In a recent LinkedIn post I quoted Mike Rowe, TV personality and champion for the blue collar worker. Mr. Rowe’s comment is highlighted below:
“I know guys who worked hard to get a construction operation running. Some had to take out a loan on a big old diesel truck. Why would we forgive the cost of a degree but not the cost of a lease payment?”
This ignited a rather long and exciting thread on LinkedIn with over 187 reposts, 458 comments, and 250,000+ impressions. Unsurprisingly, when you’re talking about government subsidies, there were very polarized view points and opinions.
In this article I’ll go into an bit more detail as to what Mr. Rowe had to say and and bring up a few key items brought up in the LinkedIn discussion including: student loan debt forgiveness, business “write offs”, PPP loans and the bailout the automakers during the 2008 financial crisis.
Student Loan Debt Forgiveness
One of the main criticisms of student loan debt forgiveness is that it unfairly burdens those who did not take out loans. Critics argue that taxpayers, many of whom never attended college or have already paid off their loans, would bear the financial cost. If the government is forgiving these loans then there is ony one class that is paying for this debt: the US taxpayer.
For the moment we shall put aside the argument that college tuition prices have skyrocketed compared to wages. This is indeed a fact. However it has no bearing on debt forgiveness. People entered into contracts to borrow a sum of money to earn a degree and then to pay back that money with the (presumably) more money they make with that degree versus not having it. Costs and degree choice are a separate discussion.
Were there people who chose poorly and got degrees that would never support the debt service of the loans? Yes of course. Looking at you “Post Modern Russian Literature Studies” major. However that, in my opinion, is part of being personally responsible. If you take out $200k in student loans for a degree that will net you $50k a year you’re going to have a very hard time paying back that debt.
However when you choose a higher paying degree (usually technical) your chances are much better and in fact, in many cases, the ROI is less than 10 years.
The US government (and specificly President Biden) has taken upon themselves to determine who should and should not be forgiven. There is a set of critera that includes your loans we government backed. However there are numerous cases (including my wife) where government sponsored loans were sold ot private lenders without the knowledge or consent of the borrower. Now that these loans are private they are no longer eligible for debt forgiveness.
Finally, student loan debt is not dischargeable in bankruptcy, one of the few types of debts that fit this category; This means there is NO WAY to get out of paying this debt in your (or your children's) lifetimes. This is one way to quickly and easily fix the problem. If you were allowed to discharge this debt in bankruptcy it would be a legal and legitimate way to elimiate these debts. The downside being that your credit will be in tatters for the next 7 years. However bankruptcy is a valuable and well tested tool in the US economic system.
So How Much of a Burden are Student Loans
Contrary to popular belief, the average student loan payment is not as burdensome as it is often portrayed. On average, borrowers pay about $400 per month, which is a relatively small portion of the typical household budget. When compared to other essential expenses like housing and utilities, student loan payments, while significant, do not dominate most people's monthly financial obligations.
There is a strong argument that forgiving these loans will increase discretionary spending, allow younger borrowers to put down payments on homes, cars and other large purchases, overall stimulating the economy. Ironically a large number of people state that if loans are forgiven they would spend the extra money on further eduction further proving that perhaps the original choice in education was not the best.
About that Truck Lease
Some commenters mentioned that the truck lease that Mr. Rowe mentioned could we deducted as a business expense. While this is true in many cases if the truck is being use for both business and personal travel only a portion can we deducted. Furthermore student loan interest can also be deducted from taxes.
If the truck owner runs into financial issues the truck can be repossessed and the owners is now out whatever they paid for it (and they have no truck). If a student loan is forgiven the student still has the degree and education.
So while yes, there are differences between student loans and commercial vehicle loans the point Mr. Rowe (and I by proxy) are trying to make is that why are we forgiving these student owns when those who did not go to school are not given equal breaks. In reality we both believe that people should be responsible for themselves and in neither case should there be any sort of “forgiveness”.
PPP Loans: Handout or Necessary for the Economy?
PPP loans (Paycheck Protection Act) were intend to help small and medium sized businesses survive the CORONA pandemic, When it first hit in early 2020 many states and cities closed down completely; some for over a year.
The premise of these loans were to provide employers a buffer to alow them to keep their employees on staff rather than lay of. To be “forgiven” as a business owner you could l spend this money on wages and other business operating expense (such as rent, debt service, utilities etc..)
PPP loan analysis reveals that a substantial number of loans were forgiven, showing overall compliance with the program's conditions.
A few commenters tried to pull a “gotcha” on me, asking me how I felt student loan forgiveness was wrong when my company RND Automation took about $788,000 in PPP loans. Firstly this is all public knowledge. Here is RND’s PPP loan information.
As you will note a VAST majority ($783,000) of the funds went to keeping our employees paid (payroll). This kept 60-ish families paid during a time when NOTHING was getting done in the economy. It was effectively shut dwon. As other $20k went to debt service and almost $65k towards rent (to keep the landlord paid). A little known fact is that not a penny was allowed to go towards any owners’ salary or distributions. We had to dip into the company savings if we wanted to get paid.
While there are plenty of stories of business owners buying boats or jets or cars with cash, these are few and far between. Furthermore there are “accounting errors” in the federal government’s handling of some of these loans but that’s a government problem, not a business or employee problem. (Leave it to our government to lose OUR money…)
The total loans distributed came to about $788M. This is half of the $1.5T that Biden has slated for student loan forgiveness (which affects a LOT less people).
One has to be intellectual honest and understand that these loans were a way to bail out an economy that was on the edge of collapse. Without these loans it’s estimated that multiple millions of people would have become unemployed. I argue that the PPP loans did exactly what they were intended to do… allow businesses to survive during a time of government imposed shutdown. This was not a decision but he businesses, unlike a student loan.
Note to those commenters who tried to “get me” by posting my PPP data… you’ve gotta try harder than that….
Automaker Bailouts of 2008
Some other commenters assumed that because I was opposed to student loan debt forgiveness plan that I was for some reason in support of the automaker bailouts.
Again, while I do not support bailouts this wasn’t one. Unlike other bailouts, these were structured as short-term loans. Remarkably, all major automakers, including General Motors and Chrysler, managed to repay their loans, demonstrating the effectiveness of this approach in stabilizing a critical industry.
These were loans that were repaid back to the taxpayers along with accrued interest.
If you really want to cry foul in the auto industry you only need to look as far as Tesla who has, to date, taken over $2.8B in government grants, subsidies, tax rebates, and loans (loans that have yet to be paid back mind you).
Conclusion
Comparing student loan forgiveness, PPP loans, and the bailouts of automakers are vastly different, each in their own unique ways, with their own sets of pros and cons (some more than others). However to paint support of one with support of another is frankly absurd and shows how little the average American really knows about macro-economics.
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