Featured Article - "Biden's New Student Loan Repayment Plan Would Ruin Student Lending" by Andrew Gillen

Tomorrow marks six weeks since President Biden announced his student loan forgiveness plan—and although you wouldn’t know it from the Biden administration’s fanfare, the forgiveness is still far from guaranteed. The online application for loan forgiveness has yet to open, and the Department of Education has already quietly walked back part of the plan, amending the eligibility requirements to exclude borrowers with privately owned federal loans. With legal challenges over Biden’s use of so-called emergency powers looming, it’s possible that a federal judge will force the administration to shut down the forgiveness plan altogether. 
 

While debt forgiveness has been the main carrot dangled in front of voters, it’s not the only component of Biden’s student loan relief plan. The proposal also includes a complete restructuring of the income-driven repayment plans currently available to borrowers that would, in the words of Minding the Campus columnist Andrew Gillen, turn "virtually every policy lever available to the most generous setting on record." Even if the debt forgiveness plan gets struck down by courts or curtailed by policymakers concerned about the $400+ billion price tag, the repayment plan alone has the potential to completely upend the current system of federal lending. 
 

The media has paid far less attention to the proposed repayment plan than to its more alluring older sister—so I’ll forgive you if you need a quick refresher on the facts. But first, a bit of background on the history of income-driven repayment plans: These types of plans have been available in the U.S. since 1994, when Congress created an Income-Contingent Repayment plan that allowed borrowers to pay 20% of their income each year for 25 years and then have the remaining balance forgiven. Interest applied the same way as it would to traditional loans, and the only borrowers who were exempt entirely from paying off their debts were those whose salaries were at or below the poverty line. 
 

Although these income-driven repayment plans were a positive innovation to help students avoid defaulting due to short-term liquidity constraints, Gillen explains that they also include "design features that politicians seeking to buy votes have found irresistible to exploit." Over the years, politicians have toggled the levers to make the repayment plans increasingly lax, and now the Biden administration has adjusted them to create "a plan so generous that it barely counts as repayment."

Biden’s proposed repayment plan increases the income exemption (the level at which repayments begin) to 225% of the poverty line, lowers the percent of income owed to 5%, forgives loans after 10 years of repayment for many borrowers, and waives any unpaid interest for all borrowers. Gillen crunched the numbers, and the actual amount that borrowers would have to repay under the proposed plan is staggeringly low:  

Under this new plan, the median bachelor’s degree recipient will only owe $68 a month, regardless of how much they borrow. The median associate degree recipient will owe only $15 a month, an amount so low that graduates a dozen years ago repaid in about a month the amount that new graduates will repay in a year. (emphasis added)

Needless to say, these paltry amounts barely scratch the surface of the hundreds of thousands of dollars owed by borrowers—and the ones left on the hook for the remainder are American taxpayers. Colleges, meanwhile, are free to continue their obscene tuition hikes with impunity, knowing that prospective students will be more eager to take on loans than ever before. After all, who wouldn’t want to attend college for a mere $68 dollars a month?
 

If you’re sensing a theme here, that’s intentional. Biden’s debt forgiveness plan and his income-based repayment proposal suffer from the same fundamental flaw: they ignore the root problems of the debt crisis and seek to throw money at it rather than solve it. The tactic might win over a few voters prior to the midterm elections—but it does so at the expense of the very students it claims to help. 
 

Until next week.
 

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