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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.
I usually do not get into politics, but some politicians are bringing up a policy that will widen the wealth gap so I feel I must go into politics. This policy will give money to the wealthy and implement higher taxes of everyone in the process. This policy is student loan forgiveness.
Forgiving Student Loans Is Not Charity
I know people are struggling with their student loans and need help paying it off, but student loan forgiveness is not the answer. In my opinion, it is a clever way to widen the wealth gap disguised as charity.
The average student loan debt in America in 2016 is $37,172 according to debt.org. According to Pew Research, the median student loan debt is $17,000. To those of you who napped during statistics in second grade, this means that the loan debt of the middle borrower is lower than the total debt divided by the number of borrowers. Now let’s analyze this. For those who napped during statistics in sixth grade, if the median is much lower than the average this means that the distribution is skewed right. This means small group of individuals who have larger debts owe a significant amount more than the typical borrower. A good amount of our student loan debt is owed by fewer individuals.
There are many extreme examples to illustrate this. The number of people with over $100,000 in student loans has increased to about 6% of all borrowers, consisting of over 30% of the total student debt. In fact, there are over a hundred students with over $1,000,000 in debt. The Wall Street Journal illustrates this with the story of an orthodontist. I know many people are wondering how this can happen. For one, the student loan programs have few limits in what qualifies for student loans. Technically you can get a car off of a student loan. Please, please, please, please! Do not do this.
Either way, more of the student loan debts are owed by fewer people than you may imagine. In fact, 40%, almost half, of the US student loan debt is owed by people who went for a master’s degree, not just college. The statistics for people who went for their PhD and professional degree is not clear, but the average student loan debt for PhD students is $156,100 while medicine and health is $224,200. This is a very large fraction of student debt. While student debt is considerable, for most people, the debt is manageable since they kept their loans under $100,000.
Student Debt Forgiveness Will Widen The Wealth Gap
Guess what is happening to the orthodontist who owes over $1,000,000? His student loan will be forgiven in less than 25 years after paying only a little more than $1,000 a month off a salary of over $200,000 a year based off current predictions. It is worth mentioning he also owns a Tesla and a house. He reaped the benefits and may never fully pay back his loan.
So of course his university will just forget the debt and realize they overcharged this orthodontist (extreme sarcasm notice). That’s not how this works. Instead, the government has to pay the university, and they must obtain that money from taxpayers, usually from other student loans. This takes potential money from other loan programs.
While student loan debt forgiveness would be a good idea if everyone received equal amounts of education and received equal benefits from that education. Such a world does not exist, and frankly it should not.
Instead, some people like the orthodontist have taken a risk in order to reap some benefit. In other words, it is an investment. No one should reap the benefits of an investment without any risk. Also when the risk is dissipated, the people who decided not to take the risk have to pay for it. The poor have to pay for people with higher education to pay for said education. Their education, in general, will increase the income and wealth of the wealthy. In other words, the wealth gap increases.
Education is an investment. Nothing has changed about that. Yet no one sees student loan debts as debts, but instead a nuisance. While the government does need to implement new plans to help borrowers pay back their debts, much like the orthodontist’s debt, they should not forgive student loan debts. In reality, I do not see the government being able to pull off true student debt forgiveness and I hope I do not have to see the day that happens. We need to hold politicians who have forgiven student debts like the orthodontist accountable and tell the government we will not stand to pay off other people’s student loans. But before we do that, we must also show we are willing to pay off our student debts and to forge our nation’s wealth.