the solution. Research has demonstrated that a college degree generally boosts an individual’s earnings over their lifetime. And yet a broad-based forgiveness such as that being considered by Biden and crew would cost all taxpayers tens of billions of dollars – even those who never went to college, or those who did and repaid their debt. 

As Will Bach goes on to say, the current proposals being analyzed are, “nothing more than a welfare program for the upper class,” Bach said. “The people who have responsibly saved and paid for college will not benefit from this at all.” As a father of three college and college-bound daughters, I have saved diligently since they were born to cover their tuition bills. I, too, have a real problem having my tax dollars used to pay off college debts for others who didn’t plan for this expense well in advance and want this taxpayer-funded bailout.  And if you think inflation is a problem now, just wait until Biden and crew pour 1.6 trillion dollars onto the fire. This is crazy!  

Yet advocates of the program believe the proposal is a long time in the making, and well overdue. Rep. Ayanna Pressley (D-MA) has repeatedly argued that student loan forgiveness is “a matter of racial and economic justice” given the disproportionate burden on borrowers of color. In fact, some studies have shown that women and people of color take on more debt to go to college compared to their white male peers. Pressley asserts that, “black students in particular borrow more to attend college, borrow more often while they are in school, and have a harder time paying their debt off than their white peers.”

Hmmm . . . I am not buying it.

But you know, one thing that both sides of the fence agree on is that this issue is all political. In a recent interview with Yahoo Finance, Pressley stated that “Democrats win when we deliver, and we have to deliver in ways that are impactful, tangible and transformative, like canceling student debt. This is good policy. And it is also good politics₃.” 

Good for whom, I ask you? I guess it depends on who you ask. But I beg to differ, just as I’m sure many hard-working taxpayers do too. After all, we’ll all pay the price, and a big price, if this proposal becomes reality, proving again that there truly is no such thing as a free lunch.

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. 

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