Tuesday, December 5, 2017

GOP proposal to abolish student-loan forgiveness is Looney Tunes

Representative Virginia Foxx (R-NC) looks like a kindly grandmother, and maybe she is. But she is also the Chair of the House Education Committee, and her committee's proposal for revising the Higher Education Act makes me wonder if she isn't a cartoon character from Looney Tunes.

Others have commented on the House Committee's proposal--Steve Rhode, Danielle Douglas-Gabriel, and a team of Wall Street Journal writers--all insightful and trenchant. I will limit my observations to one component of the Republican proposal, which is nuts.

The House Education Committee proposes to eliminate all student-loan forgiveness in the law to reauthorize the Higher Education Act.  That's right--all student-loan forgiveness.

Currently, student borrowers can enroll in income-driven repayment plans that last from 20 to 25 years. At the end of that term, the remaining balance on a borrower's student loan is forgiven.

The Foxx committee's proposal eliminate those plans and replaces them with a plan that allows borrowers to make income-adjusted payments on their student loans until they they are paid off. Interest will accrue on these loans during the first ten years of repayment, when the loan balance is capped. But borrowers will continue making income-based payments on their loans until they are paid off or they die.

In short, if the GOP proposal becomes law in its present form (which seems unlikely), student debtors will have only two repayment options: the standard ten-year plan or an income-driven plan that doesn't end until the loans are repaid--which for most people will be never.

Representative Foxx's committee labeled this lunatic proposal the PROSPER ACT (Promoting Real Opportunity, Success and Prosperity Through Education Reform), but a more accurate title would be the Slavery Reinstatement Act.

Let's look at the facts. Last year, 1.1 million student borrowers defaulted on their loans at the average rate of 3,000 per day. And that's just for 2016.

How many Americans defaulted on their loans in past years and never got them reinstated?  The Consumer Financial Protection Bureau reported that figure in its 2013 report, and it was 6.5 million.

Nearly six million more are in income-driven repayment plans, and several million borrowers are not making loan payments because they obtained economic hardship deferments. I estimate that from 18 to 20 million Americans are not paying down their student loans because they defaulted, obtained deferments or signed up for income-driven plans that only require them to make token repayments. Most of these people will never pay of their student loans.

And what's the GOP Education Committee's response to this catastrophe? An income-based repayment plan that never ends.

GOP advocates may argue that most borrowers in the proposed income-driven repayment plan will eventually pay off their loans. But that notion is delusional. Borrowers who can't pay off their student loans in ten years will likely never pay them off--no matter how long they make income-based payments.

The student-loan program in its present form is an unmitigated disaster. But Representative Foxx and her GOP cronies on the House Education Committee have done something I thought no one could do. They have come up with a plan that makes this disaster even worse.

Rep. Virginia Foxx (R-NC). We really stuck it to 'em this time, Paul.


References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher Education. Wall Street Journal, November 29, 2017.

Rohit Chopra. A Closer Look at the Trillion. Consumer Financial Protection Bureau, August 5, 2013.




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