What Do You Teach Your Children About Debt?

Families, communities, and nations are stronger when they live without debt. Since the core unit of society is the family, parents have the primary responsibility to teach their children about handling finances responsibly. Millions of parents are successfully teaching their children to save for college, to work during college, and to limit the amount of their student loans.

Yet, President Joe Biden and the U.S. Department of Education are telling individuals with student loan debt that the American taxpayers will pay off their loans. The U.S. Supreme Court ruled against the Biden administration on such matter in June. However, the U.S. Department of Education tried to go around the court decision to cancel student loans.

This time, the Fifth U.S. Circuit Court of Appeals stopped the second attempt on August 7. According to Adam Kissel at The Daily Signal, the Appeals Court “issued a nationwide injunction against key parts of a recently revised rule that would have let the department erase billions of dollars of student loans and make private colleges and/or taxpayers pay for it.” 

The ruling comes in a case brought by a consortium of for-profit schools, the Career Colleges and Schools of Texas, challenging a department rule that affects, among other things, borrower defenses for nonrepayment of federal student loans.

The rule, finalized in November 2022, was supposed to implement Congress’ limited directive in the Higher Education Act that the secretary of education should identify acts or omissions by a school that are egregious enough for the department to cancel a borrower’s loans.

But the department has been operating well beyond this power. Usurping the role of Congress, the department has created an affirmative right for borrowers to assert a legal claim for loan cancellation where Congress had authorized only the creation of defenses.

Typically, a legal claim is a way to assert a right. But in a loan relationship, the lender has the right to repayment while the borrower has the obligation to repay. Thus, a borrower defense claim is an oxymoron – the borrower is not vindicating his or her legal right but finding a way to avoid the obligation. [Emphasis mine.]

It is not just college students who are borrowing more money than they can/will repay. The federal government also borrows too much money. In fact, the U.S. government borrows money from our enemies to send to other countries – such as Ukraine.

Right now, the U.S. government owes a debt of $30 trillion. In fiscal year 2023, government revenue from taxes and other sources was $3.41 trillion. America owes nearly ten times the amount of our annual income.

As comparison, individuals and families are advised to follow the 28% rule when purchasing a home. We are counseled to keep the monthly mortgage payment (including taxes and homeowner’s insurance) to 28% of the monthly gross income. Remember, gross income means salary before taxes. None of us could obtain a mortgage for a home that cost ten times our income!

Responsible debt is a reasonably-priced home, a car, and an education. However, we should all understand that debt is not our friend, and interest on that debt can keep us from building wealth.

Parents can bring blessings to their family, community, and nation by teaching their children to borrow responsibly.