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College Daze

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A closer look at the Biden administration’s plan to forgive up to $20,000 in student loan debt.

President Biden has decided to eliminate student loan debt for millions of Americans with the stroke of a pen. The Speaker of the House has expressed concern that such power does not reside within the executive branch. However, let’s assume that the executive branch and the legislative branch of our government will make this debt cancellation policy a reality.

Cancelling post-secondary education debt for low- and middle-income Americans is designed as relief for borrowers who have amassed approximately $1.75 trillion in outstanding student loan debt.

As proposed, an American who has income of less than $125,000—or $250,000 for a family—can be relieved of student loan debt in the amount of either $10,000 or $20,000. This, in addition to an extension of the current moratorium on monthly payments and interest for qualifying student loan debt (“kicking the can down the road” in Washington parlance).

During the last 10 years, college and university costs have increased substantially. Today’s graduates have an average of $39,381 in student loan debt, according to Experian.

Is Post-Secondary Education Worth it?

Graduating from college normally results in:

• Higher incomes than non-college graduates.

• Having health insurance. The Kaiser Family Foundation1 finds that there is a strong correlation between a college education and maintaining health care coverage.

• Greater likelihood that adults will move up the socioeconomic ladder and less chance that adults will rely on public assistance, according to The College Board.2

On the surface, obtaining a 4-year degree at an institution of higher learning is revered as a positive experience. As noted above, there are many innate benefits that accrue to the degree holder. So why all the caterwauling over the use of a presidential pen to wipe out $440 billion (or more) of student loan debt?

Read more commentary from Steff Chalk here.

Who is Complaining?

Students are complaining. Students who respected their financial obligations by scrimping and saving to make ends meet—while paying off their student loans. Students who have made responsible, sound financial decisions when selecting a college or university that they or their parents could afford.

Parents are complaining. They harbor the same complaints as the students—and then some. No one is offering to financially bail out the parents who delayed addressing personal needs or obligations. Parents who taught their family the importance of fiscal responsibility now appear foolish in the eyes of other family members. (So much for guiding our youth to “only purchase what you can afford.”) Our government has sent a clear message to everyone earning less than $125,000 a year: The documents you sign as an obligation to repay debt, and the corresponding terms and conditions, mean nothing!

Employers with tuition reimbursement plans have also been dealt a blow. The cancellation of student loan debt has diminished an employee benefit that was once revered by companies as a differentiator.

In the wake of debt cancellation at the behest of the White House or Congress, borrowers have a financial incentive to either restructure existing student debt or initiate new student debt. The cancelation of student debt now encourages the proclivity of colleges and universities to raise prices and increase margins.

What Advice is Appropriate?

When a high school student seeks advice on their post-secondary education opportunities, the student will normally speak with their parents or other relatives—or maybe their parents’ financial advisor.

As an advisor, if you are asked for advice in such a scenario, what is your response? How do you best advise someone who is vacillating between a college they want to attend—but cannot afford—and the local university which comes in at 20% of the cost of the more prestigious first-choice college?

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Fall issue of NAPA Net the Magazine.