Failures happen when you experiment.
Failures can be attributed to luck just as much as success, but failures are a better teacher because we think about our failures so much more.
As long as you are introspective about your failures, and humble enough to learn from them, they can be springboards for growth.
Let’s hope the U.S. government is capable of having a similar mindset.
Consider the government’s fiscal response to the pandemic. It was and continues to be one giant experiment in monetary theory.
Printing trillions of dollars for direct handouts to individuals had never been done on this level. It borders universal basic income. We have no idea how this experiment ends.
It might go horribly wrong and give America crippling stagflation (stagnant growth and high inflation). It might have saved the country from another Great Depression.
I don’t care how it ends. I just care that it’s happening. It’s instructive.
The closest programs to this were the 1930s New Deal (which targeted infrastructure spending), the 1940s GI Bill (which encouraged education and housing loans) and Cash for Clunkers (which gave money to people in exchange for inefficient cars).
The Global Financial Crisis in 2008 saw most of the handouts go to banks and automotive companies that were thought to be too big to fail.
However, it’s clear that whatever playbook the government had been using was tossed out in March 2020 as the benefits went straight to personal bank accounts in the form of cash.
This was the first time so much money had been given away so freely without much regard to who needed it and who didn’t. I write this 18 months after the first checks were received, and the jury is still out on what is happening with employment, inflation, and our culture at large.
Leading and lagging indicators abound. Most metrics are more headline-worthy than fact based. And the smartest people I know admit they don’t know what happens next.
Which brings us to student loans.
The President and Congress have been discussing the cancellation of up to $50,000 worth of student loans. In fact, the latest stimulus bill (the American Rescue Plan) included a provision to eliminate the tax you’d have to pay if the government forgave your student loans. It’s possible they are trying to pave the way for broad forgiveness.
It may take awhile, and will likely come in multiple different laws, but if broad student loan forgiveness occurs, I wouldn’t be upset despite the fact that I don’t have any student loans of my own.
Spoiler alert: it’s not exciting. But it works. (10 min read)
Here’s Why I’d Love for This Legislation to Pass
I’d much rather prefer this money be used on something like programs to help the disabled, better police training, or research and development as I believe those things would have more long-term benefits than relieving the debt of a group of people who are categorically most able to pay it back. But I digress.
Not everything has to benefit me directly to benefit me. I have friends, coworkers, and a partner that would benefit from this. I don’t want to be Ebenezer Scrooge watching from the shoreline as everyone around me drowns in a pool of debt.
I would like to live in a country that rewards education and I believe this act would send a strong message to the rest of the world about our priorities as a nation. I’d preferably want it coupled with something that incentivizes future college students from not making the same mistake.
I own stocks, and believe debt forgiveness would be good as stocks usually do well in high inflation periods and companies would directly benefit from more consumers with freed up bank accounts, boosting their earnings.
Inflation would be likely because trillions of dollars would shift from loan repayments to purchasing goods and services. All that competing demand would push prices up across the board.
Homeowners do well in high inflation environments because interest rates are locked in when the Fed raises them. The current political climate, and my expectations for high inflation is one of the more speculative reasons I recently bought a house despite the crazy real estate boom we’ve seen over the past year.
Not to mention, the student loan system was predatory to begin with so the word “forgiveness” should be taken literally. Someone needs to apologize for the scam artists that screwed these kids over to begin with.
Allowing 18 year olds that can’t even order a beer at a bar to sign up for tens of thousands of dollars of loans with zero real-world experience would be bad enough. But layer on top of that the fact that colleges are businesses and therefore incentivized to help guide these kids to get their loans regardless of the job prospects of their degree feels scummy.
I am grateful to my parents and brother for being excellent financial role models to me growing up, but I am also sympathetic to those that didn’t learn about the risks of debt until it was too late.
Like Scott Galloway once said, “Enlightened self-interest and altruism are not mutually exclusive.”
My Suggestions for Forgiveness
Unlike when millions lost their jobs due to the pandemic, we aren’t as strapped for time to figure this problem out so we can and should look at it from every angle. But analysis paralysis is real, and we have a political system that rewards short-term thinking because our election cycles are so short.
As incredibly polarizing as this decision could be, there are a few ways I believe we could even the playing field and get broader agreement quicker.
Here are some options that would be more likely to be passed in the short-term:
Rather than blanket forgiveness across the board, target those earning wages under a certain amount. I dislike the idea of extending financial assistance to the wealthiest groups in our country (college-educated, white collar professionals) because I don’t think it will solve the problem. They are categorically the most able to pay back their loans and still enjoy a cushy lifestyle. Target the poorest college grads.
I would prefer for it to apply to private student loans as well, because many people refinanced their government loans to private loans to get a better interest rate. Don’t punish them for trying to take control of their finances.
I’d like to see the sticker price of college come down overall as debt forgiveness would only be a temporary fix. There’s no doubt in my mind that COVID laid the groundwork for disruption in the field of higher ed, but a little more oversight of the U.S. education complex might help.
Another option instead of debt forgiveness would be to permanently drop the interest rate to 0% on those loans so that people can start to make progress. Ben Carlson recently wrote about this idea over at A Wealth of Common Sense.
Other Doors This Might Open
However, I think the government will still have to take a serious look at not only who owns the most student debt, but also what other groups have been defrauded by systemic issues regarding finances.
The GI Bill I mentioned earlier, for example, didn’t allow for black families to benefit from home ownership and reduced their ability to earn generational wealth compared to their white counterparts that returned from the second world war.
Banks were discouraged from lending to black families and this is one of the root causes of the race and wealth inequality issues we have in our country today.
I hope we are humble enough to admit our errors and learn our lessons. One problem may be solved while another may be created, but I believe history is a rising road.
Regardless of what happens, I’m excited to see the data this experiment provides.
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