White House Extends Pause on Student-Loan Payments Until the End of August: Will Biden Go the Full Monty?

The White House is extending the pause on student-loan payments until August 31st--an extraordinary development. By the time this pause ends in September, millions of student borrowers will have been relieved from making payments on their student loans for almost two-and-a-half years.

Indeed, as Ron Kline, President Biden's chief of staff, pointed out:

Joe Biden, right now, is the only president in history where no one's paid on their student loans for the entirety of his presidency.  

 What's next? I predict President Biden will announce significant student-debt relief this fall--in time to impact the 2022 midterm elections. 

After all, it would be political madness for the Biden administration to force student borrowers to begin making payments again only weeks before the nation goes to the polls to elect the next Congress.

Sometime in August or September, I think the President will do one of three things:

• He may reduce each student debtor's loan balance by $10,000, which he promised to do on the campaign trail.

• He might wipe out $50,000 of debt for each college borrower, something Senator Elizabeth Warren, Senator Chuck Schumer, and other progressive Democrats have urged him to do.

• President Biden might go the full monty and cancel all student debt, totaling $1.7 trillion.

In my opinion, the President will take the middle course and give college borrowers $50,000 in debt relief. A $10,000 write-off is not big enough to satisfy his base, and wiping out all $1.7 trillion in student debt is too audacious.

But regardless of what President Biden decides to do regarding student-debt relief, here are things the federal government will probably not do:

Congress will not rein in the for-profit colleges. The for-profits' lobbyists and campaign contributions will continue protecting this sleazy racket.  

Congress will not reform or eliminate the Parent PLUS program. Parent PLUS has brought financial ruin to hundreds of thousands of low-income families, but too many colleges depend on Parent PLUS money for Congress to shut down the program.

Congress will not reform the Bankruptcy Code to allow distressed student borrowers to shed their college loans in bankruptcy. 

As I have said for twenty years, the simplest and most equitable way to address the student-loan crisis would be to allow honest but unfortunate college borrowers to discharge their student loans in the bankruptcy courts. But that reform makes too goddamned much sense for Congress to do it.

In short, what we are likely to see in the coming months is massive student-loan debt relief with no reforms whatsoever for the federal student-loan program--the biggest boondoggle in American history.

Will President Biden wipe out all student loan debt?

Why Doesn't the Federal Government Just Cancel All Student Debt? To Find the Answer, Take a Look at Our National Balance Sheet

 When Joe Biden was running for President, he said he would cancel $10,000 of every college borrower's student debt if Congress consented. But Congress hasn't acted.

Senators Elizabeth Warren and Charles Schumer have urged President Biden to cancel $50,000 of every borrower's federal student loans, saying he has the executive power to do so. But that hasn't happened either.

Why not? Given the hardship that student debtors are experiencing--especially since the COVID crisis began--why not just wipe the slate clean and cancel all $1.7 trillion in federal student debt?

In my opinion, President Biden and most members of Congress would like to cancel all student debt. After all, there are about 45 million student borrowers, and canceling their student loans would make them all very happy. 

But Congress can't do that, and neither can President Biden. And here's why.

Student loans are carried on the nation's balance sheet as assets. As of September 30, 2020, the United States held almost $6 trillion in assets, and about a quarter of that amount is listed as outstanding student loans. 

As of September of last year, total national liabilities amounted to roughly $32 trillion, resulting in a national debt of around $26 trillion (give or take a few trillion).

Thus, if Congress simply wiped out all those student loans or President Biden canceled them through executive action, the nation's balance sheet would look significantly worse than it already does.  Instead of holding total assets of $6 trillion, our government would have only a little more than $4 billion.

Simply put, the federal government pretends that all that student-loan debt--closing in on $2 trillion--will be paid back.  And that fiction cannot be maintained if Congress wipes out all student debt or allows large numbers of distressed debtors to discharge their student loans in bankruptcy 

If you are a student-loan debtor, you have benefited from the moratorium on making monthly loan payments--a moratorium that won't be lifted until May 2022.

But just because you haven't made any student-loan payments over the past two years, don't get your hopes up that Congress will simply forgive all federal student debt.  It won't do it because it can't do it. The Federal government's balance sheet simply can't take the hit.

Senator Chuck Schumer Wants to Extend Moratorium on Student-Loan Payments: Is that a Good Idea?

Quite a few country songs are about guys who made a big mistake when they were young and went to prison.

Merle Haggard tells a story about a man who “turned 21 in prison, doin’ life without parole.” George Jones eulogizes a wretch who spent eighteen years in the slammer “and still has life to go.” And Porter Wagner sings about a guy rotting in a cell because he stabbed his wife and her lover in a fit of rage.

Heck, even Wanda Jackson, the queen of rockabilly, wails out a song about a riot in cell block number 9.

Student-loan debtors can empathize with these prison songs. Like the people Merle, George, Porter, and Wanda sang about, they made a big mistake when they were young and spent their adult lives dealing with the consequences.

Indeed, that is the great tragedy of the student-loan crisis. Young people borrow tons of money to pay for their college education when they are clueless about what they want to do with their lives.

Then they graduate from college (or drop out) and can’t pay back their loans. Interest and penalties accrue, causing their original loan balances to double or triple, and ultimately, they realize they’re facing a lifetime of debt, which they can’t discharge in bankruptcy.

College debtors got a break when the COVID pandemic hit in the spring of 2020. The Department of Education allowed them to skip their monthly loan payments without penalty and without interest accruing on their loans. But that reprieve comes to an end next month.

Senator Chuck Schumer and other progressive congressional leaders want President Biden to extend the student-debt moratorium yet again.

I think that’s a mistake, which will only prolong the misery.

No, Congress should face the fact that the federal student loan program is a catastrophe. Our national legislators need to amend the Bankruptcy Code to allow distressed student borrowers to discharge their student-loan debt in bankruptcy.

Also, the feds need to put severe pressure on the colleges and universities to lower their tuition prices.

Finally, we need to shut down the for-profit college sector and shut down dodgy graduate programs—the third-rate law degrees and vacuous MBAs.

Otherwise, we are just enlarging an enormous debtors prison that now holds more than 45 million inmates.

Wanda Jackson: "There's a riot goin' on."

 

Is massive student-loan forgiveness off the table? The insiders prefer long-term, income-based repayment plans and that's what student debtors are likely to get

Remember the heady days of the 2020 presidential primaries? Democratic nominees proposed massive student-loan forgiveness, and some promised a free college education. 

This is what Vice President Joe Biden promised last April:

The concept I’m announcing today will align my student debt relief proposal with my forward-looking college tuition proposal. Under this plan, I propose to forgive all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for debt-holders earning up to $125,000. . . . The federal government would pay the monthly payment in lieu of the borrower until the forgivable portion of the loan was paid off. This benefit would also apply to individuals holding federal student loans for tuition from private HBCUs and MSIs.

But the election is over, and the political insiders have had time to reflect on massive loan forgiveness. As the Washington Post editorialized just a few days ago,

[W]wholesale debt relief is actually the antithesis of progressive policy. Most benefits would flow to upper-income households, which, despite the undeniable burden of debt for lower-income families, actually owes a disproportionate share of the total [student-loan] dollars. 

 The Post disapproves of the relief plan put forward by Senators Elizabeth Warren and Charles Schumer.  They want Biden to forgive student-loan debt up to $50,000 per borrower.  Biden himself has trimmed back his April proposal and now only wants Congress to forgive $10,000 in student debt.

I think massive student-loan relief is off the table. Instead, I think the Department of Education--acting with or without Congressional action--is more likely to offer more generous income-based repayment plans.

In fact, that is exactly what the Washington Post is endorsing. Citing a study by Sylvain  Catherine and Constantine Yanellis, the Post says the feds should "mak[e] sure that everyone who qualifies enrolls in an existing plan that links repayment to a borrower's income."

But tinkering with income-based repayment plans (IBRPs) will not solve the student-loan crisis. 

Nine million people are in them now, and virtually none of them are paying down the principal on their loans.  College borrowers who stick it out will eventually get their student loans forgiven, but the canceled debt is considered taxable income by the Internal Revenue Service.

Making IBRPs more generous, which the new administration might do, is just a student-loan forgiveness program in disguise.  It would do nothing to change the status quo, allowing students to borrow too much money to attend college and the universities to charge tuition that is far too high.

As Steve Rhode argued in a recent essay, the solution to the student-loan crisis is to ease restrictions on bankruptcy relief for distressed college-loan borrowers.  All that needs to be done is to remove the "undue hardship" language from the Bankruptcy Code and allow student-loan debtors who are truly insolvent to discharge their loans in bankruptcy.

But perhaps that solution is too simple for the crafty minds of our politicians and our college leaders.  Instead of giving student borrowers a fresh start in bankruptcy,  they will likely concoct another complicated and labyrinthine IBRP.

Joe Biden wants Congress to give all student borrowers $10,000 in debt relief: Too little? Too much?

 This week, Joe Biden called on Congress to give all student borrowers $10,000 in debt relief on their federal student loans.  "It should be done immediately," Biden said.

Senators Elizabeth Warren and Charles Schumer say Mr. Biden's plan is not bold enough. They want him to use his executive powers to give all student borrowers $50,000 in debt relief.  Senator Schumer said that relief of that magnitude would wipe out all federal student-loan debt for 75 percent of college borrowers and provide at least partial relief for 95 percent. 

So--is Biden's proposal too little or too much?

As I have said for years, a flawed relief plan is better than no relief plan. I support any congressional or presidential action that would grant some relief to the nation's 45 million student-loan debtors, who collectively owe $1.7 trillion in college loans. If $10,000 in debt relief is the only arrow in Mr. Biden's quiver, I say he should let it fly.

But both the Biden plan and the Warren-Schumer proposal are flawed. First of all, a $10,000 write-off of each individual's student debt will do almost nothing for the nearly 9 million borrowers in income-based repayment plans. Their debt grows larger by the day because the loan payments aren't large enough to pay off the accruing interest.

Moreover, Mr. Biden wants Congress to approve the deal, which will take weeks, if not months.  After all, the student-loan catastrophe is a political hot potato that Congress might not want to pick up.  

The Warren-Schumer proposal is far more comprehensive than Biden's. As Senator Schumer said, this would eliminate all (federal) student-loan debt for most Americans. But Warren and Schumer want Biden to take this action on his own hook.  Does he have the authority to forgiveness $50,000 in student loans for millions of debtors?  

Who knows?  Ultimately, a federal court would have to rule on that question.

As Senator Schumer averred, a $50,000 Christmas present would relieve most recent college graduates of all their federal student-loan obligations. For those folks, their college degree would turn out to be free--or almost free. That would make many young Americans very happy, and most of those who bothered to vote cast their ballots for Joe Biden.

But there are moral hazards to the Warren-Biden scheme that are not inconsequential.  I think it is a mistake to allow college graduates to walk away from their student loans while doing nothing to force the universities to bring their costs down. 

Giving a few million Americans a get-out-of-jail-free card on their student loans will only encourage the universities to continue charging too much for a college degree and perhaps even tempt them to raise prices further. What do tuition costs matter if the government is going to step in from time to time and give students a free ride on their loans? 

And once the feds step in once with a $50,000 bailout, students will get it into their heads that they will do it again. So why worry about those student loans? How will kids pay the rent on their luxury student housing?

No. It would be much better for Congress to pass legislation--with the next President's support--that would give distressed debtors easier access to the bankruptcy courts. Let the bankruptcy judges sort out who is really broke and deserves debt relief.

Regardless of what Congress or the next president does, the student-loan scandal will not be fixed overnight.  It is the huge friggin' elephant in the room that has blighted millions of Americans' lives.

But I think it would be a mistake for our national leaders to wipe out perhaps a trillion dollars of student debt and leave the taxpayers stuck with the bill. 

Americans have grown skeptical about the value of a college experience at universities mired in sexual-assault scandals (Penn State, UCLA, Baylor, Michigan State, LSU, etc.). They wonder why our elite schools harbor so many blowhard professors who teach students nothing more than most of them are victims of societal bigotry.

Ain't there at least some good things about American society--its culture, literature, democratic values, respect for human rights--some American virtues worth studying and nurturing?

If not--if America is in the toilet and worthy of nothing but contempt, why must students spend four or five years in college and borrow $50,000 or $60,000 to get a bachelor's degree in cynicism? Didn't they learn to be cynics in high school?

Senator Charles Schumer cries bitter tears over Trump's travel ban on people coming to U.S. from countries that export terror: Where are the grownups?

I knew in my heart that President Trump had done a bad thing--a terrible thing--when he imposed a temporary ban on people traveling to the U.S. from countries that export terrorism. But I did not grasp the enormity of his iniquity until I saw Senator Charles Schumer break down in sobs over Trump's foul deed.

After all, as President Trump admitted, Senator Schumer is not a crier. He has witnessed some truly awful things during his long political career. Yet he never broke down--not once.

Senator Schumer was dry-eyed after the San Bernardino shootings and the Orlando massacre. I don't think he shed a single tear after the Russians shot down that airliner in Ukraine. As far as I know, Senator Schumer kept a stiff upper lip after the terrorists killing sprees in Paris, Brussels, and Nice.

So why did President Trump's executive order--his ill advised and poorly implemented executive order--cause Schumer to go into near hysterics?

I do not; I honestly do not know.

But this I do know. This country has some serious problems, and only grownups can solve them. And here are just a few of them:

• The number of Americans on food stamps grew by almost 20 million people over the last eight years.
• Accumulated student-loan debt has reached $1.4 trillion, and 8 million people are in default.
• Mortality rates for working class Americans have spiked upward, driven by suicide and deaths related to drug and alcohol abuse.
• Suicide rates among middle-aged people have gone up alarmingly, and crushing personal debt may be a factor.

But let's not cry about this sad news. Let's do something about it. So please, Senator Schumer, treat yourself to a nice long cry and then go back to work.

I assure you, Senator Schumer, if you begin acting like a grownup and start working on the nation's problems, you will feel much better. On the other hand, if you break down in tears every time President Trump does something you don't like, you're going to need a lot of handkershiefs.

People acting like grownups after the San Bernardino shooting

References

Alan Bjerga. Food Stamps Still Feed One in Seven Americans Despite Recovery, Bloomberg.com, February 3, 2016.

Jillian Berman. When your Social Security check disappears because of an old student loan. MarketWatch, June 25, 2015.  Accessible at: http://www.marketwatch.com/story/when-your-social-security-check-disappears-because-of-an-old-student-loan-2015-06-25

Anne  Case and Angus Deaton. Rising morbidity and mortality in midlife among white
non-Hispanic Americans in the 21st century.  Accessible at: http://www.pnas.org/content/early/2015/10/29/1518393112.full.pdf

Editorial. Death AmongMiddle Aged Whites. New York Times, November 5, 2015.

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Katherine A. Hempstead and Julie A. Phillips. Rising Suicide Among Adults Aged
40–64 Years: The Role of Job and Financial Circumstances.  American Journal of Preventive Medicine 84(5):491-500 (2015).

Gina Kolata. Deaths Rates Rising Middle-Aged White Americans, Study Finds. New York Times, November 3, 2015.

Betsy McKay. The Death Rate Is Rising for Middle-Aged Whites. Wall Street Journal, November 3, 2015. 

Democratic Party Platform Plank on Higher Education: A Big Pile of Horse Manure

The Democratic Party released its Platform this week, or rather it released a draft marked "Deliberative and Predecisional." The Higher Education plank is only a few hundred words long, but it still adds up to one big pile of horse manure.

First, the Democrats promise to cut interest rates on student loans, "thereby preventing the federal government from making billions of dollars in profits from student loans." What was the Platform Committee smoking when it wrote that sentence?

Everyone who knows even a little bit about the student-loan crisis realizes that the federal government is not making a profit on student loans. It is incurring huge losses--losses that are growing by the day.

Why do I say this? First of all, the student-loan default rate is catastrophic--far higher than the anemic rate the Department of Education publishes every autumn. The Brookings Institution reported that almost half of students who take out loans to attend a for-profit institution default in five years. The five-year default rate for students overall is 28 percent.

Moreover, the Obama administration is pushing distressed student-loan borrowers into long-term repayment plans that set monthly payments so low that borrowers are not paying down accruing interest. In fact, more than half of student borrowers are seeing their loan balances go up two years after beginning the repayment phase of their loan--not down.

Do the Brookings numbers indicate to you that the government is making a profit on the student loan program? Of course not. And the fact that Senators Elizabeth Warren, Charles Schumer, Barbara Boxer, and now the whole Democratic Party insist that the government is reaping huge profits off the student loan program demonstrates that the Democrats are clueless about the student-loan crisis or that they are lying about it.

The Democrats also promise to "simplify and expand access to income-based repayment so that no student loan borrowers have to pay more than they can afford." In other words, the Democrats want to push more and more student borrowers into 20- or 25-year income based repayment plans (IBRPs).

Five million people are in IBRPs now; and President Obama wants to enroll 2 million more by the end of next year. Apparently, the Democrats want to increase that number even further.

Of course, IBRPs are nothing more than a conspiracy by our government to create a giant class of sharecroppers who will pay a percentage of their incomes to Uncle Sam over the majority of their working lives.

And finally, the Democrats pledge to "restore the prior standard in bankruptcy law to allow borrowers with student loans to discharge their debts in bankruptcy as a measure of last resort." I interpret this pie-in-the-sky promise to mean the Democrats will delete the "undue hardship" provision from the Bankruptcy Code.

I hope that is a promise the Democrats will keep if Hillary becomes President. If Congress would actually strike the "undue hardship" standard from the Bankruptcy Code, millions of Americans would be lining up to file bankruptcy within a week after the law is changed. And if distressed student-loan borrowers could truly get relief from their oppressive student-loan debt, a half trillion dollars in student loans would be wiped off the books.

That scenario would cause the student-loan program to collapse, which would cause hundreds of colleges and universities to close.

Our government will never let that happen. Which is why the Democratic Party's Higher Education platform is a big pile of horse manure.

Senators Schumer and Warren: Shoveling horse manure

References

Democratic Party Platform Draft, July 1, 2016 [Deliberative and Predecisional]. Accessible at https://demconvention.com/wp-content/uploads/2016/07/2016-DEMOCRATIC-PARTY-PLATFORM-DRAFT-7.1.16.pdf

Schumer and Warren Pushing Obama to Address Student Debt. CNN Transcript, January 12, 2016. Accessible at http://www.cnn.com/TRANSCRIPTS/1601/12/nday.06.html

Democrartic Senators Highlight Obscene Government Profits Off Student Loan Program. Senator Warren press release, January 31, 2014. Accessible at https://www.warren.senate.gov/?p=press_release&id=329

Senators Elizabeth Warren and Charles Schumer spoke on CNN news program about the student loan crisis and said ABSOLUTELY NOTHING!

President Obama will give his State of the Union address tonight and is expected to address the student loan crisis. In anticipation of that event, Senators Elizabeth Warren and Charles Schumer came on CNN television this morning to speak about student loans, and both said ABSOLUTELY NOTHING!

First of all, both mouthed the old canard that the government is making a profit off the student loan program because it is lending money at a higher interest rate than it pays to obtain the money.  It is true that the interest rate on the 10-year treasury note is about 2. 2 percent, while the federal student-loan program charges approximately 6 percent.

But of course, the government is only making a profit on student loans if students pay back the money--and a high percentage of them do not.

As the Brookings Institution reported recently, 47 percent of the students from a recent cohort who borrowed money to attend for-profit colleges defaulted on their student loans within five years.  That's pretty darn near half. And that number does not include the borrowers who are on economic hardship deferments or long-term repayment plans who are seeing their loan balances grow larger due to accruing interest.

 The same Brookings report noted that over 70 percent of students who attended for-profit institutions were seeing their loan balances go up two years after entering repayment.  In fact, among student borrowers as a whole, more than half (57%) saw their loan balances go up two years after entering the repayment phase of their loans.  People in repayment whose loan balances are growing are either  in default, in deferment, or in long-term repayment plans. For almost all these people, their student-loan debt is growing larger during the repayment phase, not smaller, due to accruing interest.

The government can pretend that all that accrued interest is an asset because someday millions of student loan borrowers will pay back their loans, but that is baloney.  The government is not making a profit on the student-loan program, and Senator Warren and Senator Schumer either know that and are being purposely deceptive or they are fools.

Here's a second point to make about Senator Warren and Senator Schumer's CNN interview. NEITHER SENATOR MADE A SINGLE SUGGESTION ABOUT HOW TO SOLVE THE STUDENT LOAN CRISIS.

My guess is they will support a bill to lower interest rates on student loans.  Senator Warren has ridden that hobby horse before.

But neither senator said anything about the government's practice of garnishing elderly people's Social Security checks. Neither said anything about the insanity of putting millions of borrowers into long-term student-loan repayment plans that will result in massive amounts of student-loan debt being forgiven. Neither said anything about reforming the bankruptcy process for distressed student-loan debtors.

Why? Because Senator Schumer is a lackey of the banking industry, and Senator Warren is a lackey of the higher education industry.

The fact that these idiots stepped forward to talk about the student loan crisis on CNN without saying anything at all is disgraceful. In fact it is frightening.