Chief Investment Strategist, The Freeport Society
It’s like the man doesn’t want to win a second term next November… even though he’s running. President Joe Biden continues to pursue policies that most American voters adamantly oppose and which are guaranteed to hurt him at the ballot box.
One in particular is a scorcher: student loan forgiveness.
An Ipsos poll from May found that only 29% of Americans support wiping the slate clean and forgiving all student debt. Even among Americans with student loan balances, the number is only 57%.
This means that even 43% of Americans saddled with student loans believe in being responsible and paying what they owe. And they resent the idea that someone who borrowed as well might be rewarded with a write-off.
I am 100% in their camp.
If all student loan debt is written off, it’s essentially punishment for those with financial responsibility and that good old American spirit of hard work and honesty. And it negates the need for incredibly important life skills like grit and discipline.
Even worse, it teaches our future politicians that fiscal irresponsibility is a-OK, and that just dooms this country even further.
This chart from USA Today/Ipsos says it all about public sentiment on this matter…
Americans get a little more forgiving when income limits are mentioned: 39% support forgiving all federal student loan debt for people earning less than $125,000 per year, and 47% support a limited write-off of up to $20,000 for those making $125,000 or less.
But any way you slice this, a majority of Americans oppose debt forgiveness. We may be a nation of irresponsible spendthrifts, but at least we don’t expect others to clean up our mess.
Still, student loan debt is a problem.
Forty-four million Americans owe a combined $1.6 trillion to Uncle Sam for their education. That’s more than $36,000 each.
Of course, many really are in a mess and owe much more than that. Effectively, they’re saddled with debts they won’t ever be able to repay.
And not only does that screw them over… it screws the rest of us over, too. (We’re between a rock and a hard place.)
A study from the Education Data Initiative finds that for every 1% increase in a student borrower’s debt-to-income ratio, their spending falls by 3.7%. No big surprise there. No one has an unlimited budget, and every dollar spent paying down debt is a dollar not available to be spent elsewhere. (This also applies to our own government, by the way.)
Can We Fix This?
It won’t be easy, of course. There’s never an easy fix to a debt problem… other than simply avoiding debt to begin with. But there is a remedy that already exists for almost every other form of debt under the sun: bankruptcy.
Bankruptcy isn’t pleasant. It’s humiliating to admit publicly that you can’t pay your debts. It’s an acknowledgement that you failed. And, at least for a time, it damages your credit rating and makes it more difficult to borrow and take on new debts.
Bankruptcy is a solution already available to every other form of debt – credit cards, mortgages, business loans, etc. But Uncle Sam is “special.” Federal student loan debt is one of the select few types of debt – along with child support, alimony, and back taxes – that can’t be discharged or restructured in bankruptcy.
Why not?
Forgiveness of student loans is a political loser.
More than that, it’s a moral loser.
It’s absolutely unfair to expect the tens of millions of Americans who knuckled down and paid their debts – or who made sacrifices to avoid taking out loans to begin with – to subsidize borrowers who got in over their heads.
Of course, it’s also unrealistic to expect 17-year-old kids to make wise financial decisions… and it’s crappy to make them pay for their mistakes for the rest of their lives, particularly given that they likely did so on the advice of their university’s financial aid department or even their parents. But if they don’t learn now, they never will. And what does that mean for the rest of their lives… and our economy? Nothing good, that’s for sure.
Bottom line is that bankruptcy is the solution.
If a borrower has the means to pay, they should pay. That’s how debt works. But if they don’t… that’s what the bankruptcy process is for. It’s the only equitable solution.
Unfortunately, it’s not one Biden is willing to allow. It’s unlikely that the shadow candidate for the 2024 presidential election will allow it either. In fact, they could make things even worse. My Freeport Society fellow, Louis Navellier prepared a presentation to explain who this mystery person is and what the future of America could look like.
To life, liberty, and the pursuit of wealth…