Biden announces plan to forgive up to $20,000 in student debt, Wall Street wins

Predatory lenders, Universities, and super wealthy investors are the true winners today as Biden announces plan to forgive student debt.

Those with outstanding student loans are cheering today's announcement by President Biden to forgive student loan debts of $10,000 for most borrowers, and $20,000 in loans for Pell grant recipients. There are some caveats to this plan, however.

Of course, as previously stated, only Pell grant recipients actually qualify for the maximum loan forgiveness amount of $20,000. Also the Biden regime has laid out maximum income limits of $125,000 for each individual carrying student loan debt (or $250,000 for married couples). If you’re making more than that, then you’re left out in the cold, but then you’re probably not struggling with student debt, either. Technically, no one is right now, though.

This plan also extends the student loan payment moratorium to December 31st, and officials have stated that this is the final extension so lendees will at least have some time to put some money back for the future, but after that you’re on your own. Good luck putting much money toward your interest with inflation still sitting at an annual rate of 8.5%. And it won’t be a pretty ride no matter what.

Chief among the problems I see is how it does nothing to address the true culprit for the student loan crisis in the first place — the engagement in predatory lending practices to rope 18-year-old kids who don't even have a credit score yet in many cases into a loan. And with that loan comes a criminally high interest rate they don't understand that they'll likely be paying on for the rest of their lives. Then struggling lendees will often find themselves in a re-fi spin cycle that will likely just result in them kicking the can down the road in hopes of one day being able to afford to start making headway on paying back their loan.

The average student loan interest rate among all households is 5.8%. That’s the average, and as we know, it accounts for both the high side and the low side. Whenever business people want to pull the wool over the eyes of the common person, they start throwing numbers at them, and often people don’t read the fine print that is never spoken about, but appears in the contracts.

On a loan of $50,000, with a standard loan term of 10 years, at a monthly payment of $530, the total amount to be repaid with the principal ( original $50,000 ) and interest ( 4.99% a year ) is $63,610, with $13,610 of that being just interest alone. Ratchet that up to a 20-year term, which lenders will dangle in front of lendees to lower monthly payments to something more manageable, and you’re looking at a total lifetime cost of your student loan skyrocketing to $79,128 — $29,128 in interest alone on a 4.99% fixed APR — and that’s just the average federal student loan annual percentage rate. Granted, any unpaid balance after 20-25 years can be forgiven, though you will likely have to pay income tax on the amount forgiven, so you don’t just get it for free.

Digging into private loans is when things can get extra muddy, where interest rates can soar as much as 13.72% fixed APR through Sallie Mae. Care to know what the total loan cost can be on a 10-year term for that one? With a staggering monthly payment of $768 dollars, the total loan cost comes to $92,152 — $7,848 shy of doubling the original debt of $50,000. With a 20-year term at a still-steep monthly payment of $612, the total life time cost of your loan would be $146,788 — nearly triple the original amount!

These examples, of course, are without any monthly prepayments, which will cut down on interest significantly. So my advice? Pony up the cash while you’re in school to help knock down those interest payments if at all possible.

Now I must address the fact that these loans don’t actually stay on the books of their original lenders for very long. They end up being purchased by asset managers who are backed by ultra-wealthy investors, that then get packaged up in what’s called a ‘student loan asset-backed security’ — slabs for short. So what are these? Well, have you ever watched ‘The Big Short’? They’re essentially the same as the mortgage-backed securities that were traded recklessly leading up to the housing market crash of 2008 when predatory lenders gave mortgage loans to everyone with a pulse no matter how bad their credit was, and then packaged all these sub-prime loans up in mortgage-backed securities. We all remember how that turned out.

I don’t necessarily think the sky is falling on this one yet, but it’s worth taking a look at the past to help prepare for the future.

More to the point I’m trying to make, is that the cries of this plan to forgive student debt is not socialism in the more traditional sense. In the more traditional sense of the word, we all would suffer for the collective. In this case, it’s government-sponsored capitalism, because the very same people currently being decried for benefiting from Trump-era tax cuts on Twitter are the ones who invest in things like SLABS. They got paid then and they’re getting paid again now.

So no, your student loan being forgiven isn’t ‘sticking it to the man’ it’s buying him another yacht. Educate your children and yourselves on the ins and outs of student loans before ever considering them, you’ll save a lot in the long run.

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