Showing posts with label Washington Post. Show all posts
Showing posts with label Washington Post. Show all posts

Thursday, June 16, 2022

Why are Progressives Criticizing Biden's Student-Loan Forgiveness Plan?

 President Biden promised college borrowers $10,000 in student-loan forgiveness when he was on the campaign trail. He has yet to deliver on that promise.

Some progressives urge Biden to forgive more student debt. The NAACP said, "$10,000 is not enough, We're calling on our elected officials to cancel federal student loan debt with no means-testing." Senators Elizabeth Warren and Chuck Schumer want Biden to forgive $50,000  per person in student debt.

Surprisingly, some progressives criticize the very idea of blanket student-loan forgiveness.  The Washington Post, perhaps America's most progressive newspaper, published an editorial saying Biden's plan "is yet another taxpayer-funded subsidy for the middle class." The Brookings Institution, a left-of-center think tank, stated bluntly, "One-off, across-the-board forgiveness is capricious and unfair."

USA Today, another progressive newspaper, expressed concern that Biden's student-loan forgiveness plan is complicated by "soaring inflation." And CNN, which is generally supportive of Biden's policy agenda, recently reported that Biden's student-debt cancelation plan "might not be such a great idea."

Why are influential progressive organizations backing away from President Biden's plan to give $10,000 in debt forgiveness to the vast majority of student borrowers?

I think there are two reasons:

First, $10,000 in student-debt forgiveness is a pittance when the average student borrower leaves college with three times that amount of debt, and several million college graduates have debt exceeding $100,000. 

As NAACP President Derrick Johnson put it, canceling $10,000 in student debt would be "like pouring a bucket of ice water on a forest fire. In other words, it won't do anything, especially for the Black community." Johnson called Biden's plan "a slap in the face."

Secondly, I think there is growing concern that the federal student loan program has run amok and that the Department of Education is concealing the true default rate. The feds have already allowed student borrowers to skip their monthly loan payments for two and a half years at great expense to taxpayers. Granting blanket student-debt forgiveness might plunge the program even further into insolvency.

It is disappointing that congressional critics of Biden's debt forgiveness proposal have offered no alternatives other than even more extravagant debt forgiveness.

In my view, our nation won't begin to get the federal student loan program under control until Congress enacts these three reforms:

  • The federal government should bar the venal for-profit college industry from participating in the student-loan program.
  • The Parent Plus program, which has brought so much suffering to minority and low-income families, should be abolished.
  • Distressed student borrowers should have reasonable access to the bankruptcy courts.
If enacted, these reforms won't solve the student-loan crisis overnight, but they will help keep it from worsening. 

But universities must do their part by lowering the cost of going to college. Unfortunately, the universities are doing the opposite-- raising their tuition rates and forcing students to borrow more and more money to get a college education.




Tuesday, June 14, 2022

Parent-Plus Loans Are a National Scandal

President Biden is flirting with a massive student-loan forgiveness plan--$10,000 in debt relief for 97 percent of all college borrowers.

The Washington Post, perhaps America's most progressive newspaper, urges him not to pull the trigger. 

"Biden could ease the burden on the genuinely disadvantaged in a number of more targeted ways," the WP editorial board advised, "and avoid setting a precedent for broad forgiveness of loans that future presidents will be pressured to match."

I think Biden will honor his campaign promise and forgive $10,000 in student debt for millions of borrowers. Is that a good idea?

I don't think so. As the WP pointed out, this plan would cost almost a quarter of a trillion dollars, and 71 percent of the benefits would go to the top half of the income scale.

Instead, why doesn't the Biden administration focus on debt relief for the most overburdened student debtors and their parents? 

According to the Century Foundation, which recently published a report on the Parent Plus program, 3.7 million parents collectively owe $104 billion--money that parents borrowed to help pay their children's college expenses. 

This is what the Century Foundation found:

  • The median Parent Plus debt is $29,600.
  • Thousands of retired or disabled parents have had their Social Security benefits reduced because they defaulted on their Parent Plus loans.
  • Black and Hispanic parents take out proportionately more Parent Plus loans than White parents.
  • The use of Parent Plus use is greatest at HBCUs, where most students are African American.
  • At 59 HBCUs, no more than ten percent of Parent Plus borrowers made significant progress in paying off their loans after ten years.
  • And here is a shocking statistic: "At some large for-profit colleges, Parent Plus makes up the majority of all financial aid received by undergraduates."
If progressive political leaders want to do something significant to address the hardships created by the federal student loan program, they should do these three things:

1) Stop withholding Social Security benefits to elderly and disabled student borrowers and Parent Plus borrowers, something Senator Elizabeth Warren proposed several years ago.

2) Eliminate the "undue hardship" rule in the Bankruptcy Code and allow distressed student and parent borrowers to discharge their student-loan debt in bankruptcy like any other nonsecured debt.

2) Abolish the Parent Plus Program altogether.

It is unclear whether Biden's $10,000 debt-relief proposal will benefit Parent Plus borrowers. I hope so.

Nevertheless, even if parents are included in Biden's proposal, $10,000 in debt forgiveness won' be enough to alleviate their suffering. What distressed Parent Plus borrowers really need is bankruptcy relief. 

Unfortunately, bankruptcy relief is not in the political cards.




Monday, December 7, 2020

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.







Saturday, September 20, 2014

Time To Stop the Sob Stories About Student Loan Debt, Jeffrey Dorfman Said in a Forbes Article. But Dorfman Failed To Analyze Key Signs of Crisis.

Jeffrey Dorfman wrote an online essay for Forbes this week entitled "Time To Stop the Sob Stories About Student Loan Debt."  Basically, Dorfman argued that there is no student-loan crisis, pointing out that most students have only modest student-loan debt loads, usually smaller than a typical car loan.

Mr. Dorfman is right to point out that the number of people who have borrowed extravagantly to
attend college is relatively small. "In fact," Dorfman wrote, "only four percent of households headed by people between 20 and 40 years old have student loan debt of over $36,000 per person and two-thirds of those have a graduate degree to show for that debt."

But I think Mr. Dorman's article overlooked some key data that are very troubling. First, as Mr. Dorfman pointed out, the three-year student-loan default rate is 14.7 percent, and that number is disturbing by itself.  Student-loan default rates have doubled in just six years.

Moreover, the Department of Education's official student-loan default rate only measures people who default in the first three years of the repayment period.  Many people default on their loans after three years. And the student-loan default rate for people who attended for-profit colleges is more than 20 percent.  That's right--one out of five people who attended for-profit colleges during DOE's latest measurement period defaulted within the first three years of repayment!

And, as Senator Tom Harkin's Senate Committee report pointed out, the for-profit colleges are encouraging their former students to get economic hardship deferments that temporarily excuse debtors from making loan payments.  This strategy helps the for-profits keep their institutional default rates down.

But in reality, many people who obtained economic hardship deferments will never pay back their loans, and their loan balances get larger as interest accrues during the time they are not making loan payments.

In my opinion, the student-loan default rate for people who attended for-profit colleges is probably 40 percent when measured over the lifetime of the loan repayment period, and that should alarm everybody--even Mr. Dorfman.

And Mr. Dorfman did not comment on recent reports that more and more people in their late 20s and early 30s are living with their parents and that more than 40 percent of college graduates hold jobs that don't require college degrees. Nor did he comment on recent efforts by the Obama administration to lure student-loan debtors into long-term income-based repayment plans that will require debtors to pay on their loans for 25 years.  Isn't that a sign that the student-loan program is in trouble?

Finally, although Mr. Dorfman is correct to say that most people with student loans have modest loan balances, even $10,000 is very hard to pay off if you are holding a minimum-wage job.  Many of the people who borrowed money to attend for-profit colleges are from low-income families. If those people dropped out of a for-profit college without getting a degree (and a large percentage of people fall into this category), paying off even a small loan may be impossible.

 The Brookings Institution, which Mr. Dorfman cited, has been downplaying the student-loan crisis even as it advocates for long-term repayment plans.  But the crisis is real.

A lot of people who live in Mr. Dorman's world are making money off the federal student loan program or the private student loan industry. Sallie Mae is making money off of student loans, the banks are making money off of private student loans, the loan servicing companies are making money chasing down student-loan debtors who are in default,and colleges and universities are making money as they raise their tuition every year. Goldman Sachs owns an interest in Education Management Corporation, the entity behind several for-profit colleges, and the Washington Post Company has a stake in Kaplan University.

But millions of Americans are suffering under unsustainable student-loan debt, and the crisis grows larger every day. Mr. Dorfman is living in a fantasy world if he thinks otherwise.


References

Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/

Ashlee Kieler. For-Profit Colleges: Good For Investors. . . Not-So-Good For Students. Consumerist, April 24, 2014. Accessible at: http://consumerist.com/2014/04/24/your-college-education-might-be-a-better-investment-for-goldman-sachs-than-it-is-for-you/