Have you ever wondered what the ideal income is to live a comfortable life before retirement and after retirement? Well, look no further than the student loan forgiveness income threshold of $125,000 per individual and $250,000 per married couple.
On August 24, 2022, President Biden unveiled a plan to cancel up to $10,000 tax-free in federal student loans for borrowers who individually earn less than $125,000. $125,000 is a generous income threshold given the median household income is about $75,000 in 2022.
For lower-income individuals who received Pell Grants, they will be eligible for up to $20,000 tax-free in student loan forgiveness. You can even get a refund for any payment (including auto-debit payments) you made during the payment pause, beginning March 13, 2020. Finally, President Biden will also extend a pause on federal student loan payments for what he called, “the final time” until December 31, 2022.
The plan could bring relief to over 43 million borrowers with an average of $30,000 debt outstanding. More details from the White House can be found here.
Whether you believe forgiving student loans for individuals making up to $125,000 is right or wrong, we must accept the government has the power to do what it wants. Society is all about giving and taking.
For background, I went to William & Mary and paid in-state tuition because that’s what we could comfortably afford. At the time, tuition was $2,800/year versus $22,000/year for a comparable private university.
The Ideal Income To Earn While Working
The ideal income where making more doesn't provide more happiness has been hotly debated. But the government has revealed to us the answer. The $125,000 income threshold for individuals and $250,000 income thresholds for married couples reveals to us the upper boundary of who the government views as middle class.
The middle class is the best class because it is the protected class that gains the most favor from the government. The middle class makes enough to live a comfortable lifestyle without the need for subsidies. We're talking about making enough to own a house, own a car, have two kids, and save for education and vacations.
At the same time, the middle class is always eligible for subsidies, such as student loan forgiveness, stimulus checks, and child tax credits. Why? Because politicians rely on the biggest demographic group in the country to stay in power.
Holding Onto Power
One main goal of a politician is to stay in power for as long as possible. Once you have power it's hard to let go. Power is intoxicating and can set your friends and loved ones up for life. Power is also the reason why billionaires enjoy buying media companies.
This combination of having your cake and eating it too is one of the reasons why wealthier households like to claim they are also middle class. Learning how to convince people you are middle class when you're rich is a skill worth learning.
Who doesn't want to feel like they belong to a larger group the government always supports? Nobody wants to feel persecuted for earning or having too much. We all want to be middle class, whether we truly are or not.
The tricky situation every politician faces, however, is determining what income cutoff is eligible and ineligible for free money. Deciding this income threshold for a redistribution of tax dollars is carefully decided by a team of strategists, economists, and advisers.
They didn't just one day come up with $125,000 / $250,000 out of thin air!
Determining The Income Threshold Is Tricky
If the income threshold for free money is too high, then enough people will start grumbling that politicians are providing tax cuts and free money to the rich. Since most politicians enter the office rich and become much richer after leaving, they don't want to make it too obvious their policies are also helping themselves and their friends.
If the income threshold for free money is too low, then politicians won't be able to effectively buy enough support to remain in power. Let's be honest. The vast majority of people would vote for someone if the candidate promised to give them a free $1,000, let alone a free $10,000 – $20,000. Observe what people do with money not what they say.
We've seen this income threshold debated in the past when President Obama wanted to raise taxes on anybody making over $200,00 and any household making over $250,000. In his administration's eyes, folks who made more were considered rich. Eventually, there was a compromise.
Perhaps due to inflation and an increase in overall wealth, President Biden has raised the income threshold for higher income taxes to $400,000 per individual and $450,000 per household. If the student loan forgiveness plan goes through, then it sets a strong precedent for higher income taxes to come.
The Ideal Income To Earn In Retirement
Given the ideal income to earn while working is between $125,000 and $250,000, then the ideal income to earn in retirement is roughly the same. After all, most of us would love to live the same lifestyle or better once we no longer have to work.
However, the great thing about successfully retiring is that we no longer need to save for retirement. This is one of the biggest realizations many retirees have told me after decades of saving 20% – 50% of their incomes.
When you no longer need to save for retirement in retirement, you free up a lot of cash flow. Further, we should be able to spend 100% of our retirement income or more if we plan to decumulate and not die with too much.
Therefore, the ideal income to earn in retirement is closer to $100,000 per individual and $200,000 per couple. It is the best income based on today's tax rates. At these income levels, the government will unlikely increase your taxes or cut you out of subsidies.
Finally, retirement income usually comes from investments, pensions, and Social Security, which have more favorable tax rates. Below is a chart that shows you can earn up to $41,675 as an individual and pay no long-term capital gains tax.
With $100,000 in passive retirement income a year per person, you should be able to live like a king or queen for the rest of your life!
Capital Necessary To Generate The Ideal Retirement Income
If you agree the ideal retirement income is about $100,000 per person in America, then how much capital is necessary to generate such an income level? To find out, we simply divide $100,000 by various rates of return.
To generate $100,000 a year in passive retirement income, you would need the following invested capital:
$10 million at a 1% rate of return
$5 million at a 2% rate of return
$3.33 million at a 3% rate of return
$2.5 million at a 4% rate of return
$2 million at a 5% rate of return
$1.66 million at a 6% rate of return
$1.43 million at a 7% rate of return
A reasonable rate of return in retirement is somewhere between 2% and 5%. The last thing you want to do in retirement is take too much risk, lose a lot of money, and have to go back to work. Therefore, most people will likely need between $2 million to $5 million in invested capital to generate the ideal income in retirement.
I've written in the past how having a net worth of $10+ million is the ideal net worth in retirement. It's what the majority of you voted on. However, based on government analysis of the student loan forgiveness income threshold, $10+ million is probably too much.
You Don't Need The Ideal Net Worth Or Ideal Retirement Income
Now obviously, not everybody needs to earn $100,000 in annual retirement income to have a great life. We're talking about the mass market ideal here.
If you're happy spending $50,000 a year gross per person in retirement, then all you need is $1 million to $2.5 million in invested capital at a 2% to 5% annual rate of return. Plenty of retirees live happily on less if they have no debt and proper health insurance.
If you're happy spending $30,000 a year gross per person in retirement, then you'll only need $600,000 to $1.5 million in invested capital.
With the average Social Security payment of around $20,000 a year, you may only need $200,000 – $500,000 in invested capital to generate $10,000 a year in retirement income. Very doable after 40+ years of working.
People Retire In Different Ways
I profiled a woman who retired with a net worth of only $600,000 and relocated to Taiwan to teach English. She started a new life partly because she wanted to escape the money trauma endured in America. So far, she seems to be having a great time living on a lower budget.
On the other end of the retirement spectrum, I profiled a man who gave up a $300,000+ job at 41. He retired with a net worth of $4 million and has two young children. Instead of lowering his household budget, his strategy is to support his wife in her career endeavors.
If you're able to earn some supplemental retirement income, like I hope all retirees do, then you'll need even less capital. The supplemental income fills the gap between your retirement income and your desired living expenses.
But more importantly, doing some work that provides meaning and purpose keeps life interesting. Personally, I'm much happier when I have a purpose. Purpose is partially why I continue to publish three times a week on Financial samurai.
Use Government Policies As A Guide To Live A Better Life
One of the reasons why I felt more comfortable leaving work in 2012 was due to an upcoming change in tax rates. There was a new surtax of 3.8 percent on income from investments coming up in 2013. Further, the highest marginal income tax rate was going up to 39.6 percent from 35 percent.
In 2012, I was exhausted and bored with my job. Therefore, it didn't sound appealing to continue working 60 hours a week and pay more taxes. So instead of complaining, I negotiated a severance and changed my life. As a result, I became happier even though I was making a lot less money.
Never complain for more than a moment. Do something about a suboptimal situation.
Don't change your life due to upcoming government policies. That's the tail wagging the dog. Instead, use government policies as a guide to make marginal improvements. Government policies were at most 10% of the reason why I wanted to leave finance.
Marginal Differences In Effort With Different Presidents
With my belief that Obama would remain in office until 2017, I assumed there would be a bigger government safety net. Therefore, it felt safer to take things easier when you don't have to try as hard to take care of yourself. Worst case, I felt I wouldn't starve to death with a bigger government.
When Trump became president on January 20, 2017, a part of me felt I needed to work harder. The five years since I left my day job were a nice respite. However, over the next four years, I assumed there would be a shrinkage of the government safety net along with lower taxes. With the birth of my son in April 2017, I decided to step on the gas.
Now with President Biden fulfilling his campaign promises, I feel it is rational to take things down a notch again. Higher tax rates are most likely coming to pay for more government subsidies. Hence, if you're burned out and making over the ideal income of $125,000 per person, you should feel less guilty taking things easier as well.
More Income For Greater Happiness Is An Illusion
Making over $125,000 per person in America won't make you much happier. Neither will making more than $200,000 per person if you live in an expensive coastal city. In many circumstances, making much more than $125,000 will make you unhappier given the stress and long hours that are often required to make such an income.
The student loan forgiveness program comes at a time when millions of people are exhausted after two-and-a-half years of the pandemic. The next presidential election is on November 5, 2024. If you need a break, utilize the next two years to recharge. At least join the quiet quitting movement and gain back your sanity.
However, in the event the recession deepens, please act rationally to protect your finances. The government can only do so much. In the end, it's best for you to depend on yourself to win. If free money comes your way, rationally take it and be thankful. If not, you never expected it in the first place.
Update 2023: A federal judge rules that President Biden's plan to cancel hundreds of billions of dollars in student loan debt is unconstitutional and must be vacated. Sorry folks. No student loan forgiveness after all.
Related: The Different Ways To Pay For College
Reader Questions And Action Items
Readers, what are your thoughts about the student loan forgiveness program? Do you think the income threshold of $125,000 per person to receive student loan forgiveness is appropriate? If not, what do you think is a more appropriate income threshold, if any? What do you think is the ideal income while working and in retirement?
If you enjoyed this discussion, pick up a hardcopy of my WSJ bestseller, Buy This, Not That. Not only will the book help you build more wealth, but it will also help you tackle some of life’s biggest dilemmas in a logical way.
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The empathy part doesn’t make sense. PPP was set aside because the government forced businesses to close. No one forced anyone to sign up for student loans. This is a terrible program that only incentivises colleges and universities who overcharge for degrees with lifetime earnings that all but guarantee default.
one thing that always strikes me with calculations like these is that we never talk about single folks without kids/heirs. Seems to me that one would not need 2-5 mil if one could not only live on the distributions of said nut, but also slowly draw down the nut itself until mid 90 yrs old and croak with the last check bouncing!
What does THAT do to the calculations? how can that absorb changes? who has kids as an early retiree in their early 50s? I don’t have anything like that planned, so I could see how just spending down the whole enchilada over 40 yrs of retirement is also acceptable.
Die with zero.
thoughts?
The real bargain is the “limited PSLF waiver” for those working in public service but have spouses who make a lot of money. We were paying down my wife’s loans for 5 years before the pandemic. But on an extended 25 year plan, cause the IBR plans were triple due to my income. Now those payments should count as income based toward PSLF. Add in the past 3 years of no payments and we are less than 3 years from forgiveness of our balance once we get on a IBR payment plan started in January 2023. We plan to file married filing separately this upcoming year to exclude my income from IBR and I estimate we should get an additional $60k forgiven in 3 years via PSLF.. thanks to the limited PSLF waiver. We should get $10k forgiven too cause we squeaked in under $250k combined.
“ upcoming year to exclude my income from IBR”
Is it really that easy? Seems like a loophole.
Well you lose some childcare deductions and tax benefits and can’t write off student loan interest filing separately. But that’s more than made up for with lower payments based on borrowers income only. I just read up on it and it’s totally legit. I didn’t do it before cause I did eventually want to pay off the loans and not just tread water. But now with PSLF forgiveness in the near future… it makes sense to pay as little as required.
I view it as fair… cause we could legally get a paper divorce to lower payments also if we really wanted a way around it. It’s that stupid marriage penalty that makes no sense. They are her loans and her income and she works as a teacher making a low income.
Thanks Sam, enjoy your site immensely. These comments are funny…Wasn’t this post about income level, not the wrong/right of loan forgiveness? I don’t know if $125k pp is enough to be honest. If you go by a 50/30/20 budget, you’re not maxing out a 401k at that income, let alone saving for a home, travel, 529, etc.
At $125,000 I would definitely be backing out my 401(k) to the tune of $20,500. I would say once my income go below $60,000, it would start feeling pretty tired.
Hey Sam!
I’m a beneficiary of Biden’s loan forgiveness. I’ve been lugging around debt since undergrad. Here are my situation and the facts:
-I decided to max out my 401(k) in my early career years (2013-2018) rather than pay the principal on my undergrad loans from Alabama (roll tide). I avidly read your site back then (and still do!).
-I received a Pell Grant in undergrad, so my forgiveness will be $20,000.
-When I log in to my student loan portal, there’s a message saying the forgiveness will be applied to my balance and to wait for further clarification. So I wanted to squash any rumors about people receiving checks.
-I’ll likely pay more than double my loan forgiveness amount in federal income taxes this year. I’ve never claimed a child credit or taken a mortgage interest deduction. No, I don’t feel bad about taking forgiveness.
My final thought is that if we want to continue to be the wealthiest nation in the world, we have to remove all inefficiencies to create a highly-skilled workforce. Sadly, our fetishization of higher education has blinded us to the fact that it’s become ruinously expensive. The move is on our lawmakers to put controls in place.
Also- I love your book! On Saturdays, my wife and I get iced Americanos, read it, and do financial planning. It’s wonderful.
“When I log in to my student loan portal, there’s a message saying the forgiveness will be applied to my balance and to wait for further clarification. So I wanted to squash any rumors about people receiving checks.”
Thanks for the confirmation! This way totally makes sense. And congrats for getting $20,000 off! That is pretty massive, especially now that it seems you are doing well.
Glad you guys are enjoying Buy This, Not That. I wanted to readers to discuss and debate the chapters. The back half is most exciting IMO. And if you enjoy the book after you’re done, I’d appreciate a great review on Amazon! It’s the best gift you could give an author.
Cheers!
You’re very welcome! Review submitted. Fingers crossed for the NYT bestseller list!
Thanks! It made the WSJ bestseller list, which is what I aimed for. The NYT list is editorial, and not a meritocracy. Finance book and WSJ list is the best combo!
Forgiving student loans is a good idea, but I think it should come with significant change. This forgiveness is pretty much a temporary solution to increase disposable income for those who are carrying SL, but what about the next cohort? I mean, won’t they have the same issue?
The current crop of people eligible for this forgiveness gets a boost and benefits. However, everyone who has paid off their loans or plan on getting loans to graduate college will be left out in the cold. Doesn’t seem too pragmatic IMO.
Here is a solution to all the current and future student loan debt. Tie amount (exp) to years of military service regardless if you graduate or not. I think I have heard this before, oh yes they are called the Military academies and ROTC will send you to any college as long as you can be accepted. If you have a physical condition and can not serve, no problem you will work for the government is some regard. The military will even send you to grad school, law school and medical school. It has been doing it for years. So for all those people who say they can’t afford it, BS there is a way if you want it bad enough! Just tired of all this complaining by the younger generation about college debt. You signed up for it knowingly, just like I did w/my 5 current mortgages. I made it through with no handouts during the housing crash in 2008 and Covid. Live by the 6 P’s of life. Prior Planning Prevents Piss Poor Performance!
Don’t think tying debt forgiveness to military service will work. But does sound useful and a deterrent.
Never heard of the 6 Ps!
I meant that student loans can or will be paid off by joining the military. There has always been that option. All or a good amount is paid off currently. There are currently programs/options for it. You have so many options. Active duty or be part time through the National Guard or the Reserves as well. There are options for people. But so many want it all for nothing.i is
I think an online degree program, with limited majors (no archaeology, performing arts, marine biology, etc.) that is free to all qualifying citizens would be great. Might have to take a few classes in person somewhere for labs and such. But that’s it. You want more? Join the military or something.
Helping pay for some kid’s semester in Florence, Italy is not a good use of US taxpayer money, IMHO.
Likewise letting some law student run up 200k in student debt only to discover that they can’t get a job paying more than 60k a year seems like a pretty bad idea. Need to drastically curtail what’s permitted in student loans. It’s crazy to let young people get that deeply in debt before they even start their adult lives.
Finally, how come we are forgiving student debt but not, say cancer debt? Or birth defect debt? As with education, I don’t believe we should be funding everything that is medically possible, but a very simple and limited plan that keeps people from defaulting on medical bills after falling out of a tree, getting hit by a car, having a child born with a cleft palate, and so on, would not be a bad thing and, sadly, would be a lot cheaper (and beneficial) for society than the way things are now.
I think this program is ridiculous. However, I happily took the PPP money so I guess this time someone else wins.
Well that’s the thing. Folks who got their PPP loans forgiven should be more empathetic to this new government subsidy. Although, the government did force some businesses to close and PPP was supposed to keep employees on the payroll.
Not apples to apples, but still debt forgiveness. How can we blame anybody for accepting a free $10,000-$20,000? We can’t.
I can’t, but That doesn’t have to mean it’s anything but vote buying in my opinion.
Ok?was TCJA not vote buying? And corporations got the bulk of that benefit!
We elect politicians to do what we want. Biden said he would do this and did. People could have chosen a different candidate- but I’ll take a vote buyer over an insurrectionist. Just me.
Point of article is missed/buried (though tangents are fine). Sweet spot is $250 grand/family.
And I think FS hits the nail on the head.
How will the government assure the money goes to pay off student loans ? If the government just sends checks only God knows where the money will end up. Example my wife graduated from Georgetown medical school in 1986. Many of the students took the maximum student loans even though the rich grandma paid all tuition. In the early 1980s The HEAL loans from Chase were 18%. I worked three jobs and all OT. The USA wastes trillions overseas on war, killing human life, destroying property and non citizen aliens invading our country. I am glad to see USA citizens benefit from this corrupt government. Perhaps American can even make sure all children receive a free school lunch. The wars are ways to launder money.
I believe all forms of foreign aid should stop. Americans are sick of government waste in all forms. Look at scamdemic pay offs to pharm and med for drugs and vax to make us sicker.
Question how much money disappeared in ukraine to Khazarian mafia ?
Good questions! We’ll find out. I’ll be curious to see if the loan amount is just chopped down by up to $10,000. I can’t imagine people just getting $10,000-$20,000 checks. No way.
My sister in law at navigant is not expecting the government to send money to loan originators to close loans. Wait and see the government will just use IRS data and checks will show up in mail box and used for more fun.
The money is going to be written directly off of existing balances. No one is getting a “check.”
I make too much too personally benefit. My wife has disabilities and she will benefit.
The point is that most of these borrowers have been making payments for decades. They have at least paid off the principal but it has all gone to interest.
I have paid my principal off but still owe twice that in interest.
My older daughter ditto.
We are both going to qualify for PSLF within 2 years. It has still been a long slog.
She is a pediatric NP. I am a psychiatric NP.
I am ok financially. 35 years working for state and federal government. 35% forced savings between pension, and social security contributions.
A good chunk of personal savings.
I partially retired from clinical practice this year. I have a teaching gig that I can do for the next 10 years which fills the gap when combined with clinical practice and pension payments.
I don’t get the hate the debt forgiveness is getting. Similarly, we should do away with the child tax credits. If you can’t afford to raise a family, don’t expect hard-working taxpayers to subsidize your breeding!
it’s not being “forgiven” but being transferred to taxpayers and pouring fire on inflation. Will colleges lower tuition ? no
Couldn’t agree more! Gotta love subsidizing irresponsibility. No one forced these people to go to college and get their degrees they can’t pay back lol
Is EITC subsidizing irresponsibility?
Child tax credit?
Formerly SALT deduction?
Maybe/maybe not. What it and all these “inflationary irresponsible giveaways” do is incentivize outcomes.
I’m pro education. And by that I do mean a liberal education. One where one is free to think/choose for oneself.
Others disagree, but that’s why we elect people. And those who lose, complain. Or riot and deny elections.
I went to a dental surgeon last year for some work. He had gone to high school with my son. Kid did a good job. We need new generations (and we need them educated), and we need our numbers to neither to neither rise nor fall too quickly. We are seeing a cautionary tale in the demographics of China right now, and it hasn’t even come close to reaching full impact.
We really should be encouraging those who can afford to raise children to have children. We best do this by making it easier for them and easing valid concerns about the problems having children can present. Replacement rate is 2.17 and we are barely managing 1.78 in the US. Brining in masses of emigrants who will not culturally assimilate, as some countries have done, is a very bad idea as it tends to turn a nation into a country–not a change for the better.
We really do need to allay the financial and career concerns of those hard working taxpayers who want to have children (so that they will do that). Unfortunately, I’m not sure that a child tax credit is likely to do much of that.
Our eldest daughter graduated from Boston University a year ago. We saved for all of our kid’s colleges but felt it was essential to have some “skin in the game” at this crazy expensive school.
She will have her $10K of Federal Loans forgiven and yes, it bothers me, she makes good money for starting out. It’s NOT the right thing to do- colleges will NOT control their costs! So many readers made excellent points in the comments- we need to teach our kids to be employable in these expensive schools. It will for sure move her needle, as her rent, food, etc. are eating away at her take-home pay. As high-income earners, this is the first time in our lives we feel we really benefitted from our government~ so that helps my bitterness!
Hah! Congrats!
Your situation is a pretty interesting dynamic I didn’t think about. What if you come from a well-to-do family, went to a private university, and smartly had skin in the game by paying some of your own tuition even if your parents could have paid for everything. In this case, you are being rewarded for being responsible!
With an income threshold of $125,000, that probably encapsulates 98% of college graduates up to three years out of school.
I’m assuming the administration didn’t intend for the money to be redistributed to wealthier families. But it is what it is! The key is to probably discuss with your daughter how things came about and how it is fair and unfair. A good teachable moment. Let us know what she thinks of the forgiveness!
SHE IS ABSOLUTELY ECSTATIC!!!! More visits to Cape Cod, Martha’s Vineyard & BEYOND from Boston. So maybe it does help pump up the economy?!?!
Gotcha! So no guilt!
I think that’s the thing, the vast majority of Americans would happily except free money, regardless of their level of wealth.
Hence, the student loan debt forgiveness plan is probably going to be inflationary if most barbers are going to feel a greater propensity to spend.
As someone who lived like a monk to pay off my 80K in student loans on a $58K income from 2016-2019… I had mixed feelings. I’m a little bothered by the fact that they aren’t actually addressing the root cause of the issue.
– Incentivize community colleges
– Cap tuition over 4 years to median salary of recent graduates
– stop the silly student loan process
– Remove laws stopping people from discharging student loans in bankruptcy
I think that’s a start. These schools aren’t paying taxes and are lining their endowments with tax-payer funds. But at the end of the day, I invested aggressively after paying off my loans and now my retirement account is multiples of my student loans, so who really won. Plus I learned some serious money skills.
At the end of the day…I believe constraints breed creativity and can lead to even better outcomes.
Excellent points Eric!
I think the administration could have prevented a lot of blowback by cutting the income thresholds in half. I don’t believe that a single making $125,000 or a couple making $250,000 needs this help.
To address the tuition explosion, the universities need some competitive pressure. Free tuition at junior colleges might be the answer.
In Murray’s book Coming Apart, he lists 199k as the minimum income to be a PMC in the right superzip code. I think the administration is aware of this and set thresholds accordingly.
Does 10K really move the needle for someone earning 10K+ per month? It just seems like another way to stoke the inflation flame. It’s similar to high income earners getting tiny little stimulus checks of $100-$200. What was the point? The government simply paid for a nice steak dinner for millions that didn’t need it and are now acting as if forgiving 10K is some sort of game changer. It’s so inconsequential and shortsighted in the big picture. Why are tax payers asked to fund someone else’s career? Makes zero sense! What about those that already paid every penny back? Are they less deserving or simply a product of bad timing? I need to go listen to a good ant-politician metal song! What is Dave Mustaine and the boys up to these days?
Supposedly, according to the White House, 90% of the beneficiaries make less than $75,000 a year.
Yes, the person making $10,000 a month may be feeling the wrath of a person who decided not to go to college and makes $4,000 a month. Or, to the person who want to stay at school, worked a second job, and so forth. Alas, that is society for you!
Let’s see how inflationary this policy plays out. Nobody really knows for sure. One study talked about a 0.1% increase in inflation potentially.
I’m earning about $9k per month and I can tell you that $10k does move the needle. After taxes, 401k savings, monthly living expenses, the reduction of debt would mean I could save more, invest more, start a business, have a child, etc. Also, I paid off my student debt several years ago but have no hard feelings toward those who got out from under the debt burden because of loan forgiveness. Debt jubilees have been part of history since the beginning of record-keeping. The PPP pandemic assistance provided billions in loans to businesses, many of which were forgiven. Does that anger you? Are you upset that taxpayers were asked to fund Mitch McConnell’s and Marjorie Taylor Greene’s failed business ventures? Student loan forgiveness makes sense in the context of a debt crisis and a hundred-year pandemic. I’m glad they did it, despite not benefiting from it. I hope they increase taxes too to help pay for it and other future social services.
I have been reading your blog for a long time and it has been very interesting reading your ideas around ideal income as they have developed over the years and interestingly seem to decrease each time you write about the topic. There is one hitch I believe you are missing here, the loan forgiveness eligibility is determined by AGI, so someone who earned $144,000 or married couple making $288,000 and made a max contributions to their 401k would still be eligible.
As for this being the “ideal” income, I am unsure. I think this is the ideal income in this moment of 2022 that someone made in 2021. My wife and I are very lucky we both qualified for Public safety loan forgiveness and both received pell grants in undergrad. As a result almost all of our student loans will be forgiven as of Jan 1. Our combined income in 2021 was 206k and if the income threshold was based off of 2022 we wouldn’t qualify. I am exceptionally thankful that I made less than the threshold in 2021, but also thankful that our businesses are thriving in 2022. So while I completely understand the logic behind your post, I find some of your previous musings on this topic to be a bit more sound outside of this moment in time. I find the ideal income being based off of the edge of a large jump in income tax (ie a combined AJI of $329,850 with maxed out aji reducing retirement vessels) to make the most sense long term for “Ideal Income”
As for student loan forgiveness as a whole, I am concerned about the possibility of further inflation, but have a greater concern regarding the downstream economic effects of “turning on” what was a $300-1000 monthly expense to many middle class families again without mitigation. I personally believe the removal of student loan payments may have been the spur that caused the real estate market to accelerate at the pace it did, and the re-introduction of unmitigated student loans would cause enough financial hardship that it could cause significant waves of foreclosures ect, possibly collapsing the real estate market and worsening recession.
If student loans are such a huge problem that tax payers like myself have to pay for them why are we still giving them out?
Let’s just hope these lucky student loan lottery winners remember verify whether or not they will have to pay taxes on these wonderful winnings before they accept them.
The student debt forgiveness amount isn’t taxable.
It may affect some borrowers in states with state income taxes such as Hawaii. It’s complex. No state income taxes in Texas; high state taxes in other states.
I don’t like the message that student loan forgiveness sends. I would much rather see some type of government mandated tuition cap on higher education costs instead. Although perhaps it’s somewhat of a chicken or the egg situation. I am surprised by the income amounts they chose. They’re way higher than I would have anticipated.
Thank you for this article. I live in an “expensive coastal city”. Perhaps a gig at Starbucks is in order as I think we are painfully below the happiness threshold for retirees.
As for the Student Loan Forgiveness Program… My husband and I made the decision to plan and save so our children would graduate debt free. They went to state universities and held jobs. They chose majors that made sense.
However, I have had time to process and make this not about me and to look at it as an investment in our future citizens. Every person wanting a college education is/was not afforded the same resources and opportunities. We can’t focus on those taking advantage of the situation for a reason not to do something.
I like your “give and take” outlook. We have all benefited (or not) from certain policies. Good to remember.
“ My husband and I made the decision to plan and save so our children would graduate debt free. They went to state universities and held jobs. They chose majors that made sense.”
Feel very proud of this accomplishment! Well done.
Sometimes, it is up to those more fortunate to give. It would be nice to have more control over how we give. However, if we’re lucky, then why not. Everything comes around eventually.
Agreed. Thank you for your response. You are brave bringing this conversation to the forefront. So controversial.
Under the same logic couldn’t you argue it was 150 per household based on the stimulus cutoff last year? Just saying…
I didn’t even remember the income threshold was $150,000 for stimulus checks. We didn’t receive anything nor did we expect to.
But I do expect to pay six-figures a year in taxes to help this great country! Just wish SF was more efficient with its annual $12 billion budget.
I wasn’t going to comment, but since you asked… I think the effect of incentivizing borrowers to not fulfill their debt obligations at the expense of the taxpayer and/or National Deficit, as well as the resulting rise in tuition cost this will inevitably cause, in an attempt to reduce the damage to the acting political party during upcoming midterms, far outweighs the tiny amount of relief from one’s student loan payment this move will provide.
TL;DR – Not a fan.
My sentiments as well. Really really stupid, transparent, and political.
It’s ironic that young people vote for all this free stuff without seeming to realize that it will ultimately be themselves who gets to pay for it all….after of course, all today’s greedy politicians take their enormous cuts….
Young people never seem to learn…. until of course, there is another crop of young people to come along ripe for being exploited….
They don’t know who is going to pay for all the free stuff, because they don’t learn civics or economics in college (along with many other useful disciplines). The politicians preach MMT. Just print more money! More of everything. Just wait.
Cancelling student debt for votes is what it is. Complete bullcrap!! Its a slap in the face for the people who worked hard too pay off the debt they had.
But everybody knows politicians will offer goodies and freebies to remain in power. So what’s the difference this time around?
The difference this time around is that the real winners are the universities/colleges who continue to raise their tuition at rates much higher than inflation. Of course, the students who are benefiting from the “free” money neither understand or care. One can only hope that as they get older they might wake up rather than “woke” up.
Yes, it’s good to figure out how to invest in colleges. Because I assume that many colleges will take the debt forgiveness amount as a sign to raise college tuition by up to that amount in a year or spread out over several years.
How cool would it be if college students could get a portion or all of their money back if they aren’t able to land a job that pays at least double the minimum wage within three months after graduation?
But I’m not sure anybody ever wants to hold colleges accountable for what they are offering. And I’m not sure why.
I work in higher education, and this is exactly what bothers me a lot. A college degree is marketed as essential, but colleges are often more worried about whether a student graduates with *any* degree than weather the student can earn a living to pay off their loans based on skills they gained in college. There is a race to the bottom, trying to always maximize enrollment, lowering standards (e.g. not requiring standardized tests), and eventually the house of cards very well might collapse.
So how do I stand taking part in this? Well, I teach the sort of classes that certain majors need like engineering and health sciences – so at least *my* efforts are actually pointed in a useful direction.