by Mitch Kokai
Senior Political Analyst, John Locke Foundation
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. …
… 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.
“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.