Coming to the rescue of Americans swamped by student loan debt belongs at top of Biden agenda
A long-term solution would tie student loan repayments to income levels.
Millions of Americans will get another 30 days’ reprieve from federal student loan payments now that outgoing Education Secretary Betsy DeVos has extended the existing payment moratorium until Jan. 31.
A little extra breathing room is no doubt welcome to those struggling to make financial ends meet during the pandemic. But it does nothing to address the underlying problem: A student debt crisis that demands a solution, as this editorial board has said time and again:
Our country simply cannot leave 45 million Americans with $1.6 trillion in college debt sitting like a weighty albatross around their necks. On average, borrowers owe nearly $33,000, and 11% have defaulted on their loans.
Without a fair, practical and permanent solution, too many young people will spend decades paying back huge loans. They’ll delay buying a home, starting a family and getting on with their lives.
We don’t buy the argument, made by conservatives, that the borrowers should have just been smarter in the first place and not taken out such big loans. America as a whole benefits when more young people are well-educated, yet the price of a college education has become far less affordable over time.
As President Lyndon B. Johnson said 55 years ago when he signed into law the first federal student loan program, America should make it possible for every young person to attend college at an affordable price.
But we also can’t completely buy the argument, made by Sen. Elizabeth Warren and others on the left, that President-elect Joe Biden should cancel $50,000 of every student loan borrower’s debt via executive order on the day he takes office. That’s not necessarily fair, practical or permanent.
There is a more nuanced approach, one more aggressive than Biden’s own proposal to cancel $10,000 of student loan debt across the board — that would hardly make a dent in the problem — but which also takes into account such matters as ability to pay and the future of burdensome college costs. The Biden administration and Congress must work together to come up with something better.
No quick, easy fix
There’s debate as to whether Biden legally can cancel debt outright with an executive order. Beyond that, the economic impact to the nation as a result of such a decision is an open question.
An analysis by the Committee for a Responsible Federal Budget concluded that the cost of debt forgiveness would exceed any economic boost. Other experts point out that, under current tax law, the cancelled debt would likely count as taxable income, undercutting any stimulus.
“It actually takes money out of your pocket,” as Matthew Chingos, vice president for education data and policy at the relatively liberal Urban Institute, explained to us. “It’s a lousy way to try and stimulate the economy, certainly compared to giving people direct payments.”
Debt cancellation also lumps together those most in need of relief — maybe they went to a for-profit school on the promise of a lucrative job that never materialized — with doctors, lawyers and MBAs who can afford to repay hefty loans.
And what about those young people, and their families, who have already sacrificed and stuck to a tight budget, maybe working two jobs, to pay off their loans?
There’s also the question of what to do for the 17-year-old applying to college now. What help will he, and his younger siblings down the road, receive so they can back their loans?
“If you just forgive some debt, but then go right on making those loans tomorrow, is this a world where people expect that?” Chingos said.
Reforming the system
We urge the Biden administration to push for at least one option sure to transform the student loan system for the better: An expansion of income-based repayment. You would pay back what, by an objective and measurable standard, you can afford.
Four existing federal student loan repayment plans are income-based and forgive any outstanding balance after 20 or 25 years. Yet too few borrowers are aware of these programs, Chingos points out, and each has different, sometimes confusing, eligibility requirements.
Congress and the next education secretary can fix that. Make sure every borrower receives information that clearly explains income-based repayment. Expand eligibility criteria so that more young people have the option to participate.
Congress should consider making income-based repayment the standard for all college loans, possibly also reducing the time frame after which outstanding debt is forgiven.
We should also point out the need for Congress to cut the red tape and reform the public-service loan forgiveness program, which under DeVos’ poor management has granted forgiveness to less than 1% of teachers, firefighters and others working for the public good.
Polls show that a substantial, bipartisan majority of Americans understand the depth of the student loan debt crisis and support some degree of loan forgiveness. Only about one in four Americans argue for no relief at all.
This is an issue that belongs at the very top of the Biden administration’s agenda.
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