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.