Student loan forgiveness could lead to potential unexpected consequences
Currently, there is debate on whether student loan forgiveness will make inflation worse (Winters, 2022). There was similar debate about the issuance of stimulus checks to millions of people. In fact, the Federal Reserve Bank of San Francisco estimates that stimulus checks contributed to our national inflation during 2022 (Poindexter, 2022; Ways&Means, 2022). Other experts agreed that stimulus checks or rebates could fuel continued inflation until the supply of goods and services can keep up with the population’s unmet demand for goods and services (Farrington, 2022).
Additionally, student loan forgiveness may incentivize poor financial decisions. For example, perhaps the prospect of receiving additional loan forgiveness will incentivize students to take on unnecessary student loan debt. Also, student loan forgiveness may set a precedence or lead people to believe that they may have future loans forgiven.
Now the IRS normally treats the forgiveness of debt as taxable income. However, the federal government has said student loan debt will not be treated as taxable income at the national level. Still, students in several states could find they unexpectedly owe state income taxes due to receiving student loan forgiveness (Brooks, 2022).
Student loan forgiveness raises questions of fairness
Is student loan forgiveness fair to the individual who worked to pay for college? Or to the student’s family members who helped the student pay? Is it fair to ask taxpayers to pay for the debts of the millions of people who signed contracts agreeing to repay – without consideration of the student’s ability to repay?
Yet, in August 2022, the President announced he plans to forgive student loans for those who make less than $125,000 individually or $250,000 for those married filing jointly. The Department of Education also unexpectedly extended a payment pause, which includes a suspension of loan payments, a 0% interest rate, and stopped collections on defaulted loans until December 31st, 2022 (Department of Education, 2022).
Forgive and forget
Is it fair to the person who recently paid off their loan to the federal government by refinancing the debt with another lender? For example, I am aware of someone who recently consolidated and refinanced his student loans to a lower fixed-interest rate towards the end of 2021 -before the Federal Reserve started raising interest rates. And students who chose to responsibly refinance their student loans have been eliminated from student debt relief eligibility (Federal Student Aid).
Well, although the process has not always been clear. If you paid off a federal student loan during the pandemic, without doing a refinance, you are in luck. You can request a student loan refund from your student loan servicer and then subsequently apply for student loan forgiveness (Morga, 2022). A student eligible to receive student loan forgiveness may find he or she is suddenly $10,000-$20,000 less in debt. However, there are two normal ways to become more wealthy. You have two options.
1) lower the amount you spend; or
2) increase the amount of income you receive.
In today’s environment, you may need to go into debt to get into a home, buy a car, obtain an education, or start a business. Still, avoid becoming overly leveraged or taking on excessive debt. Consider choosing an area of study that interests you, one that will increase the opportunities available to you of receiving increased pay.
It pays to go to college
It pays to go to college because obtaining knowledge and networking with others often opens doors. For example, when on the job hunt, a degree may help you land an interview. It will often get you ranked as more qualified in a competitive workforce. However, not all degrees are created equal.
By selecting an institution that has been accredited by a reputable accreditation body, you can ensure you obtain a quality education. If you decide to go the business route, look for a college of business with an AACSB accreditation. AACSB accredits only the best business schools in the world (AACSB, 2022). West Texas A&M University’s College of Business has been accredited by the AACSB, which meets the highest accreditation standards.