Is Student Loan Forgiveness Good?

Last week President Biden announced his plan to forgive $10-20,000 in student loan debt per person. In this video, I want to explore whether this is a good or bad thing.

Sources:

Inflation chart

https://fred.stlouisfed.org/graph/?g=ANNk

Nancy Pelosi comments on student loans

VIDEO SUMMARY

In the sake of full disclosure, I am one of the people who will benefit from the student loan forgiveness announced by the White House. I am still paying off my student loans from a long time ago, and I will be receiving one of these $10,000 benefits. Even though I am benefiting from this, I am still here to tell you that this is a very bad decision by the Biden administration.

Let us start by looking at how this can be good for people. I realize that receiving $10,000 can be life changing for people. I can tell you I understand. I know how oppressing student loans can be, and how hard it is to make payments when you are just starting out your career. It is painful. And it is so easy to hate the student loan companies. I have heard all of the horrible stories of people getting scammed with predatory loans, and charged unreasonable interest. I know about all the horrible things that student loan companies do. But I also acknowledge that the student loan industry is important. As someone who grew up poor, I would not have been able to go to college if I could not get a government student loan. That loan changed the course of my life. I think it is important that we continue to allow people access to these loans.

For people who are willing to study, access to college is important. America decided that the best way to give people access to college is with student loans. If you look at Europe, they have a completely government funded university model. The government pays for your tuition. I think that is much worse, because you get selected at a very young age as either college eligible or not. Then you are stuck for the rest of your life. In America, you have more flexibility to change careers. With the student loan model, you have a lot more freedom, because you are paying and you get to decide, not the government. The freedom to choose comes at a cost, and that cost is student loans.

So why is it so bad to forgive debt? I will give you three reasons. First, I have written extensively about debt markets. They are the backbone of our economy, and we need to do everything to protect them. When you start cancelling debt, you threaten the stability of your debt markets.

Our society is based on contracts. Once you start tearing up contracts, everything starts to fall apart. If we forgive this debt, why not forgive medical debt? Or credit card debt? Or home debt? Or just forgive everyone’s debt? I know that sounds good, but it means that no one will ever loan you money again. If the banks suspect that debt agreements are not being honored, they will stop lending to everyone. Imagine if you suddenly could not get a home loan, or a car loan, or a credit card. We need to protect our debt markets, which means we need to honor contracts. For this reason, it is better for the government to give tax refunds rather than tear up contracts. If you start cancelling student loans, what you are really doing is trying to collapse the free market for student loans and let the government control the college education system, just like they do in Europe. I believe this is a bad thing.

Second, the President cannot legally do this. Our government is structured so that only Congress has the power to authorize the use of government funds. This is part of the checks and balances of government. The Congress makes the budget and the President approves it. The White House thinks student loans are a grey area, because the President does have limited ability to manage loans through the Department of Education. But what Biden is proposing is not limited management of loans. The President cannot just start giving money to people. Understand what has happened. The President has discovered a sneaky way to send money to people without any approval or oversight from Congress. He bypasses all other branches of government. Well, he is not an emperor, and he cannot do that. When this whole conversation around student loans started, Nancy Pelosi even agreed the President could not do this…

So, like I was saying earlier, it would have been better if the government sent $10,000 checks to people as tax refunds rather than tear up the contracts. But the reason Biden is doing it through “forgiveness,” is because sending $10,000 checks without the approval of Congress is clearly illegal. So why is forgiveness any different? It is not, and I am betting this is never going to happen. Someone is going to sue the government and Biden’s actions will be thrown out in court as illegal. So, if you think this money is coming to you, there is a good chance you are not going to get anything. So do not get your hopes up.

Third, this will make inflation worse. You cannot just print money without consequences. This effectively means that everyone in America will pay this new bill through higher prices. It is deeply unfair, at any time. But especially now, when inflation is the highest it has been for more than 40 years. Inflation can destroy our economy, and the government should be doing everything in its power to stop it. This action is the exact opposite of fighting inflation, and it needs to be stopped.

Just to use an example, do you remember the government check we all received during the COVID-19 pandemic? Do you realize that the rising prices since then has more than wiped out any money you received? You actually did not get any money at all. We all just experienced this, and it is about to happen again.

I hope you realize that the government is tricking you. There are two parts to this government handout. Here is the flyer posted by the White House. The first part is that you get the $10,000. The second part is you are required to start paying back your loans. They want to distract you with the first part, so you do not get upset about the second part. Try to look at the big picture of what is happening to you. The White House knows the giveaway will be challenged in court and may not happen. But even if it does happen, you are not actually getting anything at all, because inflation increases prices at the same time.

In summary, here are three reasons why student loan forgiveness is a bad thing:

Tearing up contracts hurts debt markets
The President does not have legal authority
Inflation is at a 40 year high

I am betting Biden knows what he is doing is illegal, and knows it likely will not happen. This is the same thing that happened with the COVID-19 mandates. The Biden administration mandated that large companies must require their employees to either be vaccinated or tested once a week, a violation of people’s freedoms under the constitution. The Supreme court said that Biden’s orders were illegal in a 6-3 vote, and the vaccine mandates were struck down. I think the same thing is going to happen with the student loan forgiveness. I think Biden expects to be overturned again, but he wants to look like he is doing something. I just hope people realize these actions are putting all our contracts at risk.

Leave a comment down below letting me know what you think!

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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.

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