Biden’s Loan Forgiveness Program Is Unfair
Colleges Caused This Debacle - So Let’s Make Them Accountable
Recently you heard me talk about the president's student loan proposal. And you know that I strongly oppose the President's debt forgiveness plan. It's unfair to those who repaid their debt. It's unfair to those who paid cash to go to college. It's unfair to those who borrowed in a different way, like getting a mortgage. It's unfair to those who didn't go to college because they thought they couldn't afford to. It's unfair to those who went to college, but to their second-choice school because they were trying to save money. It's unfair, unfair, unfair, unfair and unfair.
But all that said, there's no question that too many people owe too much money to student loans. And this dilemma is creating too much of a burden on them as well as on our society overall and our economy. So there's no question we do need to fix this situation.
We do need to take action. But the loan forgiveness program proposed by the President isn't the right way to go about it. Loan forgiveness should be offered, but for far fewer people, not 43 million who earn as much as a quarter of $1,000,000 a year. The President should forgive student debt, yeah, but only for the people dropped out after their first year of college. These people typically borrowed less than $10K and they quickly realized that they never should have gone to college in the first place. They went because the system manipulated them into going. Parents, guidance counselors, friends, all of society pretty much says you need to go to college. And so they did. They were told they could just sign some papers. Don't worry about paying off the loans. You'll learn so much when you graduate, you'll be able to pay it back later.
And besides, you won't owe any payments for the first six months after you graduate. But the students who dropped out as freshmen, well, they realized pretty quick they made a bad decision in going to college. So they fixed it. They stopped the bleeding. They dropped out of school. They stopped making their bad situation even worse. But they're still stuck with the debt that they got. Debt they didn't want. Debt they didn't ask for. Debt that they got only because the system encouraged them to get the debt. These folks got literally nothing from their college experience. And they've been harmed by having to still pay off this debt.
My Solution: Loan Forgiveness – But Only for the People Who Really Need It
So, okay, let's forgive them and let's forgive that debt. These are the people who really need forgiveness. And that's a small fraction of the 43 million who are going to benefit from the President's plan. And it's a lot less than $10,000 per person on average. So forgiveness, sure, but only for the people who really need it.
Second, the President's proposal doesn't solve the problem right now. The total amount of student debt is $1.6 trillion. The President's plan is going to cut it to $1.2 trillion. But four years from now, it'll be right back to $1.6 trillion because today's incoming freshmen are getting just as much in loans as the students over the past. So in four years. We'll be right back where we are now. Are we going to do another round of loan forgiveness every four years? President Biden's plan does nothing to solve the real problem, and that's the fact that the cost of college is simply too high.
That's the problem. College costs are high because schools admit students and they award the loans. But the loans are provided by the government (the taxpayer, really) and we're the ones stuck with the bill. If the student doesn't pay back the loan with the current system, colleges know that the more students they admit and the more money they charge, the more money they make. So colleges simply admit more students every year. They raise their prices every year far more than the overall inflation rate. And this forces all those kids to borrow more and more money.
Read my book, The Truth About Your Future, and you'll see that this is why we now have colleges that have gone crazy to attract more and more students. Some have a director of "Wow". Some offer concierge services. There are colleges that offer lazy rivers, 100,000 seats stadiums, free laundry services, and other luxuries that have nothing to do with improving knowledge or preparing students for life. As an adult, college has largely become nothing more than camp, and the President's plan does not fix this. We need a proposal that changes the entire higher education system. The government has to reduce the amount of money it will provide to each student that will force colleges to lower their tuition, and colleges should be on the hook for loan defaults.
Why make the taxpayer pay? The college admitted the student, without any regard as to whether the student would be likely to graduate, without any regard as to whether the student would be earning enough to be able to repay the loan.
Do Colleges Even Care If Your Student Defaults?
Right now, colleges don't care if students default, so let's make them responsible. Let's make them accountable. And you'll see an immediate change in the number of students they accept, the majors that they offer those students, the fees that they charge and the amount of money that they'll let those students borrow. All this will force colleges to reduce the cost of getting a degree, and in the end, that'll let more students get one and they'll graduate with less debt. Students will win, society will win, the economy will win.
What we don't need is the President's plan because his plan is nothing more than a ploy to buy votes right before an election. Oh, and by the way, I'm not done with my rant. Here are three other things about college and student debt.
First, student debt forgiveness is not taxable through 2025. You see, normally this is a big deal. Normally when you borrow money. That loan you receive is not income. I mean, I mean, think about this. Any time anybody gives anybody else money, taxes are involved. If you are dealing with a gift that you receive, someone's got to pay a tax on the gift. In our laws, the giver of the gift inheritances, there could be an inheritance tax or an estate tax income. If a company pays you income, you have an income tax. There are taxes involved in the transference of money from one to another. But when you borrow money, there is no tax implication because you have to pay it back. But if you suddenly don't pay it back, tax law says that the loan which wasn't taxable now is taxable income. So if you were given a loan, you don't have to pay it back. The IRS says, “well, you don't have to pay the loan back, but the money you're not paying back is considered taxable income, but not where student debt is concerned”. In 2021, Congress passed a law that specifically exempted student loans that are forgiven through 2025. So let's say you get $10K forgiven. Ordinarily, that would mean you have $10K an income and you could owe $3K in taxes. But no, that's not the case due to this law. However, some states are taxing it. North Carolina and Mississippi, for example, and others are considering legislation as well. So depending on the state you live in, you might owe state income taxes on the loan forgiveness that you're benefiting from.
Second, the Federal Reserve does an annual survey called the Survey of Household Economics and Decision Making. It's a new survey that just came out. And check this out, 40% of adults regret their college major. Nearly half who got a humanities and arts degree regret it compared to only 24% of engineering majors. History majors can expect to earn $3.4 million over the course of their careers. That sounds pretty good. I get a college degree in history. I make $3.4 million over the next 40 years. But economics majors, biology majors, chemistry majors, they don't make $3.4 million. They make $4.6 million. And all of them paid the same for the degree. Why would you go pay for a car and end up with an inferior car? Give me the best car I can get for the money I'm paying. And 15% of student loans are held by people with no degree at all. So we need to recognize that this data is all supporting the reasons why we need massive reform of college, not for mere forgiveness of student debt.
And third, are you sure that a college degree will indeed give you a great job and a high salary? Well, that could be an assumption that although it's been true over the past 50 years, don't be so sure that that college degree is going to give you a great job in a high salary over the next 50 years. The reason? Remote working. You know, we had an environment in this country where we had blue collar jobs that got crushed in the United States by globalization.
When companies started offshoring jobs, manufacturing jobs went to China. Now, white collar jobs are at risk because COVID showed employers they don't need offices anymore. They're letting workers work remotely. So why not go really remote? Why not hire smart people from India that cost a lot less than somebody living in San Francisco?
Richard Baldwin, economist at the Graduate Institute in Geneva said, "If you can do your job from home, be scared. Be very scared." That's because he says companies are already turning employees into independent contractors, a 56% increase since 2019.
Before the pandemic, the Department of Labor has data that shows that the more a job pays, the easier it is for that job to be done remotely. The highest paying industries are software and Internet publishing. They've got the highest share of remote workers. The lowest paying jobs like the person working at a gas station, that's the least likely to be done remotely. So even though we've got a lot of blue-collar industries like manufacturing or construction that can be outsourced, guess what else can be outsourced? Marketing, accounting, finance, sales and IT. You need to think about whether or not your college degree with this “spend whatever it takes” attitude is a smart decision in an increasingly technological and remote working world.