Wednesday, March 18, 2020


Biden Updates His Higher Education Plan

Last year, former Vice President Joe Biden released his higher education plan as part of his presidential campaign. Among many components, it made community college tuition-free for all American families and provided a significant increase in the Pell Grant. Biden is now the all-but-certain Democratic nominee and is doing something many candidates do as other candidates drop out: adopt some of their ideas. Today ahead of his one-on-one debate with Senator Sanders, Biden announced that he has done that and released his new higher education plan.

This weekend Biden announced that he was embracing two ideas of other candidates. First, he was endorsing Senator Elizabeth Warren’s bankruptcy plan. Second, he was embracing part of a proposal from Senator Bernie Sanders—the College for All Act of 2017. This bill would make public community colleges tuition-free for all American families and public four-year colleges tuition-free for families earning up to $125,000 annually.

Sanders supporters might criticize this because in his updated plan released in 2019 Sanders made tuition free for all families, regardless of their income. Sanders’s new plan also included a one-time student debt forgiveness proposal in his plan (though he did not eliminate the student loan program). Biden did not embrace that idea and, while Sanders supporters might not like that, many other voters will be glad to see he didn’t embrace such a big proposal.

Not making public college tuition-free for all families became a contentious issue last fall between Senator Warren and Mayor Pete Buttigieg. Warren provided it to all families and Buttigieg limited it to families earning below $100,000, though reduced tuition for families up to $150,000.

It is likely some might attack Biden in a similar way. But that misses some important points. While the heated debate focused on the number of students who weren’t covered under Buttigieg’s plan, it missed that most students would be covered, by far. Biden’s plan would cover more than 80 percent of students. And beyond that many of the highest income earning families send their students to elite private institutions.

This new plan is a big step for Biden and shows he is trying to consolidate support from Democrats including among liberals. A new poll released this morning showed that Biden had 61% of Democrats nationally support Biden compared to 32% for Sanders. Adopting plans from other candidates will only help him signal to the broader Democratic electorate that he will unify the party.

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Trump’s Waiver of Student Loan Interest Is complicated

At the end of a week full of talk about bailouts and stimulus, President Trump said Friday afternoon that he was waiving interest on all student loans held by federal government agencies. Right away, the most obvious question was this: How much would monthly payments fall for the tens of millions of borrowers? By nightfall, the Department of Education had a surprising answer.

Monthly payments aren’t going to go down at all. Instead, the entire payment will go toward paying down the principal amount on the loan. The result will be little shortterm relief for many of the borrowers who celebrated the announcement. Instead, they will benefit later — say, if they pay enough principal during the waiver period to shorten the scheduled term of their loans.

There is a group of borrowers who could benefit a great deal: those whose incomes have fallen, or might fall soon, because of the economic contagion of the coronavirus. When borrowers pause their monthly payments because of a hardship — a status known as forbearance — the interest normally continues to pile up until they can start paying again. Now, no interest will accrue as long as the waiver is in effect. This is true both for people already in forbearance and for those who may be soon.

It’s not clear who decided to do things this way and why, or even if any of this was the initial intention of the White House. Establishing an interest-rate waiver that lowered bills would have been enormously complicated: The federal government relies on several outside servicers to bill borrowers and collect their payments, and many have committed errors in recent years.

So there’s a lot we don’t know, and there are many questions the Department of Education could not immediately answer. We’ll get to those, but first, a bit more about what we do know. The waiver will cover plenty of borrowers. The federal government is the biggest holder of student debt, with $1.2 trillion in direct loans to more than 35 million borrowers.

But it doesn’t apply to every student loan out there. Loans issued through state agencies and others, including from big private lenders like Sallie Mae, are not covered. Other loans that are not part of the waiver program include the majority of Federal Family Education Loans, which are mostly held by commercial lenders, and school-held Perkins loans.

The waiver is automatic; you don’t have to contact your loan servicer to be eligible. And the Education Department said that it expected servicers to have “operationalized” the change in about a week and that the waiver would be retroactive to Friday.

Interest will be waived for borrowers who are in incomedriven repayment plans, which includes everyone seeking to have their loans erased by the public service loan forgiveness program. People in that program, which covers all sorts of workers, including health care professionals and emergency medical workers, will still have their monthly payments count toward their 120-payment goal, even if they aren’t required to pay anything at all because their income is very low.

But many questions are still unanswered.

 *. Most important: Will the waived interest be tacked on to the principal once the waiver period ends? I asked about this repeatedly, but the Department of Education did not offer an answer. This is crucial: If the waived interest is added back later — a process known as capitalization of unpaid interest — it could be costly for borrowers.

 *. Are federal PLUS loans, which graduate students and parents use, part of the waiver? There is no reason they wouldn’t be, but I could not get confirmation on this.

 *. Does the Department of Education really have confidence that its loan servicers can handle these changes on the fly, in a week or so? I don’t.

The entire federal student loan system has grown more complex over time, so making a substantive change poses a serious challenge. On top of that, many servicers have sown confusion among borrowers, especially those in the public service loan forgiveness program. Servicers are likely already experiencing high call volumes, as restaurant workers and others lose their jobs or see their incomes fall. And there’s no telling what might happen if they need to send their call center employees home.

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The Responsible Solution to the Student Debt Crisis

“There is no doubt that it is around the family and the home that all the greatest virtues, the most dominating virtues of human, are created, strengthened and maintained,” Winston Churchill said in 1948 on the birth of Prince Charles. Marriage and parenthood, in other words, are the bedrock of a healthy and flourishing society, but student debt has prevented young Americans from starting families.

Millions of college students start their adult lives with tens of thousands of dollars—sometimes more—in debt weighing them down. The mounting pressure of debt looms large over their lives like a specter, affecting monumental life decisions, particularly marriage. Recent studies show that student debt has them canceling or putting off this joyous milestone.

Unlike previous generations, marriage has become out of reach for young Americans. The U.S. Census Bureau said that “In prior generations, young adults were expected to have finished school, found a job, and set up their own household during their 20s — most often with their spouse and with a child soon to follow.” But this isn’t the case anymore for a majority of the millennial and younger populations.

Rather, they finish school with debt and can find a job—although in many cases not in the field they studied and earning far less than they expected—but are unable to reach the next building blocks. The Chicago Tribune reported that while about 85 percent of women 25 to 29 had married in 1976, their marriage rate dropped to 46 percent in 2014; and for men 25 to 29, it plunged from 75 percent to 32 percent. One in three young Americans are now delaying marriage due to debt. This is unprecedented.

The consequences of the steep decline in marriage has trickled down to other aspects of their lives. As marriage gets delayed, so does homeownership—another crucial cultural milestone. For most millennials, it won’t be until they are at least in their 40s before they can own a home. And this isn’t because they particularly love renting: nearly 90 percent of millennials want to own a home, but almost 70 percent have said that they can’t afford it. They've had to delay it due to student debt, which has put the American Dream on hold for our children.

The decades-long ideal of a cul-de-sac home with a white picket fence in a friendly neighborhood is replaced with the grey, concrete slabs of a brutish apartment building, in which the constant flow of new tenants makes it impossible to build the bonds of a lasting community. As social cohesion plummets, the cumulative result is modern history’s unhappiest generation, which is unable to enjoy the important life milestones of their parents’ generations.

But there’s a way we can help young Americans without resorting to the unfeasible socialist policies of Bernie Sanders, which includes erasing $1.6 trillion in student debt with higher taxes. Companies—if they want—should be able to contribute tax-free dollars to help pay down the student debt of their employees (a benefit that could also help them attract top talent).

While this isn’t possible currently, there is a bill in Congress that would make it a reality. The Employer Participation in Repayment Act (S.460) would let businesses pay down their workers’ student debt by allowing them to contribute $5,250 annually tax-free. Employers can already pay that tax-free amount towards the tuition payments of student workers, but not towards their debt after they have graduated. This bill would bridge the gap between student tuition and debt. Under the tax system, the two would finally be treated the same.

This common-sense solution has endorsements from Senate Majority Leader Mitch McConnell and the Republican leadership team, including Senators John Thune and Roy Blunt, as well as 33 other conservative senators. More support, however, is needed for the Employer Participation in Repayment Act to get past Congress.

Some senators, who have family formation as a priority, could provide the pivotal votes for the bill. Senator Marco Rubio, for example, wrote that “marriage now resembles a luxury good” and is working to remove the financial barriers to marriage. Of course, one way to make it easier is by allowing employers to help their workers pay off their student debt. With his endorsement, he would join the 16 members of the House from Florida who have co-sponsored the bill, which would particularly benefit the state’s large military and senior communities who shoulder a sizable share of the country's total student debt.

Republicans can move the needle on this issue and can help young Americans afford the same milestones in life that we cherish today.

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