The Potential Aftermath of Student Loan Forgiveness

The Potential Aftermath of Student Loan Forgiveness

President Biden is forgiving qualified students, loan forgiveness up to $10,000 and up to $20,000 if they have received a Pell Grant.

I have thoroughly explained the consequences of this decision here. The main reason why this debt cancellation is bad is that it removes personal responsibility.

But there is one more thing that I think is important to add to the unintended consequences. It piggybacks off of the idea that it teaches students financial incompetency.

Prediction

My prediction is that in the future the students who received the loan forgiveness will statistically be more likely to default on their loans. Either their mortgages, auto loans, or credit card debt.

This is because the government has classically conditioned these students to make poor financial decisions. They have taught students that when they make bad choices the government will bail them out. This was partly the same reason that caused the ‘08 crash. The government bailed out banks for poor investment choices and since they were “too big to fail” these banks kept on making poor investment decisions because they were expecting to be bailed out once again.

These students will have a similar reaction to the banks. “I can keep making poor and shallow thought decisions and the government will bail me out.”

This will inevitably lead to the default of thousands, if not millions, of loans because people will think that the debt they can’t pay back will just be forgiven. It will not. And if it does, the government will be training people even more so that their actions do not have consequences. We would be in an endless cycle of hell.

The Banks Prepare

Banks have access to an enormous amount of financial data of each person. This is so they can make informed decisions on who to give out loans to and at what interest rate. What if in the future they find people who accepted student loan forgiveness are 300% more likely to default on their loans, ceteris paribus?

The banks would then take not only your credit score into consideration but also if you accepted debt forgiveness into how much your interest rate should be. Don’t be surprised if you see loan forgiveness as a negative when looking to receive a loan in the future.

The Debt Collective

There currently is an organization called The Debt Collective and its goal is to refuse to pay for the debt it owes. The idea is that if enough people refuse to pay their debt the system collapses and all debts are forgiven under the rationale that there would not be a system in place to enforce the consequences of not paying off your debt.

This organization is the epitome of the parasitic idea that the loans that one takes out are not their problem and that someone else will fix it for me (i.e. the government). President Biden forgiving these loans is just empowering these organizations. Organizations whose core values are fundamentally flawed and politically biased. This is exactly the problem with forgiving student loans, it allows for organizations like this to be created and seen as a moral and social good. It is not. It enforces poor financial responsibility and incentives.

Read more about The Debt Collective here soon.