After the U.S. Supreme Court struck down President Joe Biden’s federal student loan program last month, the White House quickly moved to implement another plan to forgive a total of $39 billion for 804,000 borrowers. Although the U.S. Department of Education hailed it as a “historic step” to right past wrongs, at least one critic of the plan — financial guru Dave Ramsey who called it a “complete falsehood.”
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In a recent episode of The Ramsey Show podcast, he noted that the $39 billion forgiveness plan only applies to borrowers who had income-driven repayment (IDR) plans, MoneyWise reported. These plans are already set up to erase student debt after 20 to 25 years of payments.
The $39 billion in forgiveness intends to fix issues with IDR plans tied to “historical failures in the administration” of the program, according to a July 14 Education Department news release. Because of these failures, qualifying payments made under IDR plans “should have moved borrowers closer to forgiveness” than they actually did.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” U.S. Secretary of Education Miguel Cardona said in a statement. “By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve…This Administration will not stop fighting to level the playing field in higher education.”
But according to Ramsey, the administration is touting a “forgiveness” program that essentially gives borrowers what they were entitled to in the first place.
“The government lied to you,” he said.
While lawmakers continue to pursue other loan forgiveness options to help ease the financial pain of tens of millions of borrowers who owe a combined $1.5 trillion in student debt, Ramsey suggests that borrowers should forget about having their debt canceled.
On his podcast, he said it’s a “disaster” to “lean on” the prospect of loan forgiveness. He also warned that you could be saddled with debt “for the rest of your life” with an IDR plan. Rather than spending up to 25 years paying off student debt, Ramsey recommends determining how much you owe and putting together your own payment schedule to get out of debt as soon as possible.
For example, if you owe $10,000 and want to pay it off in a year, then you need to set aside about $833 a month. If you want to pay it off in 10 months, they you should set aside $1,000 a month.
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The important thing, Ramsey said, is to come up with an aggressive plan to pay the debt off quickly and take the steps to make that possible, whether it means earning extra money or tightening your budget.
“Take your student loan and divide it by how long you want to be a slave, how many months, and that tells you what you gotta go make,” he said. “Get up off your couch, go leave the cave…and get this dadgum thing out of your life.”
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