Southern manners always suggest that one should never talk about politics, money, religion, and sex at the dinner table.
We will probably touch on a few of those in the following words. If I offend you, I suggest you email me about how I have offended you. You should know that I appreciate a conversation full of different points of view and will welcome yours.
My native Texan manners will naturally allow me to listen to your side of the conversation, whether I agree or not. It is called conversation, not lecturing, which is a talent we could all work on in our lives.
Student Debt
Wednesday, August 24, 2022, the current POTUS, Joe Biden, used his executive pen to eliminate a whole S____ ton of debt. Whether he had the authority to do this or not will get litigated.
Since you asked, I think you need to pay it back if you borrowed it.
However, I think that the biggest crooks in the entire student loan debt fiasco are a competition between our US Government and Universities/Colleges.
US Government
The federal government is a price-insensitive buyer of college tuition. It’s willing to lend just about any amount of money to any student to go to College. It doesn’t require a credit check. It doesn’t need a student to have any plan to repay the money. A few forms, a few clicks of the mouse, and voilà! It just hands over tens of thousands of dollars.
Over the last decade, while the interest rate paid on savings accounts hovered at 1% or less, the current federal student loan interest rate for undergraduates is 4.99%.
Unsubsidized and Direct PLUS loans for Graduate and professional students have fixed interest rates of 6.54% and 7.54%, respectively. Private student loan fixed interest rates are typically around 3.7-14%
Said another way, you could get a payday loan and it might cost you about the same amount.
Universities/Colleges
We can blame these two institutions for increasing tuition from average college tuition, fees, room, and board was $4,399 for public colleges in 1995. Today that has risen to the average cost of College in the United States is $25,707 per student per year, including books, supplies, and daily living expenses according to educationdata.org.
You will not need your HP 12C to calculate the fivefold increase. This was during a period when the average inflation was less than 3%.
What caused this?
The runaway student loan system allows these bloated institutions we call universities to grow bigger and bigger—often without preparing students to think or do anything else of much use.
This brings us back to the circular pattern of government involvement in increasing prices.
In 1998 the Clinton administration increased student financial assistance by 20% and introduced direct lending. The impact?
Higher tuition costs and increased student loan borrowing.
In 1998 the average undergraduate student loan debt was $14,855 and in 2021 it had risen 205% to $30,600.
How did College get so expensive? It’s simple, really. When you subsidize something, the price goes up.
My Proposal for Student Loans
Before jumping on my soapbox and giving you a solution so simple, even the newly officially adopted Mozart and Maxie can understand it, we must acknowledge that it involves people being accountable for themselves, which is a missing element in today’s society.
Michael’s Five Points to Student Loan Sanity
- The US Government is the primary lender. Eliminate the interest on the loan. Consider the loan investment in our children’s future and the USA.
- First, pay back the interest paid on the student loans. Playing fair is suitable for everyone. This money can stimulate the economy without increasing taxes.
- Limit the loans to 75% of the tuition, room, and board cost. By agreement, a university or College must state the price for the needed years and not raise any student’s total education cost from the first year to the target graduation.
- If a student does not reach graduation for whatever reason, then the university or College is responsible for 50% of the loan amount. No Graduate = higher education held accountable.
- Ninety Days after graduation or leaving the university/college without graduating, the student begins making payments. Payments are 10% of the student’s gross income and withheld by the company. The amount paid each year is a deduction from taxable income before paying taxes.
Tell me what you think, and if you really like this then send it to your senator, representative, or the White House.
What do you think?
Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal | Tannery & Company
The opinions expressed in this material are for general informational purposes only and are not a substitute for professional advice. Individual circumstances do vary. Independent Financial Group (IFG) does not give tax advice. IFG Registered Representatives (RR) do not give tax advice while acting as a RR. These matters should be discussed with your tax professional.
