Debt Forgiveness Details
Today, the White House announced details of Biden’s Student Loan Forgiveness Plan.
- The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).
- To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022.
- Fixing the broken Public Service Loan Forgiveness (PSLF) program by proposing a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.
- Caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers.
- To further reduce the cost of college, the President will continue to fight to double the maximum Pell Grant and make community college free.
- The Department of Education estimates that roughly 27 million [Pell Grant] borrowers will be eligible to receive up to $20,000 in relief.
- Provide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers.
- A typical nurse (making $77,000 a year) who is married with two kids would pay only $61 a month on their undergraduate loans, compared to the $295 they pay now under the most recent income-driven repayment plan, for annual savings of more than $2,800.
Free Money, What Can Go Wrong?
None of this free money addresses the root cause of escalating tuition costs: The loan program itself, Pell Grants, administrative costs, massive pension plans for teachers, preposterous coaching salaries, and the 2005 bankruptcy reform act by President Bush that made student debt not dischargeable in bankruptcies.
We have another free money announcement, no strings attached, and literally nothing to address the root cause of the problem.
Future caps at 5% of a borrower’s discretionary income will encourage still higher college education costs.
Conveniently, inflation will not kick in until after the mid-term election.
If you paid off your student loan, consider yourself a sucker.
Two Years Early But Right on Target
What’s Going On?
Legal Challenges Coming
Expect legal challenges to this announcement. Is the president Constitutionally authorized to give away an estimated $300 billion over 10 years?
Hopefully the Supreme Court takes the challenge pronto.
This post originated on MishTalk.Com.
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Mish
A major point missed by critics and supporters of student loans is the amount abuse in student loans. I am talking about abuse broadly because student loan laws essentially permit abuse. Students are well aware of the ability to misuse student loan funds. Unfortunately, Congress and the Administration do not care about abuse.
The amount borrowed that a student can borrow far exceeds direct education expenses. The amount borrowed (not really borrowed) subsidizes student lifestyles. After direct education expenses, funds can be spent on anything including rent, transportation, vacations, entertainment, food, clothing, investments, gambling, drugs, … There are no stated restrictions much less enforcement. You can borrow more as you age. Older students can borrow much more than younger students.
Here are some brief examples. A friend’s daughter needed reliable transportation. She used $15,000 in excess student loans to buy a good car. One friend started a master’s degree in education in his early 50s. Although he had very little direct education expenses (as a former employee of the university his tuition was paid), he borrowed $66,000 over several years. After graduation, he could not find a permanent teaching position. He never made a single loan payment so his debt has grown to $90,000. Now on Social Security, he was told that he will have the entire debt forgiven in several years. He told me that he used the loans to pay his mortgage. Another friend borrowed $100,000 to earn a doctorate in education in her 50s. At age 59, she graduated but could only find adjunct positions with low pay and difficult work. She only made token payments so her debt is now more than $125,000.
I could provide many more stories of abuse built into the law. About 5 years ago, the WSJ published a report about student loan repayments. The report indicated that more than 50% of loans were non performing. For private loans, non performance as documented would indicate default status. This study was done several years before Covid.
The student loan program is an unbelievable mess. The law invites abuse. The law has little to no accountability. The law promotes runaway government spending. The law promotes inflationary pressures in the economy.
In July of 2021, House Speaker Nancy Pelosi said President Joe Biden does not have the executive authority to issue “debt forgiveness,” arguing that such action would be illegal and that it has “to be an act of Congress.”
“People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress,” Pelosi said July 28 at a press conference.
“The President can’t do it. So that’s not even a discussion. Not everybody realizes that. But the President can only postpone, delay, but not forgive,” she added.
She also mentioned how voters would be mad about student loan “forgiveness,”appearing to question whether such a policy would be “fair.”
motivated to register to vote with its ridiculous anti-freedom,
antediluvian rulings.”
You’re gonna trigger trumpletantrums with that sort of rhetoric.
People screaming about oil company price gouging – where’s the outrage about schools and their padding of the pockets with useless classes?
Fuggedaboutit! Won’t happen when BOTH the parties are owned by big corps.
Austin, Milly and that Rear Admiral?
Forgiving or canceling Debt is Debt Destruction, which is Deflationary.
Cash for Clunkers
Higher interest and penalties on $1.6T will cost them more.
for all government student loans so no one sinks further into student
loan debt.
(assuming you get any) are immediately applied to your loans until paid
in full so if someone decides to never pay, they can also never get a
tax return. The government gets a first rights lien against the person
so if they never pay, when they die, the government gets first crack at
their estate.
business over the course of say the next 5 or 10 years. During that time
they are allowed to make decreasing amounts of loans each year till it
reaches 0 (so if this year they make 50 billion, next year 40, then 30,
then 20, then 10, then 0).
dischargeable. To prevent abuse (ie declaring
bankruptcy right after graduation) they’d need a simple rule that such
loans can’t be discharged for 10 years after graduation. That encourages
legit repayment of the loans and means you can’t get rid of them for at
least 10 years.
44 Then
he saith, I will return into my house from whence I came out; and when
he is come, he findeth it empty, swept, and garnished.
45 Then
goeth he, and taketh with himself seven other spirits more wicked than
himself, and they enter in and dwell there: and the last state of that
man is worse than the first. Even so shall it be also unto this wicked
generation.
… you can’t vote with your purse of monopolies exist.