Student Loan Debt Relief
s the author of the recently released book, Inflation – The Silent Retirement Killer, people reached out to me this week and asked:
“David, what is this student loan forgiveness going to potentially do for inflation?”
This administration is, of course, saying everything they're doing is fighting inflation. I have a lot of issues with this debt relief situation on many levels, but I won’t go into all of them politically.
In general, I think it's a terrible idea. A bad idea. It sets a bad precedent. It is a perversion of incentives on so many levels and that makes this very bad. At worst, it's essentially political vote pandering.
However, the fact is that it probably won't directly increase inflation that much. I've read stats on it changing by maybe a quarter of a point. You might say, “Well, that's not a big deal from an inflation standpoint,” but we need to look at how this affects the long game.
When you take away certain market conditions such as the relevance of a student looking to take on student loan debt to get a certain degree, it affects the long game. If the marketplace is showing that a student can't earn enough money with a job or a career or a business to pay for that degree, then there's a disconnect.
There's something wrong with the value stack on the tuition costs, the debt costs, and what I get on the back end (that's the return on investment – the ROI). There’s something wrong there when the federal government comes in, as it often does, and interferes with the marketplace, disrupting it with social engineering, by transferring the debt in this case. It's not a forgiveness of debt. There's never a free lunch. This is a transfer of debt.
They're taking the debt off of people who willingly signed up to take on the debt and are saying, “Well, we have hardship and we can't do it.” Everybody has hardships. People have car loans, rents, mortgage loans, and credit card debt. Those are also hardships. Did anybody force any of us to take that on? No. We chose to take it on.
The work ethic of the American people has been to get through these issues. We’re not in the middle of a pandemic to provide student loan relief. This is a bad move.
They are disconnecting the outcome, the results, from the cost by saying, “Hey, if it gets too tough, the government's here to bail you out.” We've had too much of that in the last two years. We've had helicopter money galore. We've had stimulus money. We had PPP loans, and I loans.
Now, anytime there's any kind of discomfort, the American people will expect the government to come to the rescue. That distorts the markets completely. That will continue to increase the cost of tuition for higher education. The schools will say, “Hey, there's no constraints on us.
No one's pushing back on us. We can continue to raise tuition because the students know they're going to get debt relief somewhere. Somebody’s going to change it up for them. They're going to forgive it, reduce it, and have more turn around on payments.”
The net effect is it's bad for the economy. It's bad for the American work ethic. And for the long game, it is inflationary because the tuition costs will continue to go up.
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