Why I Wouldn’t Support National Student Loan Forgiveness

salary gradThis Labor Day holiday weekend, we had a group of about 30 friends over for a potluck dinner and drinks at our house.

After a lil’ wine (maybe too much), the conversation SOMEHOW got around to “should the government wipe out all student loan debt” (because that’s the sort of thing our adorkable group of friends like to discuss on a Saturday night, lol).

To be clear, we were not talking about the public services loan forgiveness program.

We also weren’t commenting on income driven repayment plans offered for those working in the private sector. The plans have definite benefits, but also some cons for borrowers.

We were talking about, hypothetically, whether any of us would ever want the US government to instantly forgive ALL student loan debt.

Fyi, this is a pretend scenario, and we were just having fun contemplating the idea. It’s not a ‘new’ idea by any means, however.

A few friends said YES. They would absolutely choose national student loan forgiveness in a heartbeat, if given the chance.

Some went with a cautious ‘maybe’, but it would depend on how the government paid for the loan forgiveness, and the various terms involved.

Many of us were strongly against it.

Interestingly, the majority of us adamantly against it were the ones who actually took out a fair amount of student loans, and either paid it all off or are currently doing so.

Maybe it was the wine, but we battled this stupid topic for over an hour. Most of us were in strong disagreement with a few others, but thankfully, that’s nothing out of the ordinary for our group of friends.

We are comfortable arguing our different opinions about the world – money topics included – and still respect each other regardless of our views.

Student Loan Facts of Interest:

Before I cover why I think national student loan forgiveness is a bad idea, here are some fun facts about student loans to consider:

According to this Forbes article, there are more than 44 million borrowers with 1.3 trillion in student loan debt in the United States. In 2016, the average graduating student had 37k of student loan debt.

Some other statistics of interest noted in the article:

  • Student loan debt is the 2nd highest consumer debt category (mortgage debt is the first). It now supersedes credit cards and even car loans.
  • Total student loan debt: 1.31 trillion
  • Total U.S. borrowers with student loans: 44.2 million
  • Student loan delinquency rate (default rate): 11.2%
  • Number of borrowers with > than 100k of debt: 2 million (Yep, I was in that group just 7 weeks ago)
  • Number of borrowers with > than 200k of debt: 415k people
  • 12.4 million people out of the 44 million have between just 10-25k in student loans.

Why National Student Loan Debt Forgiveness is a Terrible Idea:

I’m not even commenting on the economic implications of the government forgiving all student loan debt –  this article (and this one) highlight some of the negative impacts nicely.

My perspective is that requiring the government to do so would probably do little more than incentivize irresponsible borrowing.

Don’t get me wrong, I fully ‘get’ the appeal of having one’s student loan debt ‘magically’ disappear. I understand just how crushing having a significant amount of student loans can be, and how debt can hold one back in life.

I found myself, apparently like many people, in a situation where I didn’t see a choice but to take out a large amount of debt to fund both my undergrad and graduate degrees.

I made many mistakes, and I fully understand the resulting pain involved in digging one’s way out of debt.

But that doesn’t change the fact that I took out those loans. No one forced me to. I chose to go to the expensive private school that cost 4x times more than a community college + state school. I also chose to get an expensive MBA.

There were many other options, almost all of which would have got me to my targeted end goal over time. I just didn’t see them as viable, in the moment.

Before I signed any loan documents, I carefully read through all of the terms and conditions and fine print. I was old enough to understand perfectly that I was taking money from the lender in exchange for being charged interest.

At the time I signed my first student loans, I had only 2 years of formal education under my belt. Regardless, I understood fully that if I didn’t pay the balance, the interest would capitalize so that I would be paying interest on the interest.

I understood that by failing to pay it off quickly, the balance would inflate over a period of time.

I knew exactly what I was doing when I signed that paperwork. I understood the math behind it.

Bottom line is that I desperately wanted what I considered to be a ‘good’ education, and I was willing to exchange years of my life to pay the price tag that went with it.

How is it ethical or responsible to NOW turn around, once I got the education that I wanted, and ask the government (i.e. everyone else) to pay for it? It’s not.

The average student loan debt is 37k – slightly more than the average price of a new car:

Paying off student loans, no matter what the amount, is a big feat – and anyone that does so should be proud of themselves.

The payments come due when most people are just starting out in their careers, and their earning power is relatively low. Making the monthly payments can seem daunting.

But some people balk at paying off even very manageable loan amounts.

Someone invited me about 6 months ago randomly to join a private “Student Loan Justice” group on Facebook, in my state (back when I had FB). The page was filled with tens of thousands of people venting about their ‘crushing’ 10k – 25k of debt.

Many really wondered if they’d ever be able to buy a house, start a family, or save for retirement because of all their loans. Quite a few are actually considering just not paying it back, so that they’d have money to spend on the more important things in life…

Seriously, I feel for them all, but they’ve gotta stop with the silliness! That amount is completely reasonable, in the grand scheme of things.

Even if one graduates with 37k in loans, which is the 2016 graduating class average, this is only slightly more than the average cost of a brand new car.

People routinely finance that exact amount or more on a zero ROI vehicle, but fail to see the return on investment for spending the equivalent on an education. How is that logical?

The benefits of an education are priceless, in my opinion, but at the very least, it is probably the best investment of one’s life. According to Salary.com, over 40 years, a Bachelor’s degree is worth more than 2.1 million.

US News takes this a step further and asserts that those holding Bachelor’s degrees earn about 2.27 million over their lifetime, while those with Master’s, Doctoral, and professional degrees earn 2.67 million, 3.25 million, and 3.65 million, respectively.

Taking out 37k in loans for that return on investment is a fantastic bargain. There is nothing to feel crushed about in that scenario.

Plus, by only taking out that amount of debt, they are far smarter than I ever was – so they have that going for them, too ;o)

The decision to borrow money is ours alone:

The most common complaint about paying off student loan debt seems to be that the process interferes with one’s quality of life. I agree it does, especially if you’re paying the loans off aggressively – it can suck having to cut way back in the process.

But the fact that paying if off is painful doesn’t change the fact that we took out the loans. Quality of life be damned. Even if we have to scrimp by for the next 20 years, we need to pay on what we legally agreed.

Obviously there are exceptions. For example, someone suffering from a serious health condition is absolutely right to use that money to pay for their medical bills instead.

Alternatively, the same would apply in the case of someone with certain physical or intellectual impairments (a scenario which was partially addressed by the Higher Education Opportunity Act, which allows for loan forgiveness for borrowers who are totally and permanently disabled).

Someone who was coerced into the loan, without fully understanding what they were signing (due to a significant language barrier, for example) – that’s awful, and I agree the borrower should not be held responsible.

There are other cases where not paying is understandable, like in the case of Corinthian Colleges, which got sued for steering students into predatory loans. This, like any other breach of contract, could be justifiable grounds to boycott paying until the appropriate remedies are made.

There are many more exceptions, more than which can be listed in a short post.

Almost all of my friends who supported the idea of universal student loan forgiveness, cited very specific exceptions (like the ones above). They reiterated the benefits that wide-scale loan forgiveness could bring to borrowers in a similar scenario.

My friends are truly some of the most compassionate, and amazing people ever. They think from the perspective of the societal benefit this type of relief could bring, because they’re empathetic, kind, wonderful people.

I agree completely with relief in those scenarios, but my view is that these are exceptions to the rule. Unless the data is wrong, the majority of borrowers just don’t fall into those categories.

Bottom line:

My point is that, if any money should be spent relieving people from their student loan debt – it should go to the people in the exception scenarios that are true victims of the student loan industry.

For remaining borrowers, when we borrow and take a lender’s money and sign our name to a contract – no matter how unsavory the terms – we can’t just decide not to pay, after we’ve used up all the money.

I have a ton of respect for people that sucked it up and paid their loans off, regardless of the amounts. Like this story here – this woman is completely amazing and I’m so impressed with how hard she worked to clear her debt.

I can’t believe her situation generated backlash because other people found it “unrelatable’”and “unrealistic for the average millennial”. That’s missing the point entirely!

Change is Needed in the Student Loan Industry:

That said, even though I disagree with the idea of ‘erasing’ everyone’s student loan debt, I fully agree that change is sorely needed in the student loan industry.

I’m all for changing the role that student loans play in US higher education.

I’m 100% behind enacting intelligent strategies to lower the cost of a college education, and to increase the aid available for those that can’t afford school otherwise.

I’m not even against government sponsored higher education for everyone, as long as the strategies to pay for it were logical, based on sound economic principles, and the long-term calculated benefit to the economy outweighed the cost.

I’m also 100% for aggressively fighting fraudulent or unfair lending practices (especially predatory loan companies which target minorities and those in financially vulnerable positions).

That one, especially, hits REALLY close to home. People I love and respect greatly, including family members, have found themselves victims of various types of lending scams when in financially vulnerable situations, and I want nothing more than to see those practices ended.

I also believe the provision in the law, which currently makes it extremely difficult for student loans to be discharged through bankruptcy, should change. Unlike every other type of loan, student loans are the only ones which are exempt from being subjected to the full effect of market forces, which does far more harm than good to borrowers.

Additionally, the perception needs to change that getting a college degree is the only path available to forging a successful career. If the ROI from a college degree does not seem justifiable for the cost, there really are other options to consider.

In the meantime, for any and all financial decisions we make, we have to understand that we alone assume the full responsibility and risk. No matter how unpleasant the repayment process might be, if we borrow money, it is our responsibility to come up with a way to pay it back.

Granted, that’s just my opinion – and I do have pretty strong feelings on the matter ;o)

I’m interested to hear other people’s thoughts – would you ever support the government paying off ‘all’ student loans of current borrowers?

If so, why? I’m genuinely curious and want to understand.

I love hearing different perspectives, more so if I can learn something from a different view-point.

salary grad

This Labor Day holiday weekend, we had a group of about 30 close friends over for a potluck dinner and drinks at our house.

After a lil’ wine (maybe too much), the conversation SOMEHOW got around to “should the government wipe out all student loan debt” (because that’s the sort of thing our adorkable group of friends like to discuss on a Saturday night, lol).

To be clear, we were NOT talking about the public services loan forgiveness program.

We also weren’t commenting on income driven repayment plans offered for those working in the private sector, which allow borrowers to pay a percentage of their discretionary income for a set number of years, after which time the loans would be forgiven (with certain tax implications).  This post sums up the cons behind that approach well.

We were talking about, hypothetically, whether any of us would ever want the US government to instantly forgive ALL student loan debt.

Fyi, this is a pretend scenario, and we were just having fun contemplating the idea. It’s not a ‘new’ idea by any means, however.

A few friends said hell YES. They would absolutely choose national student loan forgiveness in a heartbeat, if given the chance.

Some went with a cautious ‘maybe’, but it would depend on how the government paid for the loan forgiveness, and the various terms involved.

Many of us went with a definite NO WAY.

Interestingly, the majority of us adamantly against it were the ones who actually took out a fair amount of student loans, and either paid it all off or are currently doing so.

I think all of us were a bit surprised by how convinced we each were about our particular view in this hypothetical scenario.

Most of us were in strong disagreement with a few others, but thankfully, that’s nothing out of the ordinary for our group of friends.

We are comfortable arguing our different opinions about the world – money topics included – and still respect each other regardless of our views.

Student Loan Facts of Interest:

Before I cover why I think national student loan forgiveness is a bad idea, here are some fun facts about student loans to consider:

According to this Forbes article, there are more than 44 million borrowers with 1.3 trillion in student loan debt in the United States. In 2016, the average graduating student had 37k of student loan debt.

Some other statistics of interest noted in the article:

  • Student loan debt is the 2nd highest consumer debt category (mortgage debt is the first). It now supersedes credit cards and even car loans.
  • Total student loan debt: 1.31 trillion
  • Total U.S. borrowers with student loans: 44.2 million
  • Student loan delinquency rate (default rate): 11.2%
  • Number of borrowers with > than 100k of debt: 2 million (Yep, I was in that group just 7 weeks ago)
  • Number of borrowers with > than 200k of debt: 415k people
  • 12.4 million people out of the 44 million have between just 10-25k in student loans.

Why National Student Loan Debt Forgiveness is a Terrible Idea:

I’m not even commenting on the economic implications of the government forgiving all student loan debt –  this article (and this one) highlight some of the negative impacts nicely.

My perspective is that requiring the government to do so seems unethical, and would probably do little more than incentivize irresponsible borrowing.

Don’t get me wrong, I fully ‘get’ the appeal of having one’s student loan debt ‘magically’ disappear. I understand just how crushing having a significant amount of student loans can be, and how debt can hold one back in life.

I found myself, apparently like many people, in a situation where I didn’t see a choice but to take out a massive amount of debt to fund both my undergrad and graduate degrees.

I made many mistakes, and I fully understand the resulting pain involved in digging one’s way out of debt.

But that doesn’t change the fact that I took out those loans. No one forced me to. I chose to go to the expensive private school that cost 4x times more than a community college + state school. I also chose to get an expensive MBA.

There were many other options, almost all of which would have got me to my targeted end goal over time. I just didn’t see them as viable, in the moment.

Before I signed any loan documents, I carefully read through all of the terms and conditions and fine print. I was old enough to understand perfectly that I was taking money from the lender in exchange for being charged interest.

At the time I signed my first student loans, I had only 2 years of formal education under my belt. Regardless, I understood fully that if I didn’t pay the balance, the interest would capitalize so that I would be paying interest on the interest.

I understood that by failing to pay it off quickly, the balance would inflate over a period of time.

I even made an excel amortization table for myself at 18, which showed the breakdown of interest that would accrue on my loans every year.

As I added to my loans each year AND deferred making payments (ugh!), I updated my excel file (and cried a little on the inside every time I realized how screwed I would be after graduation).

I knew exactly what I was doing when I signed that paperwork. I understood the math behind it.

Bottom line is that I desperately wanted what I considered to be a ‘good’ education, and I was willing to exchange years of my life to pay the price tag that went with it.

How is it ethical or responsible to NOW turn around, once I got the education that I wanted, and ask the government (i.e. everyone else) to pay for it? It’s not. That would be an almost criminal act, in my opinion.

The average student loan debt is 37k – slightly more than the average price of a new car:

Paying off student loans, no matter what the amount, is a big feat- and anyone that does so should be proud of themselves.

The payments come due when most people are just starting out in their careers, and their earning power is relatively low. Making the monthly payments can seem daunting – it did for me when I first graduated.

But I’ve heard more than a few people in my age group not just complain about their ‘crushing’ 10k – 25k of debt, but really wonder if they’ll ever be able to buy a house, start a family, or save for retirement because of their loans. I can think of a few people that seriously considered just not paying it back, so that they’d have money to spend on the more important things in life…

Seriously, ILU ALL, but stop with the silliness! That amount is completely reasonable, in the grand scheme of things.

Even if one graduates with 37k in loans, which is the 2016 graduating class average, this is only slightly more than the average cost of a brand new car.

People routinely finance that exact amount or more on a zero ROI vehicle, but fail to see the return on investment for spending the equivalent on an education. How is that logical?

That education purchased could easily be the best investment of one’s life. According to Salary.com, over 40 years, a Bachelor’s degree is worth more than 2.1 million.

US News takes this a step further and asserts that those holding Bachelor’s degrees earn about 2.27 million over their lifetime, while those with Master’s, Doctoral, and professional degrees earn 2.67 million, 3.25 million, and 3.65 million, respectively.

Taking out 37k in loans for that return on investment is a fantastic bargain. There is nothing to feel crushed about in that scenario. In the lottery of life, congrats average student loan holder – you have just officially won.

Plus, by only taking out that amount of debt, you are far smarter than I ever was – so you have that going for you, too ;o)

The decision to borrow money is ours alone:

The most common complaint about paying off student loan debt seems to be that the process interferes with one’s quality of life. I agree it does, especially if you’re paying the loans off aggressively – it can suck having to cut way back in the process.

But when intelligent adults balk at paying back even small amounts of student loans, because it “cuts into” one’s standard of living, I can’t think of any other way to describe that mindset other than one that is grossly entitled.

And I really hate throwing around the ‘entitled’ label, as a millennial, but it applies, in this case!

For realz, the fact that paying it off is painful doesn’t change the fact that WE took out the stupid loans. Quality of life be damned. Even if we have to scrimp by for the next 20 years, we need to pay on what we legally agreed. If we can’t pay, then we’ll have to just deal with the financial impact.

Obviously there are exceptions. For example, someone suffering from a serious health condition is absolutely right to use that money to pay for their medical bills instead.

Alternatively, the same would apply in the case of someone with certain physical or intellectual impairments (a scenario which was partially addressed by the Higher Education Opportunity Act, which allows for loan forgiveness for borrowers who are totally and permanently disabled).

Someone who was coerced into the loan, without fully understanding what they were signing (due to a significant language barrier, for example) – that’s awful, and I agree the borrower should not be held responsible.

There are other cases where not paying is understandable, like in the case of Corinthian Colleges, which got sued for steering students into predatory loans. This, like any other breach of contract, could be justifiable grounds to boycott paying until the appropriate remedies are made.

Interestingly, almost all of my friends who supported the idea of universal student loan forgiveness, cited very specific exceptions (like the ones above). They reiterated the benefits that wide-scale loan forgiveness could bring to borrowers in a similar scenario.

My friends are truly some of the most compassionate, and amazing people ever. In this case, they’re thinking from the perspective of the societal benefit this type of relief could bring.

I agree completely with relief in those scenarios, but my view is that these are exceptions to the rule. Unless the data is wrong, the majority of borrowers don’t fall into those categories.

For example, I was among the 4.54% of borrowers with > than 100k of debt. I have a pretty strange backstory myself, and I was in a very vulnerable position at the time I signed for my loans. You could argue that some of the loans I was pushed to take out were predatory. Still, under no circumstances do I think I qualify for that type of relief.

My point is that, if any money should be spent relieving people from their student loan debt – it should go to the people in the exception scenarios that are true victims of the student loan industry.

For remaining borrowers, when we borrow and take a lender’s money and sign our name to a contract – no matter how unsavory the terms – we cannot just decide not to pay, after we’ve used the money.

We especially can’t cite reasons such as “the payments are interfering with our standard of living”, or because “it’s painful, difficult or time consuming to pay the debt off”. That’s ridiculous.

It doesn’t matter how much interest accrues on the loan and how much debt we’re stuck paying over time, it’s still our debt. If the terms were that unbearable, we probably shouldn’t have taken the loan out, in the first place.

Bottom line:

We are each responsible for the decisions we make, financial or otherwise, however painful that reality might be.

I have a ton of respect for people that sucked it up and paid their loans off, regardless of the amounts. Like this story here – this woman is amazing and I have nothing but respect for her.

I can’t believe her situation generated backlash because other people found it “unrelatable’”and “unrealistic for the average millennial”. That’s missing the point entirely.

Change is Needed in the Student Loan Industry:

That said, even though I disagree with the idea of ‘erasing’ everyone’s student loan debt, I fully agree that change is sorely needed in the student loan industry.

I’m all for changing the role that student loans play in US higher education.

I’m 100% behind enacting intelligent strategies to lower the cost of a college education, and to increase the aid available for those that can’t afford school otherwise.

I’m not even against government sponsored higher education for everyone, as long as the strategies to pay for it were logical, fiscally responsible, based on sound economic principles (not idealism), and the long-term calculated benefit to the economy clearly outweighed the cost.

I’m also 100% for aggressively fighting fraudulent or unfair lending practices (especially predatory loan companies which target minorities and those in financially vulnerable positions).

That one, especially, hits REALLY close to home. People I love and respect greatly, including family members, have found themselves victims of various types of lending scams when in financially vulnerable situations, and I want nothing more than to see those practices ended swiftly.

I also believe the provision in the law, which currently makes it extremely difficult for student loans to be discharged through bankruptcy, should change. Unlike every other type of loan, student loans are the only ones which are exempt from being subjected to the full effect of market forces, which does far more harm than good to borrowers.

Additionally, the perception needs to change that getting a college degree is the only path available to forging a successful career. If the ROI from a college degree does not seem justifiable for the cost, there really ARE other options to consider.

In the meantime, for any and all financial decisions we make, we have to assume the full responsibility and risk of it. No matter how unsavory the terms, if we borrow money, it is our responsibility to come up with a way to pay it back.

If we make a financial decision and it turns out to be a painful one, we can’t throw the decision in someone else’s face and demand that they bail us out. Not our parents, spouse, siblings, children, employer, friends, neighbors or fellow tax payers.  

Granted, that’s just my opinion – and I do have pretty strong feelings on the matter ;o)

I’m curious to hear other people’s thoughts – would you ever support the government paying off ‘all’ student loans or do you think it’s critical for each person to manage paying off their own loans independently?

I love hearing different perspectives, more so if I can learn something from a different view-point.

12 thoughts on “Why I Wouldn’t Support National Student Loan Forgiveness

  1. Ava don’t hate me. I was one of the people that signed Applebaum’s petition years ago. This was when I was back in college and graduating with over 85k of loans. I’ve since almost paid it all off and I couldn’t agree with you more!

  2. I like your writing style, Ava. I agree with much of what you posted around borrower responsibility. I do think that the government is mostly to blame for allowing the student loan industry to operate the way it does and should share some of the cost. Students shouldn’t have to go into deep debt to get an education.

  3. Students do not need to go into deep or any debt to get a college education. Go to community college for 2 years while working and saving to afford the transition to a 4 year school. Continue to work while at the 4 year school. Take longer to get your degree if need be so you can work more to pay for it. This can be done through taking time off to work 40-60 hours per week or taking less credit hours per semester. That’s how I graduated debt free! My time at the 4 year school was a great experience so I am glad that I didn’t miss it – but nobody needs to spend all 4 years there.

    1. Smart man! I would kill to go back and have done the same.

      I distinctly remember, at 17, believing that the community college option was a terrible idea. I could have saved over 37k in loans for just those 2 first years alone – and this was back in 2004 – 2005, when that was a lot more money.

  4. Hi Millennial Money Challenge Team,

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  5. I have to agree with you, except in special circumstances, if you take out loans then you should be responsible enough to pay them back. It seems in the U.S. though that the way student loans are handled is not the best. I don’t get why there are so many private companies involved, and I think that may be the root of the problem, along with kids just not being educated about finances early enough in life.

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