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The pandemic has really changed the way loans are repaid and how it impacts a person’s credit sanding. Several politicians have asked lenders to skip payments on a variety of loans including mortgages, auto and credit cards. We now have some political leaders asking lenders to not only skip loan payments, but also are asking the government to forgive the education loans for many students.

So, what they are saying is a loan doesn’t have to be repaid according to the terms of the agreement, right? Where are we going with this?

Many are asking, “When is a loan really a loan that has to be repaid.” Are we just going to take out loans and demand that lenders allow payments to be skipped or other parties to pay for them? Requesting payments to be skipped or / and balances to be forgiven will have some challenging unintended consequences.

The Student Loan Debacle

The student loan crisis really started with the Affordable Care Act (Obamacare). Former Senate Majority Leader Harry Reid (D-NV) and former President Barrack Obama made sweeping changes to the distribution of student loans in 2010. Mr. Obama said that the changes to student loans, “…would improve the lives of our people for generations to come.” This change in lenders and who loaned the money to students did anything but that.

Previously, the federal government subsidized student loans through banks and other financial institutions. These institutions made the loans and they had some checks in place to make sure students would qualify for student loans. With the change in the Affordable Care Act, the U.S. Government became the direct lender, bypassing any financial institution. The U.S. Government is the risk holder. No checks are in place to make sure whoever got a loan could make payments - that they are a decent risk. Student loans are now given out faster than candy to children with no questions asked.

Does anyone think things are better now? With student loan debt surpassing $1.7 trillion, the student loan system is a bona fide mess. What does one say to the 64 year old lady who has $120,000 student loan debt pursuing a master’s degree, but barely now makes $2,000 a month?  Or the student who drops out of school for family and has $55,000 in student loan debt and only making $32,000 a year? Neither of them are going to be able to afford a house or any other major expenditure. There are millions more in similar situations. The system is broken.

Pres. Obama stated, "By cutting out the middleman, we'll save American taxpayers $68 billion in the coming years," the president said. "That's real money -- real savings that we'll reinvest to help improve the quality of higher education and make it more affordable." Did that ever happen? No. Now, Congress wants to cancel the debt costing $100 billions of dollars. So much for any savings!

$50,000 in Loan Forgiveness

Senators Chuck Shumer (D-NY) and Elizabeth Warren (D-MA) are asking President Joe Biden to forgive up to $50,000 in student loan debt for anyone who has student loans.  Any eligible student, who has student loan debt, may have the possibility of taxpayers paying their student loans. Wouldn’t you like taxpayers to pay your loans?

What about those students who have paid off their student loans anytime in the last 30 years? They have worked hard to pay off their student loans. Now Senators Shumer and Warren are going to penalize millions who have paid off their student loans or who are currently paying them.  Requesting only those with outstanding student loan balances to qualify for relief is backwards.

Doesn’t Solve the Problem

How did these college students end up with student loans? Student loans come from the increasing tuition and book fees that continue higher. Educators are reaping the benefit of outrageous salaries and benefits with no course correction. This proposal to forgive $50,000 in student loan debt just really supports the college administrators and professors to charge even more. One professor once gloated in his class that being a professor is the best job because you only work two days a week, and get paid twice the amount of any similar job.

The problem with Shumer’s and Warren’s proposal is that it doesn’t correct anything in the education system. Many college administrators and professors are overpaid. This proposal to forgive student loan debt picks winners and losers. The losers are those that have paid their education loans back and also all the taxpayers who are left to pay the bill. The winners are those who are having someone else pay their debts for them – and all those overpaid college professors and administrators.

Why doesn’t the government also agree to pay off the mortgages or auto loans of other consumers? Many more people will ask for future handouts. It will not end with just $50,000 student loan debt. Many more consumers will take out loans asking for someone else to pay them back.

Nothing has changed in the system to correct the financial lifeline student loans bring to colleges and universities.  There will be higher salaries for the few privileged and an ever increasing bill to the taxpayers. Politicians will face even bigger problems and ask for even more loan forgiveness with student loan debt in the years to come.  

For these reasons, forgiving student loan debt is a big mistake and teaches the wrong value. If it is done, we will face the consequences for decades to come. Everyone will be looking for more handouts at the expenses of others, especially the taxpayers who are already under water.

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