Student loan borrowers struggle during the pandemic
Americans have accumulated over 1 trillion dollars in student loan debt. Although the government is working to give students relief during the pandemic many are still struggling.
Student debt forgiveness has become the policy du jour of the left. It was talked about by every Democratic candidate for president and made its way into the White House as a top priority for President Biden.
Few, it seems, have stopped to ask whether loan forgiveness is good policy, a wise investment of taxpayer dollars, or whether it begins to really solve the issue of mounting student debt.
As Republicans, we need to have a better answer to calls for debt forgiveness. While the words "free" and "forgiveness" will always be difficult to compete with, there are better, more lasting solutions to help student borrowers manage their debt. This begins with looking at what already exists.
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Over the last two decades, Congress and the U.S. Department of Education established income-based repayment plans that allow a student borrower to make qualified loan payments based on a percentage of their discretionary income (10% to 15% depending on the plan).
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For example, if a borrower is out of work and has no income, there are repayment plans that allow the borrower to make a $0 qualified payment; if a borrower has $1,000 in discretionary income per month, their payment would be based on that amount. These currently available income-based repayment plans already have forgiveness built into the end of the repayment period, which ranges between 20 to 25 years, depending on the plan.
The problem is that these repayment plans can be overly complicated and not enough borrowers know they are available in the first place. To the extent borrowers are aware that they can enter into an income-based repayment plan, their eyes often glaze over the eight different options available.
Rather than jumping straight to student debt forgiveness, which creates a moral hazard for current and future student borrowers and is poorly targeted, Congress and the administration should do a better job of informing borrowers about what options exist to make affordable payments, while simplifying options to remove confusion.
As good stewards of taxpayer dollars, we must not always take the easy road out.
This position is well articulated by two economists out of the University of Pennsylvania and the University of Chicago. Their paper, published in December, concludes by saying, "We find that universal and capped forgiveness policies are highly regressive, with the vast majority of benefits accruing to high-income individuals. On the other hand, enrolling more borrowers in [income-based repayment] plans linking repayment to earnings leads to forgiveness for borrowers in the middle of the income-distribution. These results are important in studying the distributional consequences of loan forgiveness, and in designing policies aimed at student debt relief."
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To the extent that debt forgiveness is pursued by the White House and my Democratic colleagues, it should be very limited, used as a mechanism to get borrowers into a positive repayment status and into a repayment plan that allows them to make payments after the freeze on student loan debt is lifted.
As good stewards of taxpayer dollars, we must not always take the easy road out. On student debt, that means helping borrowers access that which has already been made available.
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