Student Loan Forgiveness Scam

I met Sarah at an orientation for a local charity that helps refugees acclimate to their new surroundings in the United States.

These are folks that are typically here because their lives were in danger in their homelands.

Sarah was 21 at the time, a college student looking to fulfill her obligation to volunteer at a local charity for one semester.

Volunteering struck me as a pretty interesting pre-requisite. I actually kind of like that idea. I think it’s good for young folks to volunteer some of their time in an effort to help those less fortunate.

Sarah actually took to it quite well and told me that she had planned to continue volunteering long after she met her academic obligation.

But I’m not sure if that ever happened because the truth is, given what she chose as her major, I can’t imagine she would have much time for anything besides working two minimum-wage jobs.

Peace Studies

Sarah was majoring in peace studies and minoring in gender studies.

I didn’t even know there was such a thing, but she assured me that this education could prepare her for a career in international relations or politics.

I suspect that’s what her advisors told her, but I’d be surprised if it landed her a well-paying job. Which is unfortunate, because tuition at this particular school runs about $40,000 per year. And that’s just tuition.

That’s a lot of scratch to spend on a peace studies degree.

Although I suppose it doesn’t really matter. After all, given the continued expansion of this country’s entitlement mentality, Sarah may only have to pay back a small percentage of her student loans. You know, because you and I as taxpayers will pick up the rest.

I’m not kidding, by the way.

Whether you know it or not, you, me, and every other taxpayer in the U.S. foots the bill for every college graduate that gets to take part in a loan forgiveness program offered by the government.

A Burn in Your Belly

According to a recent Bloomberg report, this type of student debt relief program will cost taxpayers $39 billion. That’s billion, with a “B.”

The plan is essentially an income-based repayment plan that ties payments to income and eventually allows for the forgiveness of the remaining debt. By forgiveness, I mean you and I get to pay off the rest.

Check it out:

The number of people using these plans has quadrupled since 2012. About half of borrowers taking out the Department of Education’s Grad Plus loans, which finance advanced-degree studies, are in income-driven plans. Most borrowers in the programs have payments capped at 15 percent of income, with allowances for housing and other expenses. In December the Obama administration is expected to expand the number of borrowers eligible for a payment cap of 10 percent

If that doesn’t put a burn in your belly, consider the following items that the good folks at Bloomberg highlighted in this report:

• Borrowers hold $1.2 trillion in federal student loans, the second-biggest category of consumer debt after mortgages.
• Of this $1.2 trillion, more than $200 billion is in plans with an income-based repayment option.
• Of that $200 billion, $190 billion was originated by the Department after 2010 or bought by the government during the financial crisis.
• Both Moody’s and Fitch Ratings are considering cutting ratings for securities tied to those loans, which is a pretty big deal considering the debt is guaranteed by the government.
• The Congressional Budget Office estimates that, for loans originated in 2015 or after, the programs will cost the government an additional $39 billion over the next decade. That’s more than the agency spends each year on Pell grants, the public scholarship program for low-income students.

Deadbeats With No Valuable Skills

Of course, it’s not just the fact that taxpayers are going to end up footing the bill for bad decisions made by college students and the folks who offer these loans to teenagers who have no work experience, no collateral, and, in many cases now, no intention of paying their debts.

The bigger issue here is a philosophical one that could quickly turn into an economic one.

What kind of message do we send to the future of this country when we tell them that their first major financial obligations don’t have to be met? My God! We’re basically preparing these kids to be deadbeats.

Moreover, deadbeats with no valuable skills.

I don’t know about you, but this really pisses me off. As well, it further supports my argument that if you want to retire comfortably, you better make sure you’ve not only generated a significant amount of wealth but have also figured out how to protect it. Because if you think entitlement programs are bad now, just wait until an entire generation of folks who think the government exists to pay their bills is running the show.

Invest and prepare accordingly.

To a new way of life and a new generation of wealth…

Jeff Siegel

Check us out on YouTube!

@JeffSiegel on Twitter

Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.