I was impressed on Wednesday when I saw this quote attributed Bryce McKeben of the HOPE Center, citing possible student loan forgiveness policy options:
“Mines are everywhere … Their options are income restrictions and a political train wreck – or no income restrictions and more automatic assistance for everyone. There are not so many of them. “
I know little of Bryce and consider him a good egg, but I have to disagree with that. To the extent that he outlines policy options as they are understood in progressive democratic circles, I am concerned that a lack of political imagination may lead them to miss a moment when something truly valuable could be achieved.
Disputes about abolishing $ 10,000, $ 50,000 or something average are not to be won. It is not enough to help those who need help the most, and it is a gift to those who do not need it. Trying to fix the latter problem through income restraints exacerbates the situation: it increases the administrative overhead of the program while discouraging applicants who might benefit from the assistance. And any apology on a scale faces a major challenge in American political culture, in which “handouts” are seen as a form of deception.
But leaving the system intact also doesn’t make sense. Too many people need too much. Debt affects the birth rate, marriages and facts of daily life when it lives on earth.
Instead, I offer an updated version of the previous proposal that will bring some benefits, allow the student loan program to survive, give borrowers a break, and fit into the prevailing cultural sense of justice.
Reset the interest rate on loans for undergraduate students to zero. And for those for whom this is too much, give the opportunity to once again write out student loans in bankruptcy.
Limiting resetting to only loans taken at the bachelor’s level neutralizes the objection that we subsidize surgeons. Restoring bankruptcy is just fundamentally fair.
By setting the interest rate at zero, we argue that borrowers should repay every penny they have borrowed; no one gets free travel. But we stop trying to make a profit on their debt. Repayment will be easier simply because interest will stop rising. Each payment made reduces the amount owed by the same amount. No one gets off the hook, but no one falls into the trap of negative depreciation.
Conceptually it comes down to refinancing. (Hint to representative Joe Courtney for saying this to me.) Many middle-aged and older people have refinanced their mortgages at least once. This is common practice. I personally did it. This is not considered a gift or a form of deception. This is a rational response to changing market conditions. In this case, as a lender, the government could rationally respond to the debt crisis by withholding debt to the dollars actually used for education.
I would also be in favor of including Father PLUS loans in large refinancing. These loans have caused real damage to some communities, especially families who have sent students to HBCU. Resetting interest rates to zero will not let anyone go, but it will allow them to move forward with each payment. Now this is not the case.
It can be noted that in an inflationary economy, the 0 percent rate is actually negative. But this is a feature, not a mistake. This allows borrowers to get rid of debt. And their repaid principal can help continue the program. There would be no problem of the gap between past and future borrowers: bet zero and leave it there.
I can imagine a compelling objection from someone who knows for sure that the highest default rates come from those who owe the least. These are usually people who went to college for a semester or two before dropping out and left empty-handed. Reducing interest on very small debt, by definition, makes very little difference. This objection is correct, but I suspect that a completely different Congress will be needed to answer. Starting with this proposal, the prospect of actual passage is allowed. If a more enlightened Congress begins, there may be more proposals.
Higher education policy is complex, but it is not necessary. And if it is set correctly, it can really pass.