I return to a recurring theme in recent blogs, student loans. In the headline above, I borrow shamelessly, twisting the famous wording of the Lords Prayer as found in the Book of Matthew in the Christian Bible. Going to college these days is often about debts and debtors.
At a Wisconsin CNN town hall meeting recently, President Joe Biden said that he would not by executive action forgive $50,000 in student debt for those borrowing to finance college via the federal guaranteed student loan program. In making that statement, he rejected the pleas of such Democratic heavyweights as Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren. He did, however, entertain the possibility (probability?) that he would approve a $10,000 loan forgiveness plan.
To be sure, there are still some of us who view the U.S. Constitution as governing in these matters, and that any material change in federal legislation (in this case, the Higher Education Act) must require Congressional approval. Therefore, why doesnt the House and Senate simply pass legislation mandating $50,000 in loan forgiveness? One possible reason: they dont have the votes, especially in the Senate.
There has been a lot of speculation about whether President Biden has been captured by the relatively far left leaders of his party or whether he will adhere to his historical distinctly leftish but not radically so positions, ones that by todays Democratic Party standards are relatively middle of the road. Biden is aware that there is only so much he can do by executive action, and, aside from annoying a large hunk of the electorate, aggressively progressive moves will offend key relatively moderate congressional Democrats he will need like West Virginias Joe Manchin or Arizonas Kyrsten Sinema, perhaps preventing his ability to get legislation passed.
I would speculate that the president feels a strong need to do some student loan forgiveness, reflecting campaign promises and a sense that this could help some struggling Americans and perhaps provide some modest boost to the economy. But I suspect some of his advisers have told him what has been also said recently in this space: many big borrowers of student loan are relatively high income persons who are not struggling financially, for example doctors and lawyers. Also, the resentment of millions of Americans who did repay their loans but did not get a special break from the government could be a political liability. Thus a compromise is reasonably likely: the president by executive action will perhaps wipe out $10,000 in debt for student loan borrowers. The political calculus is that this will win the support of millions and fulfill a campaign promise without unduly infuriating those not benefitting. Also, the financial hit to the federal government, while measured in the hundreds of billions, would be far less than with $50,000 in student loan forgiveness.
What rather mystifies me is that we are hearing very little call for making big changes in the seriously flawed student loan system. Since its beginning, the proportion of recent college graduates who are low income has declined, not increased as anticipated. Student loans have allowed colleges to aggressively raise their fees. Current discussions are tinkering with the system, not changing it.
Two reforms that are not overly radical and hold some promise are forcing colleges to have skin in the game, and promoting non-loan based forms of college financing, notably income share agreements (investors buying a share of student post-graduate earnings in return for help in paying college expenses). These are good government type changes that are not inherently ideologicalneither Democratic nor Republican.
Each of these ideas has some limitations. The skin in the game proposal would incentivize schools to reduce making loans to students they know are high risk, likely to not repay the obligation. The trouble is the schools with the biggest problems with students defaulting on their loans are mostly poor and financially unable to pay much of the cost of loan default. Also, America has very limited experience with income share agreements, so there are some questions relating to how to make them work effectively. But we know the present system is not working, and most forgiveness proposals to me seem a bit like rearranging the deck chairs on the Titanic.