To Forgive or Not Forgive
Student loans have been in the news lately. The moves and countermoves between branches of government provides a good case study for a phenomenon I describe in the book. Money has an energy that accumulates power over time, much like a mountain stream becomes a roaring river. Swimming or paddling against the current becomes harder the stronger it is.
Put another way, the more water/energy/dollars are moving in one direction, the more resistance is created by a sudden change of course. I’ve heard it many places in finance, but the great read The Psychology of Money by Morgan Housel describes that effect well. I skimmed the pages but couldn’t find it easily so I’ll paraphrase: he found that turning the nose of a plane leaving Los Angeles just 1-2 degrees would mean you’d end up in Washington D.C. instead of New York. Making a turn late in the flight would add an hour or two. Here’s how I draw it:
Declaring loan forgiveness after the education, borrowing, and repayment have started is a big change very late in the journey. So I’m not surprised it has been met with resistance from the Supreme Court and much of the country.
That said, I have friends and clients with student loans. Economists generally agree that if young people didn’t have these loans they could spend more, buy homes, and so on, juicing the economy for everyone. (In the “Stimulus” chapter I talk about economic policy a bit.) I also have friends and clients that couldn’t borrow for education and paid their way as DACA visa holders, working constantly. Or paid them off ahead of schedule after reducing the cost by joining the military (like my wife Rebeca). Or had parents that saved and sacrificed elsewhere to pay for their education without loans, like me. Do all of us get $10,000, too? Some people assumed they were headed for one destination (the bill is due) and are now told they could’ve been going somewhere else.
According to Forbes, 53.7% of American adults age 25-64 have a college degree or industry certification, up from 37.9% in 2009. Of that group, a few current sources say 13-14% of adults have student loan debt right now. The Department of Education says the overall six year graduation rate is 60% for males and 67% for females. So while much of the proposed forgiveness would benefit hardworking people, some would cover a very expensive year of smoking and gaming in the dorm room.
If I’m driving 82 mph on the freeway, and I pass a cop after slowing down too late, and I’m not pulled over, I… start driving 85. I received no negative feedback. If an automatic radar sign shows my speed flashing red, then red, then yellow, I get positive feedback. Research shows this reduces speeding more than anything else.
After the Supreme Court declared the forgiveness program unconstitutional, the administration’s SAVE plan is aimed at relief for lower income borrowers. So it seems like we are rehashing the past instead of giving all of us a promising future, with access to resources, jobs, and inclusion to make money and pay our bills. Isn’t that the goal?
I write about using your college degree and barriers to graduation in the “I’m In Grad School” chapter. Bogus for-profit programs should pay fines. Corporations should pay a living wage instead of taxpayers funding healthcare for their employees. The government should incentivize job growth by investing in tech and infrastructure.
That said, individual accountability is important. The further downstream a course correction is made, the harder it is. On both sides. Right now, universities aren’t accountable for the student’s grades or career prospects. The tuition is due either way. An upstream intervention would be counseling some students out of college if it just isn’t a good fit. But their tuition pays the bills. Hmmm…
“Knowledge is not power. Applied knowledge is. But tuition is due whether you apply it or not.”
If education, college or not, is a social good, then we can focus on safeguards and incentives to increase opportunity for all people. Easier said than done, but upstream changes require more vision, research, and policy focus to anticipate the future. A healthy democracy requires engagement. But it’s still less costly, because the current isn’t as strong.
Upstream? It’s easier. We could separate public education funding from property taxes. We believe all children deserve a quality education. Right? We can lobby to get more preventative care covered under insurance and accessible, so children can thrive in school and play? Right? We could keep the expanded child tax credit, which lifted 3.7 million children out of poverty in 2021, a rare government success story during COVID. Right?
In my thousands of conversations with clients, I know people that deserve loan forgiveness and wouldn’t get it, and those who would get it and really don’t need it. Many people reported some guilt over their pandemic stimulus checks that were appreciated but not needed.
A downstream change like this changes the money rules after the game starts. People would have done things differently. It may be a good voter turnout strategy though.
As a former educator I guess what I’m trying to say is: we need advocacy, equity, and education. But rather than argue about what adults deserve in their present circumstances based on past actions, let’s look upstream and expand opportunities for all children. Whether their parents went to college or not. As a financial planner, I know that downstream surprises build resentment in those left out.