Student loan cancellation is far more complicated than headlines suggest.
Updated: Feb 27, 2021
This post is less about me proposing a solution or expressing an opinion and more about trying to come up with the right questions we all should be asking.
My top ten questions:
1) Is student debt the problem or is the high cost of college the problem?
2) Does debt forgiveness solve or even address the high cost?
3) Are loans too easy to obtain in the first place (there is essentially no due diligence like there is for a small business loan or consumer credit loan)? A future post will explore how loan availability may be contributing to and perpetuating the high cost of college and the need for loans.
4) Do lawmakers realize that those with the highest amount of debt typically have a high-income career that can support and payoff the debt load?
5) Would forgiveness be targeted at all? The young adults suffering the most are those with ‘only’ $10-20,000 in debt but with insufficient income and job prospects to pay it off.
6) Speaking of targeted assistance (as debt cancellation is now spoken in the same sentence as pandemic economic assistance), does college debt forgiveness in anyway help those who did not go to college?
7) What message would forgiveness send to those who scrimped and saved, worked multiple jobs, foregone spending, etc. to pay off their debt on-time?
8) What happens to those in high school or currently in college? What assumptions do they make about how much debt to take on and where to go to school?
9) How many of us realize that parents have also gone deep into debt to pay for college (due to the ‘evils’ of Parent Plus Loans - a topic for another day)? Parent debt has ruined retirement plans and trashed parental savings.
10) Lastly, should schools be held more accountable for graduating so many students who cannot apply their degrees? Perhaps we need a review and overhaul of degrees being offered, perhaps offering more in ‘the trades’, or create a market force and incentive to tie Federal support to employment and graduation statistics.
Student debt is a very real problem, but headline grabbing forgiveness may enable, perpetuate, and worsen the cycle producing this debt. Total student debt now exceeds $1.7T with the average student taking on about $30,000. The impacts are far reaching and range from stressing monthly finances to contributing to delayed marriages and home ownership. Since my mission is to help young people save money, I focus on the ‘double whammy’ aspect of debt; debt must be repaid with interest and every dollar devoted to paying off debt is a lost opportunity to save (saving when young offers the most years for money to grow).
Current headlines toggle between the two options being proposed (forgive up to $50,000 in debt or up to $10,000).
But perhaps we need a more robust solution and attention paid to the root causes of the high cost of school. We also need to help students make sound financial decisions and not emotional ones when selecting schools (e.g., simply falling in love with a beautiful campus full of amenities).