By now, most of you have heard about the Student Loan Relief Plan announced by the Biden administration. There are varying opinions on the announcement, but from my experience, for many, loans encourage poor decision-making when we don’t have to pay for something directly and upfront.
There are numerous examples of this. People buy a car based on the payments and not the total price, so they buy more automobiles at a higher price than they should. Healthcare is my favorite example. As consumers, insurance providers and government programs insulate us from the actual cost of care. Hence, the price of healthcare continues to escalate unchecked by reality or consumer oversight.
Over my nearly 30-year career in financial planning, the cost of a college education has risen higher than any other good or service, with the possible exception of healthcare. Why? Government-backed student loans are entirely to blame.
Student loans encourage college students to disregard affordability when choosing a university, and this, in turn, allows increases in tuition and fees to go unchecked. Institutions can continue to raise fees, but no one stops to question them because they are only looking at the smaller payments being made, and not the overall cost. Partial forgiveness of loans and other proposals will only encourage more loans and even higher prices.
Some argue it is only fair to do something for young adults with burdensome college debt since we just forgave 280 billion in PPP loans for businesses. It is a fair point but dangerously takes our country down a path of endless handouts and unfathomable dire consequences. The expectations for continued forgiveness will only continue to grow.
It can be tough to make sound financial decisions when government programs encourage us to do otherwise. Regardless, they are our decisions to make and we must live with the consequences. My stance on student loans is to avoid them or ensure the education they buy is worth the cost. Do your research, know what you are paying for, and know the value of your purchase, then ask yourself, “Is it worth it?”
Those are my thoughts, have a great Thursday.
~ Rob
