GMR 79: The Student Loan Debt Crisis Part 2
Episode 79
Student Loan debt is now at 1.6 trillion dollars, a figure that has tripled since 2005. To understand the magnitude of this number, consider that credit card debt is only 1 trillion dollars. For those with student loans this crisis is all too real, but this predicament may soon impact many without student loan debt.
SHOW NOTES
The Impact of Student Load Debt on Young Adults
2018 survey by Summer and Student debt Crisis.
19% putting off marriage
26% putting off having children
56% prevented from buying a house
42% prevented from buying a car
80% put off saving for retirement
50% could not donate to charity
58% reported a decline in credit score
13% failed credit check for apartment application
85% said student loan debt was a major source of stress
Thoughts on student loan debt
There’s a moral obligation that those who take on debt should repay it.
Cultural Ideology of “I deserve it” … someone else should pay for it.
Taxing “the rich” is forcing someone else to take their money and pay for me.
Cultural values that puts one group against another will cause deep divides and prejudice.
We teach… you should be responsible and take ownership.
There’s no such thing as a free lunch - everything has a cost!
There is no “secret sauce,” no top secret way to go through school without paying anything at all. This goes back to the economic idea that “everything has a cost.” You are going to pay for college in some way. It may be:
Studying like crazy in high school to get the best grades, giving up nights and weekends out with friends to prepare for the SAT & ACT.
Spending 100’s of hours pouring over scholarship information finding people around the country willing to help with your education from their own generosity.
Working your way through school, studying 30hrs a week, while you work 30hrs a week, living a low cost lifestyle.
Going to a Community College… you’re paying by giving up some of the amenities that big 4yr colleges and private institutions offer, but you’re getting the education at a low dollar cost.
Using debt to pay for school. You don’t pay now, but you’re going to be paying for years and years to come, with the interest and financial pressure being the added cost of not making different choices now.
Personal Finance Education
A recent article from Market Watch, reveals how the U.S. Treasury Department is finally understanding the importance of educating students on finances. It is recommending initiatives to ensure students get the information they need before they make HUGE life altering debt decisions, such as taking on student loans.
Potential Solutions to Help Student Recognize the True Cost & Pain of Student Loans:
Financial-aid offer letters should have “an itemized and sub-totaled cost of attendance” that discusses the direct costs paid to colleges for things like tuition and other indirect costs.
The costs should also be calculated “after grants and scholarships are applied.” Currently, “award letters are sometimes unclear, leaving students with inadequate information to make financial decisions.”
There should be a “broad adoption” of debt letters in higher education.
The letters tell student borrowers the debts they’ve incurred annually and what their expected future repayment amount will look like. Debt letters are already required in 12 states.
The letters should spell out repayment options, estimate how much interest will pile up if payments are deferred and provide average entry-level salaries for graduates with the same sort of major.
Financial literacy courses should be required. If classes are optional, they might not “reach students who may be unaware of them or who do not value the benefits of financial education.”
The report admitted it could be tough finding the right teachers because the subject isn’t a focus at most schools. Alternative instructors could be trained students, financial-aid officers and outside financial professionals, the report said.
Elizabeth Warren’s Plan for student loan debt forgiveness would:
Cancel $50,000 in student loan debt for every person with household income under $100,000.
Provide substantial debt cancellation for every person with household income between $100,000 and $250,000.
Not making students pay taxes on the debt that is forgiven, currently it’s set up to count as income, when the government pays your student loans.
Also make private student loan debt eligible for cancellation.
Streamline the student loan debt forgiveness process using data and income information already available to the federal government.
Importantly, Warren's plan offers no student loan debt cancellation to borrowers with a household income above $250,000, which she says is the Top 5% of earners. There would also be "phase-outs" based on income. The $50,000 cancellation amount would phase out by $1 for every $3 in income above $100,000. According to Warren, for example, "a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation."
How These Proposals Would Be Funded
Warren proposes we pay for this student loan forgiveness plan and universal free college plan as follows:
Ultra-Millionaire Tax. - The tax would include a 2% annual tax on the 75,000 families in the U.S. who have at least $50 million in net worth.
Warren also wants to invest an additional $100 billion in Pell Grants over the next 10 years and expand eligibility for Pell Grants to include more lower- and middle-income students.
Practical Example:
The average household income in the U.S. is around $50,000 of which 2% equals $2,000. Imagine two police officers showing up at your door, demanding that you give them $1,000. They walk down the street and give the money to someone else.
Do you have an extra $1,000 you want to just give to the government?
People will say that taking 2% from someone isn’t a big deal, but no one would want to have the government forcibly take 2% from them.
When we vote to tax someone else, we’re voting for the government to take money away from someone. I really struggle with this concept. I do understand the value of taxes as a whole and the benefits the government provides. But I struggle with what amounts, in my mind, to “stealing”, taking what belongs to someone else, just because it benefits me.
This is promoting inequality….it’s forcing something onto one group that you don’t force onto another group.
France's wealth tax contributed to the exodus of an estimated 42,000 millionaires between 2000 and 2012, among other problems. Only last year, French president Emmanuel Macron killed it.
In 1990, twelve countries in Europe had a wealth tax. Today, there are only three
Culturally, there is a deep anger against the rich:
In an article from Currentaffairs.org, the following statement was made:
IT’S BASICALLY JUST IMMORAL TO BE RICH
Here is a simple statement of principle that doesn’t get repeated enough: if you possess billions of dollars, in a world where many people struggle because they do not have much money, you are an immoral person. The same is true if you possess hundreds of millions of dollars, or even millions of dollars. Being extremely wealthy is impossible to justify in a world containing deprivation.
Even though there is a lot of public discussion about inequality, there seems to be far less talk about just how patently shameful it is to be rich.
The Scripture’s perspective on the rich
1 Timothy 6:17-19 New International Version (NIV)
17 Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. 18 Command them to do good, to be rich in good deeds, and to be generous and willing to share. 19 In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold of the life that is truly life.
Matt 25, parable condemns the servant who doesn’t multiply and grow the finances he’s entrusted with.
1 Timothy 5:8 New International Version (NIV)
8 Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.
Mark 4:19-20 New International Version (NIV)
19 but the worries of this life, the deceitfulness of wealth and the desires for other things come in and choke the word, making it unfruitful. 20 Others, like seed sown on good soil, hear the word, accept it, and produce a crop—some thirty, some sixty, some a hundred times what was sown.”
Matthew 7:1-3 New International Version (NIV)
7 “Do not judge, or you too will be judged. 2 For in the same way you judge others, you will be judged, and with the measure you use, it will be measured to you.
Exodus 20:17 New International Version (NIV)
17 “You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, or his male or female servant, his ox or donkey, or anything that belongs to your neighbor.”
A Global Perspective on Wealth
If you’re at the average household income in the United States, which is $56,000 per year, you are in the top 0.23% of the wealthiest people in the world.
RESOURCES
Global Rich List
Budgeting and Debt Elimination Tools
Jesus on Money by David Thompson - stewardshippastors.com