Hope is Not the Answer – The Issue of the Student Loan Forgiveness Program
In the past few days, I was watching the Dave Ramsey Show on Youtube. At first, I really thought that he was a relative of the world famous chef Gordon Ramsey, so I didn’t pay much attention to him. It was in my Youtube Recommended videos, so I clicked on it. A caller asks a question about personal finance, and Mr. Ramsey will try his best to answer it. That is the basis of the show, for about 5-10 minutes for each question.
It turns out that he is quite the authority when it comes to personal finance and getting rid of debt, and had personal experience to back up his knowledge. (He is also not related to Gordon Ramsey in any way.) He was doing this for almost 30 years. In the past, I would say it was Suzie Orman who possess similar traits.
In more than one occasion, callers had massive student loan debts in excess of $100,000 and ask Mr. Ramsey on the best course of action. A common ground between them is the inquiry of the student forgiveness, which typically refers to the Public Service Loan Forgiveness (PSLF). Among other similar programs, this is the most popular in that if one works for a public agency (government or non-profit) for 10 years while paying back the student loan, one may qualify for the loans to be forgiven (note the emphasis).
It sounds very enticing. I can almost imagine the thought process: LOAN ALL THE MONEY!! PARTY!!! Graduate late! Buy new car and go to Whole Foods! EXPENSIVE WEDDING! All I need to do is to work for the government! Easy peasy!
This whole thing stems from the basis of blind hope – hope that people in debt do not have to pay back 100% of the loan by simply working at a public agency for 10 years. “If I simply do 10 years of boring and easy work in the ‘fed’, my student loan debt is gone! Then, I’ll go work at the private sector and make a lot more money!”
Well, I have bad news. In September 2018, the Education Department reported that 96 of the 30,000 who applied for the program actually had their loans forgiven. That’s less than 1%. In comparison, the intrauterine insemination (IUI) has a higher success rate of 10%.
Mr. Ramsey said it best – do you want to be a slave for 10 years? And even then, there’s no guarantee that your loan will be forgiven.
However, knowing people, they will cling on to this blind hope, ignoring all the warnings.
There’s also the problem of “habit.” By the time people realize that their student loans spiral out of control, they will find themselves unwilling to give up that lifestyle through a drastic change of habit (e.g. from spending to saving, from driving a BMW to a beater, cutting all credit cards). Habit is not something that can be changed easily unless some catastrophic event comes to their lives. Nobody wants that.
So, simply stated, don’t be one of those people. If you have student loan debt, pay it off. Pretend this program doesn’t exist (and please don’t diss public service – most of us work really hard).
-Sam