Canceling student loan debt isn’t smart or fair response to COVID-19: Lindsey Burke
The Senate is considering a coronavirus fiscal stimulus package aimed at minimizing the adverse economic impact resulting from the pandemic.
Yet this proposal is neither targeted nor temporary—two important hallmarks of any proposed fiscal stimulus Congress introduces—nor is it adequately linked to the coronavirus pandemic.
Compounding the problems of the legislation, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act, efforts are underway to make the proposal even more expansive.
That fact left Senate Majority Leader Mitch McConnell unable to advance the bill Sunday night through the next procedural hurdle. As Politico reported:
Among the many ‘major problems’ with the bill, according to a senior Democratic aide, was that it doesn’t ‘provide adequate relief for the 44 million federal student loan borrowers.’ … Senate Democrats, led by [Minority Leader] Chuck Schumer, are pushing a counter proposal: They want to cancel the monthly payments owed during the national emergency and guarantee each borrower receive at least $10,000 in loan forgiveness.
Providing blanket student loan forgiveness of at least $10,000 to each borrower would be neither targeted nor temporary, which should guide federal policy efforts to address the fiscal impact of the pandemic.
In the House, Reps. Ayanna Pressley, D-Mass., and Ilhan Omar, D-Minn., have introduced a bill they want included in the House stimulus bill to forgive a whopping $30,000 in student loan debt per individual, Politico reports.
These are breathtaking proposals that would add to the national debt, forgiven on the backs of all American taxpayers.
Moreover, the current Senate proposal already would suspend student loan payments for six months and waive any accrual of interest during the three-month period that students are not required to make payments.
That approach smartly addresses the issue of borrowers who are unable to make repayments because they are out of a job or have reduced work hours due to the COVID-19 pandemic. It effectively would enable borrowers who are having trouble paying back students loans to qualify for interest-free forbearance.
Suspending payments and interest—not forgiving student loans on the backs of American taxpayers—is the way to provide temporary, targeted relief that is actually tied to the pandemic.
Suspending payments is smart emergency policy that avoids blanket student loan forgiveness. Large-scale student loan forgiveness would be inappropriate and place an additional burden on those who did not take out loans (the vast majority of taxpayers).
Cumulatively, Americans hold some $1.6 trillion in outstanding student loan debt today. And because the federal government originates and services nearly 90% of all student loans, American taxpayers—nearly one-third of whom do not hold bachelor’s degrees—remain greatly exposed to this outstanding debt.
These taxpayers foot the bill for loan forgiveness policies like those being proposed by left-leaning members of Congress.
Either $10,000 or $30,000 in student loan forgiveness to borrowers would be a massive handout to graduate students. Fully 40% of student loan debt is held by graduate students; the equivalent of $37 billion goes out the door to these students annually.
And an astonishing 80% of federal subsidies currently provided through income-driven repayment will be going to graduate students over the next decade, a cost expected to exceed $167 billion from 2020 through 2029, according to the Congressional Budget Office.
Households with income below $27,000 per year hold just 12% of all outstanding student loan debt, compared to more affluent households—those in the top 25% of earners—who hold 34% of all student loan debt, according to an analysis by the Urban Institute.
The top 10% of households by income, the Urban Institute found, hold 11% of the outstanding student loan debt. “In other words,” the researchers note, “education debt is disproportionately concentrated among the well off.”
Canceling student loan debt is an inappropriate response to coronavirus-related economic issues. It would be neither temporary nor targeted, representing instead a permanent policy shift that disproportionately helps families who are better off financially.
Suspending student loan payments and interest for six months is far more appropriate. This would meet the needs of borrowers who are struggling to make payments during the pandemic while protecting taxpayers over the long term.
Lindsey M. Burke researches and writes on federal and state education issues as the Will Skillman fellow in education policy at the Heritage Foundation. This column originally appeared in The Daily Signal.