Should We Forgive Student Loans In 2021 – The Student Loan Crisis
Student Loans. One of the largest scams ever or a necessary evil? No matter your opinion, you can’t deny that it is one of the most frustrating, controversial, and highly debated topics today. And with 1.67 trillion dollars of debt in the US (and growing) it’s something that needs to be addressed.
In this article, let’s go through how bad it really is and what I’m suggesting we do to fix it.
Where We Currently Stand
The student loan crisis in America is bad and only getting worse. One that is plaguing over 44 million Americans that have on average $37,000 in student loan debt. and it’s a hole most will never get out of. Now it’s easy to say “if they couldn’t afford to pay their student loans then they should have never taken them out” but life is so much more complicated than that.
Many people have no other option. They are told they need to go to college in order to build a better life. Most of the time this is true. The problem is the only way they will be able to go to college is by taking out debt.
If you were given the option to work a $10-$15 an hour job the rest of your life OR take a chance, go into debt for the sake of education, and potentially make $50,000+ a year, what would you do?
I would take the risk and you know you would to.
The problem is, these 18-year-old kids haven’t had anyone truly explain the severity of the risk and how it can haunt them for years. Like 10, 20, even 30 years or more.
The government offers loans to students at accredited colleges, with very few questions asked. It doesn’t check your credit score, there’s no collateral, and there’s a 25% default rate. That’s a significant problem.
Most students have no idea how interest works and how the compounding effect can actually work against you.
All of these things add up to TEENAGERS making uninformed decisions that literally will affect them for the rest of their life.
My Plan To Fix It
Let’s get one thing straight; someone is making money off of student loan debt. Sure the government may say they are losing money when granting student loans to undergraduates but somebody out there is still making money. If there was no money in student loans, then publically traded companies like Navient with a market cap of $1.792B would not exist.
These companies are the ones trying to stop any sort of forgiveness. They don’t care if you default. They don’t care if you pay the minimum. They just want any money they can get out of you and they definitely don’t want that debt forgiven.
Knowing all that, here is my plan to fix it.
First up, we need to get the cost of tuition and universities under control. From 2008 to 2018, the average tuition at four-year public colleges increased in all 50 states. On average, tuition at these schools has increased by 37%, and costs have increased by 24%, according to a 2019 report from the Center on Budget and Policy Priorities.
If you looked at any business and saw that their prices and costs increased by that much, you would think the person running the business was crazy. In fact, they would go out of business because no product is THAT good and the federal government wouldn’t be there to back them up.
Next, we need to get rid of this ridiculous rule that you can’t discharge student loans in bankruptcy. Yes, it is possible if you show unique hardships but even that is difficult to do. Add in the fact that bankruptcy is already expensive and you get a recipe for disaster.
If an American citizen is struggling so much that they are considering filing for bankruptcy then you should let them do it. Especially if it is on a loan where you didn’t check their credit, they don’t have to put up collateral, and you know there is a high default rate. That is just bad lending.
Lastly, the college education system needs to be overhauled. I think this is especially true for public universities that get millions of dollars from the federal government every year. I personally believe the value of the education or product these universities are selling has dropped off significantly.
That is why you are starting to see programs like Lamba school and code for Google pop up. There is a huge disruption coming that is going to allow an individual to learn exactly what they want to learn for half the cost. If you want to hear how I wasted $50,000 on a college degree then check out my video about what I think the future of college holds (linked below).
Should We Forgive Student Loans?
Knowing all that now, should we forgive student loans?
I asked people on Twitter this and as you might expect I got answers from every side and rightfully so. Here is where I stand:
No, we should not forgive student loans 100% BUT there need to be new programs put in place to help people get out of debt as soon as possible.
Yes, there are certain programs already like for teachers, nurses, and public service forgiveness. There is even an income cap forgiveness program but they are only accessible for a minority of people with student loans. This is not solving the bigger problem.
We need a way to align incentives which means making the program a not-for-profit. For starters, kicking out companies like Navient and others that are making billions off of these programs.
What I would propose is a program where if you pay the full monthly amount for 5 years then the loan is automatically cut in half. If you pay in full for another 5 years then the loan is forgiven 100%.
I can already hear people now yelling at their screens. “I paid mine off in full and so should everyone else”. As a smart friend pointed out once, that is a sunk cost mentality. What’s done is done and if a program like this can help our society as a whole, then you should be for it.
“But will this even help?” Who knows for sure but it’s worth a shot. We have given trickle-down economics a chance for decades and look where that has gotten us… The largest gap ever between the ultra-rich and the middle class.
In addition, I would propose a tax credit for individuals that want to pay their federal income taxes directly to an individual’s student loans instead of the U.S. government. The money is still going to the government in a roundabout way but it is benefitting the individual at the same time. It’s a win-win-win.
The Bottom Line
To be honest I don’t know what the correct answer is. I’m not an economist or an education expert. I’m just a guy with a few opinions. I really do think some sort of forgiveness would stimulate the economy by putting money back in people’s pockets but how much impact would it actually have?
At the end of the day what we are currently doing isn’t working and something needs to change.