Pres. Biden, What About My $50,000?

President Biden has suggested that he's now reconsidering the forgiveness of $50,000 per student in student loan debt. As a parent who sent four children to college, after each one took some student loans, my wife and I paid the rest like many other families in the country did for their children. As I thought about this proposal, I wondered who would qualify for the up to $50,000 forgiveness? As I thought more about this issue and the complexity of deciding who should get reimbursed, I thought about the other discussion of reparations for slavery. The challenge in both of these issues is figuring out if we're going to do it, how do we do it without alienating millions upon millions of Americans?

According to the U.S. Census Bureau, there approximately 47.8 million blacks in this country, of which 5 million came in this country as immigrants in the last 10 years. So, we have perhaps 42 million blacks who could be eligible for compensation in some form or another. On the other hand, as you will see shortly, there may be as many as 60 million students holding college debt and might be in line for the cost of forgiveness.

In the United States, we have 40.3 million people who have completed college carrying $1.5 trillion; there are approximately 21 million students in college today, and the amount of money in outstanding student loan debt is second only to residential mortgages. Student loan debt exceeds all credit card debt.

You could ask how did we get into the problem of so much debt? In a word, the answer to the question is government. When the government decided that everybody should have the right to own a home, the government created "Affordable Housing" loans. In essence, the government decided people who could not qualify for a home loan, could get a home loan regardless of their ability to repay the loan. The same is true in the college business. Everybody has a right to go to college regardless of their ability to learn and succeed and pay back the loan.

According to the Washington Post, of 100 students starting college, 21 drop out. One-third of those who drop out are from lower-income families. (1)

For a long period of time, private banks loaned the money to pay for college, then they took the risk of defaults; but under the Obama-Biden administration, that all changed when the U.S. government became the lender of record, so all the outstanding student loan debt are obligations of the United States government, in other words, you.

Student loans make up more than $1.5 trillion in outstanding debt in the United States from more than 44 million borrowers.

Student loans are being securitized as asset-backed securities known as SLABS.

SLABS has been enticing to investors due to some structural guarantees, but as student debt loads increase, they may become riskier than initially thought.

Here is the critical question. What happens under Biden's proposed program to the investor who owns SLABS? If the government guarantees the obligation and the loan is canceled, will the investors get all of their money returned?

What about the parents who took out a home equity loan to pay for college? Should some of the $50,000 go to the parents of the students? What about people like me that took the money out of savings to pay the cost of college? The issue is very complicated. The young people want to get rid of some of their debt and just get out of school; a student loan payment could be a big as a house payment.

Why was debt increased so much in a short time frame? U.S. News and World Report's analysis (2) of its ranked national universities shows that in the past 20 years, average tuition at private colleges rose by 144%; at public universities for out-of-state students by 165%; and at public universities for in-state students by 212%.

I would like you to look at these numbers and ask yourself did your income go up these percentages over the same time. According to Social Security (3), the income in 2001 was $31,581, while in 2019, it had grown to $51,916. This is a 64% increase in income over the time frame. You can see the cost of college more than consumed the rise in income, so it should be clear students had to borrow more and more money as the cost of college outstripped the family's ability to pay the expenses.

I think this idea is very divisive because those Americans who spent their money to pay for their children's college education who get left out of any forgiveness program will be furious. Families will become more divided, and voters on both sides will also become angry. We will see examples of cross-generation conflict.

There are two simple answers to this question. First, put a cap on the increases in college costs of college and remind the student that they decided to go. They chose the college. If they made a financial commitment so they could go, then the financial obligations they made are theirs. They went to college to improve themselves. I say not to forgive debt for those who made the decision. 


NOTES:

1.  washingtonpost.com/wp-stat/graphics/business/who-finishes-college/index.html

2. https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities#:~:text=But%20data%20from%20the%20past,out%2Dof%2Dstate%20students.&text=The%20average%20tuition%20and%20fees,National%20Universities%20have%20jumped%20144%25.

3. www.ssa.gov/oact/cola/central.html