College Loan Forgiveness

WARNING – This piece includes an opinion that some might not agree with!

Well, that is probably true of all the newsletters that I write, but the minute you include something that has a touch of politics, there is always a risk of some not being happy. Usually, I try to steer away from politics, so I am going to try to frame this as FACTS and ADVICE for each family to consider.

The subject of Student Loans is huge this month. All of us like receiving free stuff, and many of us like giving away stuff, but not many of us like giving away free stuff if we must pay for it, and if we are not part of the decision. Whether you like this new move could depend on if you are on the receiving end of the money or the taxpayer funding end.   

My caution is to both parents who can advise their kids who have student loans, and those young adults who are paying for their own student loans.
It is my opinion (putting on my Financial Advisor hat) that everyone should be careful before running out and buying a new car with the money that was supposed to go towards their student loans. Patience might be valuable here in waiting to see what ACTUALLY happens because there is still a lot that can change before any loans are actually forgiven. Let’s just be prudent first.

I think there is probably some litigation that will happen from many fronts, and it might end up being at the whim of the courts as to the legality, seeing that many in Congress, both democrat and republican, feel that they are the ones who need to approve a process such as this.

For those interested, here is one of the big reasons why there is a perceived “Student Loan Crisis”
The federal government largely nationalized the student loan industry in 2010 via legislation that was supposed to help fund Obamacare through the profits from student loans and took the student loan industry away from private banks. The government now holds 92% of all student loans — and the nation’s total student debt has more than doubled, from $811 billion in April 2010 to $1.748 trillion in April 2022. Since the govt took over the loan program, it has also gone from a profitable enterprise to one that is making a loss each year in the $Billions.

But here is what the previous legal counsel of President Obama’s Education Department said this year: “If the issue is litigated, the more persuasive analyses tend to support the conclusion that the Executive Branch likely does not have the unilateral authority to engage in mass student debt cancellation.”

So here is where my opinion starts: We should perhaps be careful how we advise our kids. Forgiveness may or may not happen, and I would be hesitant to commit the student loan payments to anything else right now. 
It is my belief that govt should not be in the business of student loans. The whole system of giving out so much money to students for college in the first place is a stimulus for high college costs and the price keeps going higher and higher as the govt doles out more money for College. There should be some give and take on how much college costs, with the reality of what people can pay. If Colleges were the ones having to lend the money to students, they would be a lot more prudent as to how they do it.
There should also be a LOT more education for parents and students on the consequences of going to popular colleges and the payments that come due afterward.

If we don’t believe that our college students could repay their debt after graduation on the salaries they would earn, then perhaps we should not be lending money for this purpose in the first place. What happens to next year’s grads, the next year, or the year after? Are we going to have to forgive loans again in the future? That then means that the taxpayers are funding the colleges.
If that is the goal, then legislation should be passed authorizing it, so that we all know where we stand and can plan for it.

Only people with money can pay off other people’s debts. If you forgive someone’s debt when you have no money, (i.e. Government), then it means that someone else is paying for it. If the goal for the government to get into the student loan business was to help fund Obamacare, then where is that funding coming from now for Obamacare?

I can also see how borrowers that tried to do the right thing and refinanced their loans privately to a lower rate to help them pay off their debts quicker are now angry about all of this. 
As a Financial Advisor, I am always encouraging parents to make wise financial decisions and think through how they use the College Planning opportunity as a teachable moment and life lesson for their kids.
Financial Planning and College Planning is a process where we can make decisions in advance. Do we (or our kids) want to be in the camp that has taken on a huge amount of debt with payments 10-20 years into the future? Does that mean that our kids not yet or currently in college would then be in another group in the future seeking college loan forgiveness, or not be able to save or purchase the house they want because they are paying student loans?

Always remember – we cannot borrow money for our retirement and if we don’t have enough money in retirement because we spent it on our kids’ college, then we are likely going to be reliant on them as we get older.
Some of us already have experience in having to help our parents financially. Is that what we want for our kids? Let’s teach them what we can while we can. It’s a great learning opportunity.

Let’s Talk

What is the biggest mistake that most people make? They ASSUME that they cannot be helped. We have no idea whether we can help a family or not until we have a personal discussion with them to see what their unique circumstances are and then develop a personalized plan that is unique for their circumstances.

Please feel free to contact me if you would like to discuss how we can help you with your family’s plan either in person, over the phone, or on Zoom

About Dave

Dave Coen is a Retirement Income Certified Professional (RICP®) and Financial Advisor with SageView Advisory, and CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.