Posted August 25, 2022
By Zach Scheidt
Was I Stupid for Working Four Jobs?
I’m starting to feel a little bit like an idiot. Maybe you are too!
Yesterday, President Biden announced his plan to forgive up to $20,000 in student loan debt per eligible borrower.
The move will certainly create more inflation, add a higher tax burden for American citizens, and create a moral hazard for future generations.
But who's really the dummy here? Borrowers who got in over their heads… Or those of us who worked hard to either avoid or pay off our student debts?
Today, I want to take a look at what Biden's loan forgiveness plan means for you and your retirement.
(Spoiler alert: It's not good news.)
Moral Hazard and Loan Forgiveness
Back in the 1990s, I was working my @$$ off to put myself through college.
Since my parents had 11 kids — no we're not Catholic or Mormon, and yes my parents did know how this was happening — there wasn't a lot of extra money left over to help us pay for college.
I was on my own to figure out how to pay for tuition, room and board, along with all of the fees and expenses associated with a college education.
Of course, my parents helped out as much as they could with encouragement and chocolate chip cookies whenever I made it home to visit. But contributing financially just wasn't possible.
Fortunately, I was a hard worker and accepted just about every odd job I could find to cover my college expenses.
During my junior year, I even held down four part-time jobs at once while still taking a full load of classes — all to graduate from college debt-free.
What a dummy!
Given yesterday’s announcement, it would have been better for me to rack up $10,000 in debt and then wait for it to be forgiven.
Of course, Biden's student debt cancellation won't affect me 20+ years after graduating. But the whole idea opens up some interesting thoughts for my kids.
Should they intentionally go into debt assuming that the government will pay for it?
And if Biden starts paying off student loans, how far will this slippery slope go?
Mortgages… Car payments… Credit card debt?
Higher Inflation With a Taxpayer Burden
How will loan forgiveness be paid for? The answer, of course, is that taxpayers like your family and mine will wind up footing the bill.
Biden's plan will cost Americans nearly half a trillion dollars. And according to the National Taxpayers Union Foundation, the average taxpayer will be on the hook for $2,000.
Given how hard I worked to avoid student debt — working day and night to pay for my education — this additional tax bill feels like an insulting slap in the face.
How does it feel to you? Send me an email!
In addition to the tax burden, student loan forgiveness will almost certainly send inflation sharply higher. (You know, the higher costs that the "Inflation Reduction Act" was supposed to help with.)
For starters, colleges and universities now have cover to charge even more for already overpriced degrees.
After all, if the government is forgiving $10,000 in student debt, that leaves room for students to pay an additional $10,000 in education costs.
At the same time, many existing borrowers no longer have to budget payments for the portion of loans that have been forgiven.
So in theory, the extra cash that would have been used for loan payments can now go directly into the economy — buying homes, vehicles, airline tickets and many other goods and services.
More demand in today's world means more inflation.
So your family may be getting hit on both sides of the ledger... Less income thanks to more taxes and higher inflation as half a trillion dollars gets pumped into the economy.
Meanwhile, this debt cancellation is being rolled out as "relief" for American families. It's not nearly as relieving as you're being led to believe.
And it's just another example of how you need to be vigilant with your retirement savings and generate enough income to help cover inflation — which isn't going away any time soon.
I'll continue to help you find ways to grow and protect your wealth, and help you see what's really going on in our economy.