Left unsaid about college debt forgiveness
According to the U.S. tax code, forgiven debt is taxable as ordinary income. In real estate there is such a thing as a "short" sale, where the bank holding the mortgage agrees to a sale where the proceeds don't completely cover the amount owed to them. This usually happens during a softening market with declining home values. The seller, of course, gets nothing — except a tax bill.
Back in 1996, I toured a house where the seller's agent, who was pushing the short sale, was telling the other agents that the IRS was waiving the seller's tax liability. I then called an old friend, who just happened to be the chief federal tax collector for the state of California. He told me that he never, ever heard of such a thing. Hmmm. Perhaps the deception continues.
Many questions are being asked about the legality of Biden's ability to forgive college debt by executive order. There is no doubt, however, that the tax code can be altered only by an act of Congress. There were so many short sales during the '08 recession that Congress and the IRS did impose a temporary moratorium on taxing debt forgiveness. Not so for the state of California, which, of course, taxes debt forgiveness as well as capital gains.
My CPA said she thinks Biden said the new forgiveness would be tax-free. I reminded her that the tax code is made by Congress, not by the president — as are all other laws. If, however, Biden truly intends on ordering his gathering army of IRS agents to not enforce the law against politically valuable individuals, then our republic is in serious trouble.
Embedded in this story is the changing of the role colleges have in our culture. Traditionally, going away to college was a rite of passage: transitioning from adolescence to young adulthood. Sort of a comfortable way of being weaned off one's parents. First you check into a dorm, then you move into a student ghetto — next stop being the "real" world.
Over the last few decades, this process has gotten a lot more expensive...several times greater than the overall rate of inflation. Why? There are two answers — first being the vast increase in the amount of money being made available to pay for a static amount of service, which started with Pell grants. Second is the immense increase in the size of the typical college's non-teaching staff.
What about getting educated? Isn't that what going to college is all about? For just acquiring knowledge, the internet has become the cheapest and most convenient classroom available. But it fails as a rite of passage.
Will this trend continue? That's a possibility, but some traditional liberal arts colleges still exist and, like Hillsdale, are thriving. It boils down to personal preference. Perhaps a blending of a Hillsdale-like experience with the vast enhancement of the internet will become an attractive model for the future.
Education in America has been in a world of trouble for many years. A leading indicator for this was the serious increase in the need for remediation among entering college freshmen. The University of California has long had "Subject A" as a challenge for new entrants regarding basic English composition skills. I once knew a person who taught arithmetic, not math, to college freshmen. As a workaround, the U.S. has the H1B visa program in order to fill the domestic need for properly educated technical workers. What a country!