Paid Off Your Federal Student Loan? Read This About Biden Forgiveness.

I read an interesting question and answer about President Biden’s student loan forgiveness plan. The person asked a very good question. They said, “I paid off my student loan in 2020. What happens if the Biden Administration passes student loan forgiveness?

The answers given seemed to really miss the mark so I thought I’d help clarify this for you.

One person said, “Good for you for paying off those loans, but any plan from Biden to cancel student loan debt wouldn’t have any effect for you.”

Another person said that position was incorrect. They said “Wrong. The student debt crisis is the result of the Federal government eliminating moral hazard to the institutions in supporting the loans.” – Source

So Let Me Tell You Some Truth

The reality is we can project our personal position and hopes on what the Biden plan means but until the exact moment that Congress passes rules and regulations on the program and the President signs it into law, nothing matters. Everything can change at the last minute.

The devil is going to be in the details for this program. There are certainly arguments on both sides about why some level of forgiveness is appropriate for those still carrying debt and those that have paid it off.

But first, we have to accept that when it comes to laws, there is never equity of fairness or a balance in repairing a broken situation. No matter what the final outcome is people will be unhappy on both sides.

Fundamentally the core issue here is the government’s participation in the approach that wound up passing out easy money to schools without regard to value and outcomes.

What began as a bold social experiment to excel as a country devolved over time into greed and special interests in all niches of the student loan industry, from accepting payment from federal loans to collections and enforcement.

Federal government student loans began in 1958 in response to the Soviet launch of Sputnik and the panic in the nation that the United States was falling behind. In fact, on the very day, Sputnik first orbited the Earth the push for federal student loans was launched. – Source

The National Defense Education Act of 1958 (NDEA) pushed low cost higher education loans that included a version of Public Service Loan Forgiveness that has become so contentious under the Trump administration.

The original purpose of helping people to obtain higher education was noble and needed at that time for America to regain footing as a leader.

The purpose of the NDEA:

“The Congress hereby finds and declares that the security of the Nation requires the fullest development of the mental resources and technical skills of its young men and women. The present emergency demands that additional and more adequate educational opportunities be made available. The defense of this Nation depends upon the mastery of modern techniques developed from complex scientific principles. It depends as well upon the discovery and development of new principles, new techniques, and new knowledge.

We must increase our efforts to identify and educate more of the talent of our Nation. This requires programs that will give assurance that no student of ability will be denied an opportunity for higher education because of financial need; will correct as rapidly as possible the existing imbalances in our educational programs which have led to an insufficient proportion of our population educated in science, mathematics, and modern foreign languages and trained in technology.

The Congress reaffirms the principle and declares that the States and local communities have and must retain control over and primary responsibility for public education. The national interest requires, however, that the Federal Government give assistance to education for programs which are important to our defense.”

“It is therefore the purpose of this Act to provide substantial assistance in various forms to individuals, and to States and their subdivisions, in order to insure trained manpower of sufficient quality and quantity to meet the national defense needs of the United States.”

It’s hard to argue with that.

The NDEA allowed and encouraged students to enter certain fields and receive forgiveness of up to 50 percent of their federal student loans. The stipulation was the student had to serve as a “full-time teacher in a public elementary or secondary school in a State, at the rate of 10 per centum oi the amount of such loan plus interest thereon, which was unpaid on the first day of such service, for each complete academic year of such service.” Additionally, “the liability to repay any such loan shall be canceled upon the death of the borrower, or if he becomes permanently and totally disabled.”

In reading through the NDEA I was pleased to see the recognition of vocational training, a focus that has sadly fallen by the wayside. Legitimate vocational training can provide students today with higher earning and more marketable skills than yet another degree in English, business, or even law.

The NDEA said, “The Congress hereby finds that the excellent programs of vocational education, which States have established and are carrying on with the assistance provided by the Federal Government under the Smith-Hughes Vocational Education Act and the Vocational Education Act of 1946 (the George-Barden Act), need extension to provide vocational education to residents of areas inadequately served and also to meet national defense requirements for personnel equipped to render skilled assistance in fields particularly affected by scientific and technological developments. It is therefore the purpose of this title to provide assistance to the States so that they may improve their vocational education programs through area vocational education programs approved by State boards of vocational education as providing vocational and related technical training and retraining for youths, adults, and older persons, including related instruction for apprentices, designed to fit them for useful employment as technicians or skilled workers in scientific or technical fields.”

Flash Forward

What the federal student loan program devolved into is shameful. The program that was designed to push America forward has turned into a plethora of subpar training and alleged education for hairstylists, bartender programs, and fields where the graduating student has little value to help America do better.

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It is hard to square the patriotic focus of the NDEA to help America position itself for a better future with the focus on the former Secretary of Education, Betsy DeVos, to bind students into defective education and take nearly every action necessary to prevent the lawful forgiveness of student loans as Congress wrote into law.

Over fifty years on we managed to turn the wings of noble education into a noose around the neck tied to an anchor that drags America down instead of lifts it up.

So What Can We Actually Say About the Biden Student Loan Forgiveness Plan?

What will happen really depends on refocusing our priorities on getting back to the noble goals of the very first federal student loan program. If we can push aside the special interests of student loan contract servicers’, schools, and some underlying banking groups then we might just be able to reset this mess.

In a better world, the government would accept responsibility for screwing this up and issue a pro-rata forgiveness percentage to all students that fell into the federal student loan trap.

Every dollar of that forgiveness will benefit us all through either partial student loan forgiveness, paying down debt, increasing emergency savings, or even putting it in an account for retirement.

At some point, we need to be less worried that the person next to us will benefit one dollar more and if we are truly the patriots we claim to be then get behind something that is for the good of the country.

An imperfect student loan rebate or forgiveness plan today is better than a perfect plan that does not exist at any point in the future.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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