Last week, the Supreme Court ruled against the Biden administration’s student loan forgiveness proposal which would have forgiven $10,000-$20,000 of student loans per borrower. But the fight for student loan forgiveness isn’t going anywhere.
In a previous article for FEE, I highlighted how student loan forgiveness has already been happening and started under president Trump due to the freeze on interest accumulation. Although this may not be as visible as a $10,000 lower balance, frozen interest means the real cost of taking a loan out became smaller than the initial terms suggested.
This highlights a simple truth about student loan forgiveness—the Biden administration has already and can continue to forgive student loans in spite of this ruling. In fact, they already have plans to do so.
Almost immediately after the Supreme Court decision was announced, the Biden administration announced their response.
Perhaps the most important announcement by the Department of Education was the introduction of a new student loan repayment plan—the SAVE plan.
The SAVE plan is a modification of the current REPAYE plan. Both of these plans are considered income-driven-repayment (IDR) plans.
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IDR plans are complicated, but essentially they limit the size of a borrowers monthly payment based on income. The payment calculations depend on the borrower’s income relative to the poverty line.
Under the new guidelines by the Department of Education, someone making 225% of he federal poverty rate will now have their income completely protected from payments according to Fox Business. That means borrowers earning $32,805 or a family of four with income of $67,500 will be required to make payments of $0.
Even borrowers who make more than those amounts who qualify for a SAVE plan will see lower payments.
But wait, won’t low or zero dollar payments mean the interest on these loans will grow out of control? Nope. The administration is capping interest rates to make sure loan balances don’t grow. So how much do we expect someone to pay on a student loan with a required payment of $0 and no interest accumulation? It’s not hard to see that this is just shadow forgiveness.
It doesn’t end here either. IDR plans already offered loan forgiveness to borrowers who made payments for 20-25 years. So borrowers who have a small payment under Biden’s new SAVE plan will see their balances disappear eventually based on already existing rules.
So, if a borrower qualifies for a $100 monthly payment, and they pay that over 20 years, that’s a total repayment of $24,000 (not even including the fact that the present value is lower). So if someone has a $50,000 student loan, that means they got forgiveness of $26,000. That dwarfs Biden’s $10,000 forgiveness promise struck down by courts.
Not only that, borrowers can get even more forgiveness if they take jobs in the government or non-profits. The Public Service Loan Forgiveness (PSLF) program grants forgiveness after just 10 years of payments to those who work for qualifying public and non-profit jobs. Using the previous example, that would increase forgiveness to $38,000 of the $50,000
The Cost of Our Student Loan System
It would be nice if the cost of this convoluted shadow forgiveness program was limited to the dollar value of the forgiveness (which ultimately is borne by taxpayers). But that isn’t the full cost.
Perhaps an even worse aspect of this system, is it distorts the incentives of future generations in making career decisions. The current system, exacerbated by the Biden Administration’s new plans encourages and rewards those who take out massive student loans to pursue jobs which consumers do not value highly.
Even more damaging, the new repayment program exacerbates the use of PSLF which encourages workers to avoid value creating private sector jobs, and, instead, pursue wealth-extracting public sector jobs.
What world-improving things would have been created had individuals been left to become educated at their own expense? Those forgone benefits will go largely unseen a la Bastiat.
On the other hand, many will experience direct benefits from these programs which are very visible, making the programs very hard to end.
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So while some have celebrated the Supreme Court decision as defeating loan forgiveness once and for all, I’m not nearly so optimistic. So long as the Department of Education has administrative control over the country’s student loan system, loan forgiveness is just a few bureaucratic tweaks away.
At this point, the only way the Supreme Court would be able to do anything about it is if they declared the Department of Education itself unconstitutional. But I doubt this will ever happen. Unfortunately, the administrative state seems to always be forgiven.
About the Author
Peter Jacobsen teaches economics and holds the position of Gwartney Professor of Economics. He received his graduate education at George Mason University.
Article cross-posted from FEE. Image Credit: Gage Skidmore via Wikimedia|CC BY SA 2.0
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
