The politics of student debt forgiveness
Progressives have been pressuring President Biden to forgive student debt using existing administrative authority. Calls have gotten louder as Democrats become more concerned about their weak position going into the November mid-terms. Supporters of debt relief point to polls showing support for relief, especially among younger voters that the Democrats need to mobilize.
There are a lot of problems with this analysis.
Debt relief does seem to poll well for certain needy or deserving groups: those who go into public service, those who are disabled or unable to pay, those in bankruptcy, etc. I doubt that broad-based relief would be popular, especially once Republicans go on the attack. Most college grads do just fine, thank you very much. Showering them with tens of thousands of dollars is a strange strategy for a party anxious to increase its standing with working class voters.
The problem is that advocates have created the expectation that debt will be canceled in an across-the-board fashion. Democratic politicians have generally pandered to this sentiment rather than pushing back and offering more sensible and targeted proposals. Although progressives claim that voters will stay home due to unfulfilled promises by Democrats, this is a case of progressive advocates creating unrealistic expectations that will lead to demoralization.
President Biden seems to understand that broad-based debt forgiveness would be a political liability. But even a targeted approach to debt relief through executive action seems like an incredible kludge. We need some combination of income-based repayment, bankruptcy forgiveness, administrative reforms, need based grants, cracking down on for-profit schools that prey on vulnerable young people, etc. Fixing the real problems with our college financing system will almost surely require legislation.
Even if some kind of kludgy work-around can be created using existing statutory authority, there is a real chance that any major debt-relief initiative will be challenged in court. Even if the Democrats end up winning, the chaos will end up hurting them politically. I can’t say this often enough: people hate gridlock and bickering, and they will hold Biden and the Democrats responsible because they believe the president can do anything if he sets his mind to it and because the Democrats control Congress. This is why McConnell’s strategy of obstruction works: most voters do not know enough about politics to understand that Republicans are the cause of conflict and stalemate.
So what to do? I think implementing targeted relief administratively is fine, assuming the authority exists under current law. But Biden should propose legislation that explicitly addresses the main problems with the student debt system. Assistance should be targeted to low-income students, and to people who for one reason or another have trouble supporting themselves and repaying their loans: going to college should not put people at risk for decades of unaffordable debt payments and harassment by creditors. Biden should emphasize that his proposal is narrowly targeted, fiscally responsible, and upholds the core American values of opportunity, individual responsibility, and hard work. He should ask for Republican support and bipartisan cooperation.
Of course it is unlikely that such a push for bipartisanship will work, but administrative action is very likely to fail as well, both politically and in the courts. The advantage of seeking bipartisan legislation is that if it fails it will help voters understand where the real problem is. And Biden can always reluctantly resort to administrative action if Republicans refuse to work with him.
You do know Biden is the instigator of most, if not all, of the issues with student loan loan penalties all started because of a possibility of students declaring bankruptcy. There was never the numbers to make such a claim for such to happen when Biden started this crusade.
Today, we are not just talking about the original loan amount. With consolidation fees, forbearance interest, penalties, interest upon interest; we are talking double, triple, etc. of the origination amounts. Even $50,000 is a silly amount when the loan amount is now tens of thousands and even hundreds of thousands more.
Can you name other loans (besides loan sharking) which are this vindictive?
I agree that the system really is unfair and oppressive to some students. As I say above, a person who is unable to repay a college loan should have payments reduced or (when appropriate) eliminated. But most people borrow modest amounts for college and earn a large return on the investment. I don’t have the numbers in front of me, but the typical college grad could repay their loans in full in just a few years if they lived on the typical wage of a high school grad. Let’s focus on helping the people who are really in a difficult situation. I get that some people believe in universal free college, but that’s less important – and much more expensive – than getting some kind of income-based repayment / bankruptcy reforms in place, dealing with excessive borrowing for some graduate degrees, etc.
What commercial loan has similar stipulations? What is and when is it appropriate? Is that for people over 50 years of age? ~6.4 million people over the age of 50 to 61 years have an average debt of ~$44,000. Is it 62 years of age? Sixty-two years and older (2.4 million) have a debt of ~$40,000. Thirty-five and older and over hold $1 trillion of the debt – ~14.4 million people. You can figure out the 35 to 49 age bracket. And yes there is documentation for this.
I already had this discussion with a U of M person who helped write the income based repayment plan. I already asked Debbie Stabenow at a re-election campaign, in person, and in public what she was going to do to correct the issue since she sat on the Senate Finance Committee and signed a 2005 bill to make it till tougher. Students there clapped for this old white haired guy and a U of M guy (forgot his name) who helped design the bill and help pass it scurried his ass over to confront me.
For students <24 years of age or 7.6 million borrowers, the average debt is ~$14.4 thousand. Maybe this includes people still going to college. Source for all of this was the U.S. Department of Education, 4th Qtr. 2021. Approximately, $600 million is held by this group up to the age of 34. The bulk of the debt is held by those 35 and older.
If the interest rate was held at 2% (Warren suggested this rate) which Akers, Chinagos, and others scoffed at, limited the payment to $250/month, it would take 166 months for those 62 and older. Think that is possible? How about 51 - 61 with a debt of $44,000? Same interest rate. It would be 208 months or 17 years. Is either reasonable when they should be slugging money away for retirement? $250/month into a Vanguard Social Fund which is relatively safe or MFS funds which has had better returns for my wife (which I selected for investing).
If in forbearance and you come out, you pay interest off first and then principal after all the interest is paid. Then interest of that interest. It is stacked against the borrower and it happens in income based repayment too if forbearance is needed. Fair? Here is an example.
Student Loan Example
How would you handle this? It is an extreme; but. it is an example of how badly many of the student loan holders are treated.
And again, Biden has been the prime cause of the issues, even joining with Republicans, and since the nineties. A petition of 1 million signatures has been gathered, I am hoping Alan sends it in soon.
Run, I’m not sure we really disagree on much here. I agree that people should not be crushed with unaffordable debt payments. I’m fine with targeted relief – for people who are older, bankrupt, disabled, low-income, etc. But I’m not in favor of giving 10k or 50k to graduates who earn wages that are higher than most high school grads can ever expect. Partly because I think it would backfire politically, which certainly could be debated, but also because I’d rather spend the money on a child allowance for low income families, or on the EITC, or higher food stamp benefits, etc.
So then the question is how to achieve this goal. Again, I’m ok with administrative action, if it can work. I’m skeptical that it can work – I think Biden would end up being challenged in court – but I haven’t read up on this issue so don’t have a strong view. That leaves me with my preferred approach – seeking bipartisan legislation that should be broadly acceptable to the public, if not to Republicans in congress. This doesn’t mean I think the status quo is fine. The question is what to do about it that will actually get relief to the people who need it most, and will reduce the risk of political catastrophe that might destroy democracy in America.
run = Bill (its me!)
Bipartisanship in Congress is broken. As EMichael says, Republicans love to screw over the college students and a large part of the nation agrees with this as well as the “I did it and you can too.”
To have additional funds for EITC, food stamps, CHIPS, Medicaid, schools, etc; we would gain it through greater productivity from relieving the millions of people of substantial debt Evem from the 8.8 million 50 years and older. Nobody looks at the numbers when they discuss student loans. They make general statements to the numbers I lay out.
It is also a free-for-all for those pursuing higher degrees MA+. Interest rates go out the door. No one can get subsidized loans for graduate school. My MA out of Loyola – Chicago was $5 thousand and now it is $85 thousand. DePaul is over $100 thousand. And we are a nation promoting higher education? There are no subsidized loans for this group. There are some lower interest rates if you qualify but not at 2%. PLUS loans for this group have higher interest rates and fees than direct unsubsidized loans.
Would make you happy as a requirement?
Reform is needed concerning financing post high school education. Reform is needed concerning immigration to this country. Reform is needed concerning policing in this country. Reform is needed concerning voting rights, gerrymandering and election certification. Reform is needed— you name it. Reform is not possible given our partisan political climate and when something like the ACA passes it becomes a cudgel against the Democrats although it helped millions and is quite popular today. I do not really see that forgiving student debt is much of a liability. I am not in favor of it— my daughter who has struggled financially is just about done paying hers off while my other daughter and her husband make more money than they know what to do with have very large student debt which they are only paying off as fast they have to because interest rates are low and they would rather dump money in their kids college funds and lead to my mind a lavish lifestyle— but it sure is not going to cause me to vote for Republicans. It does detract from the notion of Biden trying to do things right but if doing something wrong on student debt helps the Dems with their base, I am not going to lose sleep over it. The sad fact is that policy no longer matters and persuasion is irrelevant— it is all about getting out your base and the left is far more fickle than the right.
Maybe there will be a “college degree equity loan” market, where those who paid their loans (or never took them) can get some quick education debt to get in line for a write down. Act fast, though! Don’t miss out! Call the number below….agents are standing by to approve your loan!
Cute: Maybe try that with Wild Woodys or American TV on the Beltline in Madison. (If they still exist).
Yeah, that was strike two for me n’ Joe Biden. Strike one was his work on behalf of the southern softwoods farmers to effectively shut down the Pacific Northwest timber industry (“protect the old growth” is not new), strike three when Obama and he, when I was living in a van down by the river with my only connection to this country a hundred dollars a week unemployment, took it away from me. I didn’t flip the switch for Status Quo Joe, I flipped the switch against a NAZI pile of shit destroying the country ~ that I really shouldn’t give a flying fig about, it doesn’t give a flying fig about me. Never did.
I note that all this talk about student debt relief doesn’t appear to apply to oldsters like me, who didn’t see a “lucrative return on the investment.” Retired, still making payments. AND the chicken-scratch reneged on the Education Deferment: I taught community college for almost ten years, making three and four hundred dollar a month payments.
They’re just sub-primes, diced up, parceled out, traded …
It does apply to you. One of my points here is “It DOES apply to you. Why do you think I answered by age group?
From my comment. ~6.4 million people at the age of 50 to 61 years have an average debt of ~$44,000. Is it 62 years of age? Sixty-two years and older (2.4 million) have a debt of ~$40,000. Thirty-five and older and over hold $1 trillion of the debt – ~14.4 million people. You can figure out the 35 to 49 age bracket. And yes there is documentation for this. I have posted these numbers in a chart.
More than $1.1 trillion is held by people over 35 years of age. Of that group:
~6.4 million people at the age of 50 to 61 years have an average debt of ~$44,000
~2.4 million people over the age of 62 have an average debt of ~$40,000
If interest rate was 2% as Warren suggested for new loans.
If the interest rate was held at 2% (Warren suggested this rate) which Akers, Chinagos, and others scoffed at, limited the payment to $250/month, it would take 166 months for those 62 and older. Think that is possible? How about 51 – 61 with a debt of $44,000? Same interest rate. It would be 208 months or 17 years. Is either reasonable when they should be slugging money away for retirement or living off of it.
I have cornered one MI Dem senator on this as a fund raiser for her. At Show Down in Chicago during the ABA convention, I cornered Durbin asking what he was doing. I argued with the guy who designed the Income Based Payment program about how silly it is. It solves nothing and the loan sharks are still making these loans to 18 and 19 year olds. capturing another cohort. This is the result of predatory student loans which Biden helped and guided since the nineties.
~8.8 million people will probably die before their loans are paid off. Almost 3% of the population. Shall I say it in German? Would that help people to understand the issue?
To your answer on subprime. Just like Mortgage being tranched into securities MBS by risk, they are doing this with student loans called SLABs,
They are not collateralized.
Sorry, you got stuck like this.