Biden pushes controversial student loans transformation as ‘forgiveness’ falters
Haisten Willis
President Joe Biden attracted big headlines by announcing a $500 billion student loan forgiveness program last August, but his next move could be even more controversial.
While the student debt transfer is mired in the courts, the Department of Education is unveiling a program that could cap student loan payments at 5% of an undergraduate borrower’s income, 0% for some, and, in many cases, forgive the loans completely after no more than 20 years.
BIDEN’S NEXT STUDENT LOANS MOVE COULD PLACE BILLIONS MORE IN DEBT ON TAXPAYERS
“Today, the Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before,” Education Secretary Miguel Cardona said in a statement. “These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families.”
As proposed, borrowers would pay back no more than 5% of what the administration deems “discretionary” income, and anyone earning less than 225% of the federal poverty level, roughly $30,600 for a single borrower or $62,400 for a family of four, would not have to make payments at all. Any remaining student loan balance would be forgiven after between 10 and 20 years, with lesser amounts forgiven earlier.
The regulations will be published in the Federal Register on Wednesday, where voters can comment on them for 30 days, and could be implemented starting later this year. Conservative groups have been stepping up their efforts lately to have their voices heard via public comments as Biden turns more toward executive action.
Criticism has come quickly for the proposals over budget concerns since most loans would not be repaid in full. The Brookings Institution’s Adam Looney wrote in September that the program effectively turns most loans into untargeted grants.
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“The amounts borrowers save (and eventually have forgiven) are based largely on the amounts students borrow, which means the benefits are uncapped and disproportionately flow to borrowers with the largest loans,” wrote Looney, a nonresident senior fellow at the prominent think tank.
The plan would reduce the costs of college, not by lowering tuition costs but by offering students loans and then allowing them not to pay them back, he argues.
More than $100 billion in additional loans could be taken out every year under the program, and any amounts forgiven would fall on taxpayers.
“Want a free ride to college? You can have one, but only if you study cosmetology, liberal arts, or drama, preferably at a for-profit school,” Looney wrote, adding that the proposal “eliminates the last remaining policy with any teeth that keeps predatory schools out of the loan program.”
The Education Department estimates that lifetime payments per dollar borrowed would fall by 83% on average for borrowers in the bottom 30% of earnings, compared to just 5% for those in the top 30%.
The Committee for a Responsible Federal Budget likewise slammed the idea, arguing Biden should work with Congress on reforms that truly address college costs and value and to make sure any new programs are fully paid for.
The White House and Education Department did not respond to questions from the Washington Examiner about how the proposal would be funded.
The Biden administration says it will hold schools accountable by creating a “gainful employment regulation” that would cut off federal financial aid to programs that don’t provide financial value and warn borrowers about programs that leave graduates with excessive debt.
Conservatives seemed unimpressed, with House Education and Workforce Committee Chairwoman Virginia Foxx (R-NC) decrying the idea as an ineffective “shame list.”
“Expansions of already generous repayment options, institutional shame lists, and other failed policies of the past won’t lower the cost of college for students and families. It does, however, turn the federal loan program into an untargeted grant with complete disregard for the taxpayers that fund it,” Foxx said. “Without real, comprehensive reform to our postsecondary financing and accountability systems, we will be left with ineffective and expensive policies by an administration dead set on bankrupting our country.”
One key question is whether Biden has the legal authority to make these changes on his own. The Supreme Court has taken a narrower view of executive authority in recent years and may be poised to strike down Biden’s student loan forgiveness program as soon as next month.
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Gregory Caldeira, a political science professor at Ohio State University, said the proposal is likely to end up in court one way or the other.
“Everything attracts lawsuits,” he said. “This one will too.”