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IRA Financial Blog

Student Loan Relief – Right or Wrong? – Episode 353

Adam Talks

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses whether or not it’s right or wrong for some households to receive student loan relief.

Student Loan Relief – Right or Wrong?

Hey, everyone, Adam Bergman here, tax attorney and founder of IRA Financial and welcome to another episode of Adam Talks. Breaking news, President Biden announced student loan relief. So, I wanted to do a podcast on this because is it right or wrong to relief, offer relief of $10,000 or $20,000 of loan payments to folks making less than $125,000 or $250,000 if married and filed jointly? Is it right to just kind of pick and choose what you’re going to offer relief? Whether it’s loans versus mortgage or medical bills; is it fair, someone makes $230,000 and they make a bad decision about what college they go to? Are they in a position, should they be in a position to be granted relief? Tough call, right?

But, what I did want to explore is the rising cost of college, what the loan relief will actually look like, what it’s going to solve, and then kind of talk about the bigger problem, because loan relief is really just adding some chemotherapy to a body ravaged by cancer. The cost of education will not be fixed by granting student loan relief to some folks. We got a way bigger issue. If we want to compete with China and maintain our position as the leading economy in the most efficient and qualified workforce, we are going to really need to do something to reduce the cost of education because, unfortunately, some of our smartest and brightest kids, young folks, are making academic decisions based off costs and not on academics, which is crazy. And I’ll go through some of the costs of colleges in different countries, and then we can chat about where we are, what makes sense.

Are we going along the right path? Should the head football coach at a university be the highest paid employee? Yes, the football program’s bringing in lots of revenue, but it staying generally in the athletic department. It is a school, right? It’s not the NFL; it is a school. The main purpose should be academics. Personally, and I’m a huge sports fan, I do love college football, college basketball, but are we kind of messed up in terms of our motives, our motivations, our goals as a society? Just totally warped and lost track of what’s really important, that’s educating our young generation so they could keep America great and keep us in our workforce and our economy strong. So, we’ll see.

But, let’s talk about some of the rising costs of college. We all know this, right? If you’re a parent. I got younger kids. Thankfully, I don’t have to pay for college yet, but actually, probably not so thankful, because costs are going to keep going up. So, now if you go to a private university, you have to expect it’s going to cost you $70,000 a year, including room and board for your kid, which is just absolutely bonkers to take twelve credits a semester, so 24 credits of classes, that are definitely interesting and cool, but not really going to move the needle in terms of their ability to earn a living. So is it worth it? In some cases not. We’ll go through some examples of what is going on, but since 1980, the total cost of four-year private college has nearly tripled, even after accounting for inflation. Okay? Federal support is not kept up. Pell Grants, which is the largest federal grant program for low income taxpayers, covered nearly 80% of the cost. Now, it’s essentially a third of the cost.

The Department of Education – the typical undergraduate student with loans, now graduates with nearly $25,000 in debt. Okay, that’s average. If you go to law school; I have friends that have $200,000 plus when you add in their undergrad and law school. So, yeah, they’re hopefully going to be making good money. But even in law school, if you don’t finish top 25% of your class, you may not be making more than $60 grand a year. You could actually make less than a waiter, a waitress by graduating law school. I’ve seen it. I have neighbors that graduated law school and are making $20 an hour, essentially. So there’s nothing guaranteed.

So, the current student loan crisis is $1.6 trillion of federal student loan debt from more than 45 million borrowers. And obviously, the biggest burdens on the middle class, right? Rich people can pay for the stuff, they save, they have a high income, they have 529 saving plans, and they’re able to save and help their kids pay for college.

One of the biggest advantages I had is I had no debt when I graduated college and law school. Why? I grew up in Canada, and I think, probably for a year of university, and I went to McGill University, which is a top school in Canada, I think it was like $3,000 for the whole year. In fact, one year, the students went on strike because they wanted to raise tuition like $100, something insignificant, but that’s how serious Canada is about education. And honestly, I went to school in Canada, I went to law school in the US; I have a master’s in tax law from NYU and the level of education’s stronger in Canada, even though it has less resources. Why? Because the resources are actually going to the teachers and not to the football team. And again, it’s coming from a huge sports fan. But reality is, if you support football, you probably should be following the NFL, not college. College should be about academics, not about how good your football team is. But, that’s the society we live in. I think that’s one of the issues that we’re having.

Let’s see what else are some important facts. Many of the students cannot compete their degree. So, the issue is, there’s a lot of these for private schools out there that are out there charging lots of money, promising all these future degrees, and none of this is materializing, but it’s hurting low income, especially African Americans. 25 years after enrolling in school, the typical African American borrower who started college in 1995-1996 still owes 95% of their original student debt. Not cool.

So, here are some key facts to chew on. Summary – about $1.75 trillion in student loan debt, that includes federal and private loans. Average around $29,000 owed per borrower, including federal and private loans. But, 92% of all student debt are federal student loans. The remaining amount is private. Right? So most people are getting federal loans. Only about eight to 10% are private. 55% of students from public four-year institutions have student loans, and 57% of students from private nonprofit four-year institutions took on education debt.

So, what’s the Biden solution? The Biden solution is the Department of Education will provide up to $20,000 in debt cancellation, and the debt cancellation will not be subject to income tax, to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell grant recipients. This is from federal debt, not private debt. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for married couples. Essentially, no high income individuals or high income households, and the top 5% of incomes will benefit from this. Okay, so Biden really wants to help middle class, low-income class folks who have student debt. The average student debt is $28,000-$29,000 and helping them take care of most of that.

Good or bad? Well, depends where you sit, right? Clearly, if you have student debt, you’re jumping for joy right now because most of it’s going to be gone. If you paid all your debt off and done what you thought was the right thing, and struggled to pay off debt and go on certain vacations, forego certain purchases just to pay off your student debt, and now you’ve turned on the television or you’ve checked your Twitter feed and you see that Biden is going to offer relief to certain people: $20,000 to $10,000; probably not the most content.

So, it’s where you sit. Will this cause inflation? Possibly, right? Some people can have more money in their pocket, maybe they’re going to spend more money, maybe they’ll save it, who knows? But again, there’s millions of people that will benefit from this. But, as we’ll see in a few minutes, it’s not really going to solve the problem, right? Because universities are still charging way too much. Private/public colleges are still charging way too much. Second highest in the world. And only the UK is actually a higher cost on public education.

So, what’s a Pell grant? Just in case you don’t have one. It’s essentially the largest grant program offered by the Department of Education to undergrad students. Really doesn’t cover grads, only undergrad. It’s a form of federal financial aid. It typically does not have to be repaid, which makes it highly desirable toward to the US department of Education to help eligible low income students pay for the college costs include tuition fees, room and board, and other educational expenses. Generally, the maximum in ’21-’22 is about $6,500. Minimum is about $650. So, there’s thousands of schools that are part of the Pell Grant program. Obviously, lots of people are using it. And this relief will provide up to $20,000. Plus, it will also offer up to $10,000 in just debt relief from non-Pell Federal Grant/Federal Loan program. So again, you got to be under $125 or $250 married couples. So, it’s going to help millions and millions of people.

The Biden Administration expects that if everyone participates that’s eligible, up to 43 million borrowers will receive benefits and full cancellation for roughly 20 million. That’s a lot of people, but they also have other things they’re trying to do. They’re trying to target relief dollars to low and middle income borrowers. Department of Education estimates that among borrowers who are no longer in school, nearly 90% of relief dollars will go to those earning less than $75,000. So they think most of the money that’s going to be allocated here will go to people earning less than $75k.

They expect this to help borrowers of all age. Borrowers are eligible for relief – 21% for 25 years and under, 44% are age 26 to 39, and more than a third of borrowers age 40 and up, including 5% of borrowers who are senior citizens. This should help people across the board. They expect to advance racial equity equality; we saw that with African Americans, who for some reason, are having a tougher time paying off their debt. So, that’s something that they’re excited about and something that the program will help. They’re also going to pause federal student loan repayments. They’ll be extended one final time through 2022. So, you still don’t have to pay your payments due to COVID, and they’re going to extend that another year. So, that’s helped some folks out.

They also want to make the student loan system more manageable. They want to fix the broken public service loan forgiveness program. And they also want to protect future students and taxpayers by reducing the cost of college and holding schools accountable where they hike up prices. We talked about some of these private schools that are online-type schools that have really done some mis-advertising. And the Department of Education is at least more focused on enforcement to some of these schools where there’s high debt and very little payoff.

So, what’s going on here? What’s the problem? The problem, as I mentioned, is it’s not really the loan relief, the loans; the issue is the cost of education. So, let’s look at some of the other advanced countries and what they’re charging. So, Germany is the best case. They charge zero for higher education. France, about $217 on average. Switzerland about $1,168. Netherlands’ $2,400. China: $3300 to $9,000. So, top universities are ten Gs in China, but the average ones are around $3,000-$4,000.

Now, we’re competing with China, right? They want to take over from the US as the most powerful economy in the world. How do you do that? Well, if you run a business, you know you can’t do anything without people, whether it’s construction, whether it’s manufacturing, whether it’s consulting, law, business, finance; you need smart people. How do people generally get smarter is they learn? They get taught by professors, academics, and they have good training. So, China is allowing more of their population to go to school for a lot less than we do.

South Korea: $4,500. Australia: $4,700. Canada: $4,900. Japan: $5,200. US: $8,000 or so. UK: $12,000. Okay and that’s average. We know some of the top schools are $70-$80,000, whether it’s Ivy League, some top private schools, and that’s the issue, which I’m going to chat about in a sec. So, they believe nearly all Pell Grant recipients come from families with income of $60,000 or less, and they feel strongly about administration that a lot of this relief, the $20,000 in Pell Grant relief, are going to help folks under $75,000.

So, is it fair or not? Again, it’s going to help 43 million plus potential people from all age groups. Yeah, it sucks if you, over the last number of years, if you worked hard and saved and were diligent and your savings and scrupulous and your financial planning and you paid off all your student debt, and now all these folks that weren’t, get basically free handout. Kind of sucks. I understand it, so I’m not really going to pass judgment on it. But, what I do want to focus on is the problem, and the problem is the cost of education. Do I have an answer? No. Do I think the federal government needs to provide more subsidies to state, so at least state schools can reduce the cost of their education? Yes. Is there anything federal government can do to private schools? Probably not,right? What can we do – refuse to go to college? It’s not really an option, right?

If you get into Yale or Princeton, you’re going to figure out a way to go, but unfortunately, that’s not always the case. I’ve told the story before. There’s a gentleman I know, African American, and his son got into Yale. He’s a baseball player. Got into Yale, okay? Got into a bunch of other schools. Super smart kid, obviously got into Yale, and he was going to get a very, very minor scholarship, like under $10,000. So, it was going to cost the dad and the parents $65,000 a year or so with tuition, and room and board. And he also got a free ride to a school in Orlando, a small school, not a school I even heard of, but to play baseball. The academics were obviously just in a different stratosphere than Yale, and he ended up taking the free school, just out of cost.

And, so here’s an example of someone who may be the next scientist, next doctor, next president, and he had to defer, turn down Yale, to go to a school that’s not as strong academically because of money, and that shouldn’t be the case. We are in the richest country in the world, most powerful economy in the world. Our kids should be able to go to school and yeah, not every kid can go to Harvard. Agreed. But the kids that get into Harvard should be able to go. Okay. I think it’s crazy that a semester can cost $35,000 to $40,000 a year for twelve to 15 credits. I mean, God, I took Art of Listening in college, right? That’s the same credit cost of physics or biology or English Lit.

Let’s be honest, whoever went to college knows, most of the classes are kind of bobo. They’re interesting; I took art history. I took philosophy. I took political science classes, history. Some really cool stuff. But, do I remember anything? No. It’s more about the experience and the ability to meet people from different parts of the country and the world and living on your own and partying, but it’s really just like a beer crawl or a bar crawl. It’s kind of what the four years is and the costs are getting to the point where smart people, young people, are just saying, hey, I can’t do it. Not worth it. I’m going to go to a school with a lesser academic profile. And ultimately, is that hurting our country? Right. Are we producing less efficient, less educated workforce? And the answer is probably yes. I think we’re more focused on school, on sports in school, than academics right?

No one knows who the top professor is at a school, but you certainly know who the head football or basketball coach is, right? We know who’s in the Final Four, who’s in the BCS championship game. No one really knows who the most important professors are at the school and I think our priorities are just backwards. And until we kind of get things straightened out, which I don’t think we are, the way the TV contracts are for football, college, basketball, it keeps escalating, and that’s kind of our priority, right? How many times do you hear that kids go to school; I saw somewhere when Clemson won the national championship, a bunch of years ago in football, their rate of application rate went up, like, 80%. Right? People want to be associated with winners, and unfortunately, football and basketball is what people look at instead of academics.

The student loan package, the relief package will help. Yeah, it’s going to help some folks free up some cash, but it’s not going to solve the problem because costs keep escalating. I can only imagine what the cost will be in seven or eight years, and my kids have to go to university or college, and whether we even do it. In fact, I’m probably going to get my kids a Canadian passport and try to get them to school in Canada. And again, America is the best country in the world. I love being American, but the education system is a joke. The fact that people are paying $70,000 to drink beer for four years is ridiculous. Again, I went to McGill, I didn’t go to one football game, one basketball game, one hockey game. I was there to learn and I worked my butt off and I had fun. I still partied and went out Thursday nights, Friday nights, Saturday nights, but I studied and teachers were available and the resources were for learning, not for football and tailgating. So, we got to figure out what we want, get serious. If we want to continue to be the strongest economy and have the most efficient and smartest workforce, then we got to bring the cost of education down; get more people into schools and focus on education versus playing football or basketball. That’s coming from a sports freak. But hey, let’s focus on the NBA and NHL and NFL, and let schools be about learning and teaching and less about sports and let professional leagues be about sports. But until we do that, this is a vote by too, let’s be honest, right? When a party gives you free money, you probably are more likely to vote for them.

So, yeah, it’s going to help millions of people out, but it’s going to create a lot more voters for the Democratic Party, which they’re smart enough to do it; good for them. But will it fix the system? No, the system is broken. It’s in big trouble. The federal government can only do so much, right? It can’t tell Harvard what to charge in tuition, but at some point we need to do something and say, hey, we’re not going to pay for this. We’re going to figure it out. And maybe people like Elon Musk and other folks, like Warren Buffett, could figure out a way to create universities. Don’t run them, have academics run them, but subsidize tuition. Create your own private universities where the cost of education is affordable, right? If schools in Canada can do it, and trust me, the level of education is far superior than any of the schools here, and I went to Ivy League schools here, my friends that went to Ivy League schools here,  far superior in Canada, how they doing it at $4,000 a year versus $80,000, right? It’s just allocation of cost and just having priorities; prioritizing academics, education over football and basketball; the bottom line.

But anyways, I just wanted to kind of share my thoughts on this. This is my take. Obviously, there’s probably 40 million people that are jumping for joy. They’re going to save tons of money on loan payments, and for the folks that paid off the loans, it sucks. But you did the right thing. You had a debt, you signed the document, you signed the loan agreement, and you did your part as a borrower. So ultimately, kudos. But yeah, sucks that you kind of did the right thing and now others kind of get a free ride. So, kind of the way the system is. Is it fair to, like I said, should the relief be towards medical bills, towards mortgage relief, towards rental income or rental cost? I don’t know, I’m not a politician. I’m not in Congress. But, ultimately it will help a lot of people and do some good. And that’s just the way it is.

So, thanks for listening. Thanks for watching. I hope you guys enjoyed it; but it is a serious issue. We are in the best country in the world. But if we want to maintain our standard and be the best, continue to be the best for our kids and our grand kids, we’ve got to figure out a way to reduce cost of education. Get our kids into the schools and have them focused on school and not partying and football and basketball and tailgating. But actually learning, so they could become better educated, better workers and ultimately, help us stay on top and be the strongest economy and the most powerful country in the world because that’s ultimately our goal.

So, I appreciate you guys. I know it’s kind of a long winded one. I’m sorry. I hope I didn’t bore anyone, but I’m super passionate about this. I went to law school, I have a master’s in tax law. Education could help bring low income to middle income, middle income to high income. It’s the one thing that bridges the gap and irrespective of your skin color or religion, highly educated people that are passionate and hard working will be successful. Companies will hire you whether you have three heads, color hair, earrings, your religion, no one cares. People want smart workers that are hard working and we need better. Universities are more focused on that than how far someone can throw football.

That’s my take. I appreciate you guys listening. Have a great rest of your day and take care.


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