Student loan bailout foreshadows financial crisis


Last week, the Biden administration agreed to write off $6 billion in student debt for 200,000 students who claimed they were defrauded by the former for-profit Corinthian Colleges. That’s on top of the $25 billion in student debt forgiveness for 1.3 million borrowers they’ve given in recent months. In an effort to expedite the process, the Biden administration erased the unpaid debt of all students who attended Corinthian Colleges from 1996 to 2014, without taking the time to review student claims on a case-by-case basis to determine whether evil had happened.

This approach to loan forgiveness is equivalent to using federal funds to compensate for damages caused by bankrupt education companies. In doing so, the Biden administration has created a huge legal precedent that could go well beyond the billions it has spent so far. The potential of this problem to push the United States into future financial crises requires answers to the following questions:

  1. Is student loan forgiveness fair?
  2. How much could it cost?
  3. What Should Christians Do About Student Debt?


Is student loan forgiveness fair?

As important as this question is, it is preceded by an equally important question: “Is lending a large sum of money to an 18-year-old fair?” For decades, the biggest unsung ritual that accompanies the start of high school is filling out the Free Application for Federal Student Aid (FAFSA). Suddenly every 18 year old in the country is learning how much they could borrow for college, without ever being advised on how much they should to borrow. Talk about a train wreck waiting to happen! Students who couldn’t even vote, sign a contract, or be held accountable for a crime the previous year are now being offered huge sums of money, with no track record or proof that they’re willing to handle it.

That said, when you take out a loan, you agree to repay it. You are spending someone else’s money, not yours. Obviously, it’s unfair to expect someone else to pay your debts. And it’s hard to claim ignorance when you have successfully completed high school and been admitted to college. Even less convincing is the argument that your debt should be paid by those who, statistically, After financially more disadvantaged than you. Should those who chose to drop out of college and go straight into the workforce be forced to pay for your monitoring? Especially when you were allowed to choose your field of study?

How much would it cost to pay off student debt?

In Q3 2021 (the most recent data available), US student debt reached $1.6 trillion (with 43 million borrowers carrying federal student loan debt), second only to mortgage debt (10. $4 trillion) and ahead of auto loans ($1.4 trillion) and credit card debt ($800 billion). To put that into perspective (because big numbers — like millions, billions, and trillions — tend to confuse people), paying off all student debt would add $10,811 to each of the 148 million tax returns. filed in 2021, with a price equal to the total amount of personal income tax collected in 2019 (the most recent IRS data available). Transferring unpaid debts from a group of people – those with outstanding student loans – who have had the opportunity to benefit from the use of these funds, to those who have not, would not only be unfair, but would cause considerable damage.

What Should Christians Do About Student Debt?

Do your homework. College education is a product. When you choose to go to college, you buy something. It’s a bit like buying a house or a car, and often even more expensive. And just as everyone knows that not all houses or cars are created equal, so is college education. So stop relying on studies that show college graduates have higher earning potential than those with less education. The generic studies you read are true, but only insofar as they are based on general statistics. In other words, you are statistically more likely earn more with a college degree than without. But there is no guarantee that this will prove true for you. Also, not all college degrees, or all fields of study, offer the same opportunities. I studied the Bible, music and accounting, and while my musician friends like to say that I sold accounting, I sadly reply, “I found it not that entertaining, so I decided to be useful.”

Also keep in mind that while the value of your degree may be debatable, there is no such uncertainty as to how much you owe. So before you go into debt to get a degree, ask yourself: is there a demand for this specific degree? Do you want to pursue a career in this discipline? Are you good at this?

If college education is a product, it means someone is selling you something. And you will only be satisfied with this product if it does what you want it to do. So don’t just rely on a specific college’s information about its quality in your chosen field. Check recognized outside sources, such as reports from colleges of US News and World Report and The Princeton Review of Best Colleges.

My favorite resource is the College Scorecard, from the US Department of Education, which allows you to personally compare between and within colleges and majors based on federal government data, including salaries by college and discipline.

You should also acquire general financial knowledge. The FAFSA tells you how much you box borrow, but you shouldn’t automatically borrow as much as you can. Don’t go into debt without understanding what that debt can do for your future. Here is my general rule for all loans. Never borrow for something that does not appreciate in value. Will your college degree really increase your earning potential enough to pay off the debt you incurred to graduate?

As an example, I used the College Scorecard website to rate Azusa Pacific University and the LP and Timothy Leung School of Accounting, where I teach. I found that Azusa Pacific University has an average salary for 4-year undergraduate degrees of $57,796 (the national average is $47,891). A closer look shows that these results are driven by a strong nursing major ($97,162), followed by the BA in accounting ($68,256). Is it worth an average annual cost (eg, tuition plus living expenses) of $30,744? It depends on what economists call the opportunity cost. What’s the next best thing you would do with your life?

If you study these things and decide to borrow money to pay for your education, prove that you are trustworthy by paying off your debt. The Bible tells us to “leave no debt unpaid, except the debt continue to love one another”. (Romans 13:8a) During the Great Recession, much was said about how predatory lenders encouraged people to take out loans for homes far beyond their means. And because of complex instruments like securities backed by mortgages offering the ability to lend other people’s money, banks and mortgage brokers have sometimes neglected their due diligence in pursuit of a quick commission, hurting many uninformed borrowers.

As true as that may have been – shrewd people preying on the financially vulnerable – there were many more who were not harmed by lenders, but rather relied on a socially acceptable excuse to assign their losses. personal to bankers. So when people forfeited their mortgages simply because their house prices had gone down, their personal dishonesty greatly exacerbated the financial crisis. At the end of the line ? As Christians, we serve God, not money. And we should be honest in all our dealings, no matter what the world says is acceptable. Pay your debts.

“Likewise let your light shine before others, that they may see your good deeds and glorify your Father who is in heaven.” (Matthew 5:16)

John Thorton is the LP and Bobbi Leung Chair in Accounting Ethics at Azusa Pacific University, and author of Jesus’ terrible financial advice: Turn the tables on peace, prosperity and the pursuit of happiness.

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