From Charlie Munger’s Herb Kay Memorial Lecture, “Academic Economics: Strengths and Weaknesses, after Considering Interdisciplinary Needs” (University of California at Santa Barbara, 2003):

…I asked the question “Is there a functional equivalent of embezzlement?” I came up with a lot of wonderful affirmative answers. Some were in investment management. After all, I’m near investment management. I considered the billions of dollars totally wasted in the course of investing common stock portfolios for American owners. As long as the market keeps going up, the guy who’s wasting all this money doesn’t feel it, because he’s looking at these steadily rising values. And to the guy who is getting the money for investment advice, the money looks like well-earned income, when he’s really selling detriment for money, surely the functional equivalent of undisclosed embezzlement. You can see why I don’t get invited to many lectures.

Fee-drag is insidious and nearly invisible to the human mind at a glance. As COVID-19 demonstrated, we are not wired to intuitively understand compound growth. When you see your accounts growing, you are happy. Even if you see your fees, they may seem reasonable on a snapshot basis.

What you don’t see, of course, is the effect of those fees year after year. Every loss is another piece that can’t undergo the magic of compounding in your favor. As the saying goes, “it’s time in the market, not timing the market.”

If you ever wonder how nice people can practice in an Assets Under Management model, the same problem works in both directions. Your money is still going up, so they feel they are providing a valuable service, especially in holding you to a plan and preventing you from otherwise hamstringing yourself (like, say, risking your nest egg on chasing meme stocks on Reddit or buying start-up cryptocurrencies).

Psychologically, we’re very good at cognitive dissonance: of not seeing what is inconvenient for us. Those professionals would rather see the “value” they create in terms of investment growth and the end-result financial security and not the excessive value removed from larger investors (and the even larger wealth those clients might otherwise enjoy).

You may have heard the news by now: PSLF has been (temporarily) expanded (again).

Back in 2018, TEPSLF created a new pot of money to help borrowers who had used the wrong payment plans in the past.

Now, in a final heave of their national emergency powers, the government will finally fulfill the spirit of the original law: more people getting forgiveness, fewer people missing out because of technicalities and bad servicing.

All “federal” loans are forgivable.

The inclusion of FFEL loans in the PSLF program is more noteworthy than you might think. You see, Direct Loans (the only current option and always part of PSLF) are provided and held by the federal government. The government forgiving its own loans is the whole point of the program. The now defunct FFEL program however was instead a public-private partnership: loans provided by private banks and secured by the federal government. In order to pay off FFEL loans, the government is going to encourage tens if not hundreds of thousands of borrowers to consolidate loans into the Direct system in order to forgive them, paying private companies real money in the process. This is why PSLF has specifically never included FFEL loans in the past (even though one could consolidate those FFEL loans and trade them in for a Direct Consolidation loan, making them eligible with minimal effort).

The fact is that for recent graduates the news is largely irrelevant. Very very few people graduating in recent years hold any FFEL loans or Perkins loans, and nearly everyone is using the correct payment plans. It’s just much easier for new graduates to set themselves up for the program than the older borrowers who were further along in the process (and who have been getting rejected or lost years of payments [often due to bad servicing]).

At baseline, people need to stop worrying about the PSLF rug being pulled out from underneath them, but hopefully, this second expansion will assuage lingering doubts. The program is still real, and it’s never going away retroactively.

Here is the Department of Education’s “Fact Sheet” about the overhaul.

And here is the very readable official description of what it all means and what to do next. This is the official party line, and it’s what you need to read.

The bottom line is that if you have any FFEL or Perkins loans, you need to consolidate those now and file a PSLF form (well at least by October 31, 2022). There are a lot of people working in public service and academics who are magically eligible for forgiveness this week that weren’t before (and there are going to be some very anxious people trying to track down employment verifications from back in 2008).