Student Loan Forgiveness is more about ROI…
I attended the University of Tennessee in the early to mid 90’s. When I first arrived, I was 17 years old and technically a ward-of-the-state and under guardianship of my maternal grandmother. My grandmother and extended family that helped raised me, weren’t in the financial situation to pay for my education. Therefore, it was going to take student loans, pell grants and me working to make it happen. Outside of that, there would have been no chance for me to gain higher education and a degree. And yes. I did this AND had fun in college.
The internet was set ablaze with debate last week after the Biden Administration announced a plan for student loan forgiveness. The total amount to be forgiven will be $10,000 per person for those earning less than $125,000 annually and $20,000 per year for Pell Grant recipients earning less than $125,000 annually. Also, this plan caps loan repayment on current and future loans at 5% of the borrower’s income. This amounts to half the current rate. Biden had extended student loan repayment forbearance since the beginning of last year. In 2020, Biden campaigned on the promise of $10,000 in student loan forgiveness per borrower. Since he assumed the Presidency, Advocates for student loan forgiveness have been pounding Biden to make good on it. He has, and then some. But in the contemporary Grievance States of America, one just can’t win for trying.
From the far left and progressive spheres many griped that this didn’t go far enough, demanding that total forgiveness should be in order without income caps. Conservative clamored that this was unfair to those who already repaid their loans or to the “Real Americans” who might not ever have attended college.
However, moderates and the reasonable center possibly understood the history of predatory loan programs, exponentially rising college costs and the potential economic upside to this freed-up capital.
Shortly after the announcement of this program last week, MSNBC and USA Today ran segments with headlines that essentially said “advocates say this program is not enough.” (*1). Fortune magazine picked up on the Twitterverse’s mirror of this sentiment. (*2). On August 24th, Former Obama economic advisor Jason Furman tweeted “Pouring roughly half trillon dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10k of student loan relief) and breaking another (all proposals paid for) is even worse.” Old George W. Bush Administration staffer Elise Jordan raised good points about how this doesn’t address today’s exorbitant college costs, but it was her criticisms of the Biden plan on Morning Joe on MSNBC that captured the attention (*3). Progressive clearinghouse CommonDreams.org was quick to capture the Progressives complaints by choosing the headline “Progressives Say Biden Student Debt Plan 'A Good Start, But Not Enough’” (*4). These are just some of the references from the Liberal media. With friends like this, who needs…
Conservatives, as expected, largely came after this plan with guns blazing. In line with the trope concept of American Rugged Individualism, many complaints were centered on the thought that “if I paid off my own loans, why should anybody else get off from having to pay their own?” Others went with the classism angle, that “Farmers, Truck Drivers or other Tradesman” shouldn’t have to pay for either “Doctors or Lawyers” loans or the loans of “Stupid people who overpaid for their worthless Liberal Arts degrees.” Blowhard Texas Senator Ted Cruz scraped the bottom of the condescension barrel as usual commenting on his podcast – “If you are that slacker barista who wasted seven years in college studying completely useless things, now has loans and can't get a job, Joe Biden just gave you 20 grand. Like, holy cow! 20 grand. You know, maybe you weren't gonna vote in November, and suddenly you just got 20 grand. And you know, if you can get off the bong for a minute and head down to the voting station... or just send in your mail-in ballot that the Democrats have helpfully sent you, it could drive up turnout, particularly among young people.”
Cruz, the Princeton (undergrad) and Harvard Law graduate, just can’t ever seem to help himself. He claims that he himself paid off over $100,000 in college loan debt. In his Legislative career has been reluctant to support prior programs designed to assist citizens who are paying of large college debts. Seemingly out of spite. Cruz graduated from Princeton 30 years ago. The tuition that year was $16,400. Today, Princeton costs $52,800 per year!
One of the bigger debates that arose last week, was highlighting how so many Conservative politicians and businesspeople were lambasting the student loan forgiveness program, while ignoring their own PPP loan forgiveness. The list is long and we won’t get into the all the Conservative Politicians here as most of us have already seen this. The White House twitter handle fired back pointing out the hypocrisy. But if you want a quick recap, Ben Meiselas over at MeidasTouch Media (note* a liberal resource) lays it out clearly here - https://www.youtube.com/watch?v=qS5xAcU-_ns .
An argument made by many Conservatives on this topic, was that the government forced businesses to “shut down” out of their control and thus those loans were “different” and that they were always intended to be forgiven (a FALSE claim as the PPP application paperwork was clear that the loans may have to be repaid). Students who need to acquire loans to pay for education are often products of Government decisions. Policy decisions have impact on poor and working-class families. For student debt loan holders, many have already long-since repaid the principal on their loans but due to predatory lending schemes, high and inflexible rates and the reality of compound interest, still owe balances. Not only is this immoral, but it can also be fairly argued that it should be illegal or at least, certainly not endorsed or affiliated with the Federal Government. Going further, it could be considered to be un-Biblical. There are numerous passages in the bible that warn against unjust usury - https://www.openbible.info/topics/usury
On a personal level, one of the companies I worked for from 2013 until January of this year, received over $500,000 in PPP loans that were forgiven. While I have no evidence that the owners spoke out publicly last week against the student loan forgiveness program, the owners are generally conservative. For transparency’s sake, as a contractor, I received $8,000 of that half million back in 2020. There were some challenges for sure during the pandemic, but that company and I weathered the storm pretty well. I’m grateful. My famously private former conservative employer from 10 years ago (I was W-2 then), received over $1.2 million in forgiven PPP loans. Last week, one of my conservative friend local business owners, who I greatly respect, re-posted a meme on Facebook that said “If your college degree doesn’t have enough value for you to pay it off, it certainly doesn’t have enough value for me to pay it off.” And simply added “100%” above it. I added some different perspective to the debate. My friend received $750,000 in forgiven PPP loans and was also able to buy property and open a sister location during the pandemic. We respectfully discussed this. We’re still friends and I delight in his successes.
Let me be clear, I’m completely okay with both this student loan debt forgiveness program. I am also okay with the businesses that took PPP loans that were also forgiven.
Another talking point was that laborers/tradesman – nondegree farmers and trucker drivers for instance – would be paying for this loan forgiveness unfairly. Farmers for sure have access to many loan and subsidy programs that all of us taxpayers underwrite. Also, many states provide grants for CDL drivers training and licensing. The bipartisan Strengthening Supply Chains Through Truck Driver Incentives Act was introduced earlier this year in the U.S. Congress that will create a two-year refundable tax credit of up to $7,500 for truck drivers holding a valid Class A commercial driver’s license who drive at least 1,900 hours in the year. The legislation would also create a refundable tax credit of up to $10,000 for new truck drivers or individuals enrolled in a registered trucking apprenticeship. Due to the decades-long demonization of trucking as a profession, the driving schools being shut down during the pandemic and hiring and retention problems, the United States has a record deficit of 80,000 drivers. I personally was severely impacted economically by this very issue in 2021 due to the pandemic.
With my other, and primary revenue-generating business, I am highly dependent on CDL truck drivers moving inventory quickly and on a compressed timeframe. We ship live goods from deep Southern Florida to locations in the Southeast and Midwest. In the Spring of 2021, We had booked $2.1m gross in sales for items to be delivered between late February and early May. The truck availability/truck-driver shortage that Spring hammered my business. We had great product and customers already committed to buying it, but we missed our shipping windows because of the extreme driver and truck shortages. We were only able to ship and bill $1.1m of product due to effects partially related to the pandemic. The result was a lot of angry and disappointed customers. I lost out on tens of thousands of direct personal income in 2021 because of this. Because of the nature of this business and my structure with it (also as a contractor), I was unable to utilize PPP loans to make up the difference.
I’ll repeat myself, I’m completely okay with both this student loan debt forgiveness program and PPP loan forgiveness.
I’m not going to go into detail here, but we haven’t even scratched the surface regarding all the industries our tax dollars have “bailed out” over the recent years. The Banks, the Auto Industry, Cruiseline companies, the Airlines, and more. This student loan forgiveness program is projected to cost $300 Billion and positively affect 43 million Americans who qualify for the forgiveness. The United States pays out $20 Billion per year in direct subsidies to the fossil fuel industry alone. An IMF study last year said that “Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP, and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies). Efficient fuel pricing in 2025 would reduce global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths.” (*5)
The biggest tax reduction element to the 2017 Tax Cuts and Jobs Act passed under the Trump Administration was the reduction of the top corporate tax rate from 35% to 21%. This was a direct government handout to the wealthiest of our citizens, by way of cutting the taxes by 40% on the companies they own and/or control. Brookings did a study on the (negative) deficit-enhancing effects of these tax law changes (*6). I haven’t heard much if any push-back from Conservatives regarding this direct handout from the Federal Government.
Most people who took out student loans to pursue higher education did so as an effort to contribute to society in a more meaningful way and further their station. On many of these loans, the rates were at 7%-8%, well above Prime and mortgage rates. There are also restrictions on refinancing. For many of these loans in question, as covered above, the principal on them was paid for long ago. It’s a predatory system. For decades, our Federal Government in collusion with banks, have been using student loans as a profit center. Couple this with universities continuing to bloat with heightened (costly) amenities under the guise of competition, and this crisis was bound to arrive. A decade plus ago, Tennessee added the Hope Scholarship for students to help defray college costs. It went further, a few years ago by introducing a program for free tuition for the first two years of community college. These are both positive developments from our (mostly conservative) Legislature. I believe we’ll see more substantial changes to these systems Federally, here in Tennessee and in other states over the coming years. Thankfully.
In the mid 90’s, I graduated UTK and moved back to Nashville to attempt a career in music/ entertainment. During that time, I worked numerous service industry jobs as many when pursuing a career in the creative arts. My student loan repayments kicked in six months after graduation. It was by far, my largest monthly bill. Two years out and seeing the promise of a family life over an unsure career in live performance and songwriting, I pivoted. I cut my hair and got my first “corporate job,” but I had also gotten a little behind on my payments. Fast-forward a couple of years, and Pre-9/11, I was able to start a new business focused on corporate branding, graphic design and visual identity. Our small firm was fortunate to land a couple of large projects right out of the gate. At the time, I still owed almost $20k for my student loans. I was able to negotiate my balance down to about $16k. It was a very hard check to write, particularly when I was in start-up mode with a new business, but I did it. I paid it back. I was thankful and still am.
Some pundits have suggested that this student loan forgiveness program is reckless in a time of high inflation. I suppose they assume these folks are going to go on lavish spending sprees with this new disposable income. I highly doubt it. As they are college-degreed, I’m going to give them the benefit of the doubt. Maybe now, they can save for that first property ownership. Maybe they’ll even be able to actually buy that first property. A fixer-upper perhaps that may need the assistance and work of plumbers, hardwood layers, carpet layers, cabinet makers, drywallers, deck builders to revitalize it . Or might they invest that extra money in stocks, bonds or their own new business they’ve been wanting to start? I bet some could very well eat out more at their local restaurant still trying to get back to their pre-pandemic sales levels.
Back then and to this day, I am grateful for these programs (student loans, pell grants) that allowed me mobility out of poverty. I see it as the investment made by our civil society in me. I try to contribute and pay it back every day. I hope I do an okay job. I bet most of these 43 million student loan forgiveness recipients will as well. Give ‘em a chance. I suspect, we’re going to be pleasantly surprised with the unforeseen ROI we’re going to get from this…
*1 - https://www.youtube.com/watch?v=t6kl6OI-ixY
*2 - https://fortune.com/2022/08/24/twitter-unhappy-with-biden-student-loan-forgiveness-plan