fbpx

Student Loan Debt-Forgiveness Will Lead to More National Debt, Inflation

Dustin Wells, Tax Specialist

Do you remember the American housing market crash in 2008? Or the American home mortgages defaulting and the economy via the stock market crash in 2008 through 2009? Do you remember the federal government basically bailing out the banks in attempt to stabilize the markets and settle the housing market crash? I certainly do. I was living in Florida at the time and you could see numerous homes that had been built on local golf courses and other commercial areas sitting empty and unoccupied. In summary, the federal government by Congressional legislation enabled lending institutions – banks – to lend money via mortgage loans to American citizens who could not financially show viability for the loan, and in some circumstances, the individual borrowers were approved for multiple loans on the property. This was devastating to the American economy and I had hoped this type of situation, legislation, and business practices in correlation would never happen again. I had hoped I was wrong…

Not on most American’s proverbial radar recently with the November 2020 election and all the chaos on both sides that accompanied it is the growing issue and potential expectation that a new Biden Administration will initiate and implement a student loan debt forgiveness program with the initial markers being debt relief of up to $10,000 per student loan. 

In the most recent podcast – WSJ Your Money Briefing – the topic of student loan debt and the related forgiveness of that debt was outlined and discussed with the headline that student loan debts have risen to $1.5 Trillion and a recent government study showed only about $900 Billion is likely to be paid back by those students with American Taxpayers to pay upon the rest. 

While discussing this topic with Josh Mitchell, WSJ Economics Reporter, Mr. Mitchell outlined the student loan payment projections are very likely incorrect and will not be paid back in an estimated amount of $400-500 billion dollars and could be “bailed out” by the American Taxpayer under the directives of the new President Biden administration. 

In summary, per the government study outlined, along with the likelihood of student’s inability to pay on their student loans; moreover, these particular students who have enormous student loan debts of $50-to-$75-to-$100k in debts have realized they will not likely ever be able to pay back due to their inability from their specific college degree to get a job – unless possibly from within the government apparatuses – that will economically, substantially allow the student to sustain those student loan payments long-term and ultimately pay off the student loan debt required to be paid in full in the longer-term for which some of these students have defaulted because the students monthly cash flow cannot sustain their student loan payment required.

On top of this conundrum, these students with larger student debt have been basically “re-financing” these student loans under the (new) debt forgiveness programs to pay off within a certain time as projected by the federal government under the debase for payment with no underwriting taken into account by the federal student loan program under the Department of Education that would normally be required within a bank or other lending financial institution. Therefore, the government is not doing an underwriting analysis on students for which a simple financial analysis would evidence that this/that student would not be able to pay off the loan. So the federal government under the Department of Education is basically handing out substantial American taxpayer dollars via blank checks to students who would likely show they’re not able to pay those funds off and simultaneously jeopardizing the American taxpayer financial future.

Sound more familiar now? Pretty similar if not an exact parallel to the loosened mortgage lending practices as signed-off by the US Congress is it not? This situation is eerily similar, unfortunately, just in the simple fact that the federal government is not taking in enough monies to pay those student debts month-to-month. In parallel, the American banking institutions, banks, lenders, etc. ultimately had to default on those mortgage loans because they were not receiving enough monies from those same home mortgage borrowers to pay the monthly mortgage payments required, and eventually, this financial epidemic hit the American market. 

Will this potential financial write-off inevitably hit the American financial markets eventually? My best guess is yes if there is a large, sweeping debt forgiveness program effectuated by the federal government under a President Biden administration with Congressional approvals expectedly and more so if that same program kicks over another $1-1.5 Trillion dollars to the national debt. Then yes the American financial markets will be negatively affected and the American dollar will further decrease in value from inflation due to the increased national debt taken on by the federal government at the harmful expense of the American taxpayers.

Some things never change. But again, as I said, I pray and hope that I am wrong.

#drw