Wednesday, September 7, 2022

Forgive Us Our Debts?


When teaching classes on personal money management and I come to the topic of getting out of debt, I am very reluctant—as I think most responsible teachers are—to recommend a consolidation loan.  The concept is simple enough and seemingly quite logical: borrow all the money you need at one time to pay off every other debt you owe.  That leaves the borrower with just one debt, hopefully with a lower interest rate, and with a monthly payment that is somewhat less than the total of all the previous debts’ monthly payments.  This not only simplifies life for the borrower but gives him some breathing room in his budget if he was struggling before to make all his payments.

But logical as it may appear, that plan can fall apart when it runs up against the reality of how people actually behave; because to a greater or lesser extent, all of us make financial decisions based on emotions and learned behaviors.  The danger in this particular “solution” to debt is that it does not address the root cause: how and why the person got into debt in the first place.   Someone who cannot control their spending, who treats money as the means to happiness by buying anything he wants, will likely end up mired in debt.  And if that person takes on a consolidation loan and ends up with a few extra dollars in his pocket, in most cases he will continue that pattern and wind up in a worse place financially.

I thought about that last month when the president announced the blanket forgiveness of $10,000 of federal student loan balances.  But the problems this action creates are even more complicated and dangerous than a consolidation loan and has impacts throughout the economy.

The most obvious danger, and one the president felt compelled to defend against from the start, was that it would aggravate inflation which is already at 40-year highs.  We were assured that other factors would offset this and there would be negligible impact on inflation.

Hmm.  Seems I’ve heard that before.  Like last year about this time, and earlier this year, when we were assured by government economists that a flood of government spending was not going to trigger inflation.  

How about colleges and universities?  They certainly had some incentive to push for loan forgiveness.  If a potential applicant to college thinks that he can borrow all the money he needs to attend, with the possibility someone else will foot the bill for him in the end, then sure, he will do it—even if he’s not “college material”.  And believe me, I went to school with any number of people who could not scholastically hack college and dropped out with a load of debt.  But what does the college care?  They were paid for the time he attended.  And with the government serving as a plentiful source of money, what incentive do the schools have to keep tuition lower?  No, instead they build luxurious campus housing, compete with each other to have the most amenities for students (non-academic amenities, such as climbing walls in the student center, or academic ones like remedial reading courses for the people who probably should not have gone there in the first place), and just generally spend money frivolously. 

If you reward a behavior, you will get more of that behavior, whether from students or institutions.

But maybe the most galling of all to me is the ingratitude of the recipients of this government largesse.  Not 24 hours after it was announced, a woman who has outstanding loans far exceeding the $10,000 limit was in the media saying she would refuse to pay ANY of her remaining balance because the whole system is unfair.  She lamented, too, that people who went to school decades ago don’t understand how expensive college is because the cost of a higher education has spiraled upward far faster than the national inflation rate.

Okay, fair enough.  I agree that there is some unfairness in the student loan program when it comes to the loan forgiveness programs.  They are a maze to figure out, and people who should have qualified did not due to bureaucratic snafus.  Nevertheless, at least there IS a route to loan forgiveness.  How many loans do YOU take out that have a forgiveness program?

THEN I learned that this woman is age 61 (not unusual these days to have older people still saddled with student debt).  I’m in my sixties, too, and when I went to college tuition at the public university I attended was $415 a year (2 semesters).  Even when I transferred to a private college I was able to pay my entire bill with the earnings from summer jobs, part-time work during the school year, and modest assistance from my parents in the form of Social Security survivor benefits after my mom’s death.  So this woman was in college about the same time as I was and gets no sympathy from me.  Although I guess I’m helping to pay off her loan, even if she isn’t.

Until next time,


“The wicked borrow and do not repay, but the righteous give freely.” Psalm 37:21 NIV*

*Scripture quotations taken from the Holy Bible, New International Version® NIV® Copyright © 1973,   1978, 1984, 2011 by Biblica, Inc.™  Used by permission.  All rights reserved worldwide.