Student-Loan Reparations

Biden takes another big step toward mass debt forgiveness

WSJ editorial.

"The Biden Administration this week announced another installment in its student-loan forgiveness plan to “fix longstanding failures” in the program. Translation: Taxpayers will pay again for the mistakes of Congress and the Obama Administration.

Congress created income-based repayment plans in 2007 to help borrowers manage mountains of debt they can’t repay. Initially borrowers could cap monthly payments at 15% of their discretionary income and discharge their remaining balance after 25 years. Those who went to work in “public service” had to pay 10% for 10 years.

Democrats made the terms more generous when they nationalized the student-loan market to pay for ObamaCare, reducing payments for new borrowers after June 2014 to 10% of their income and canceling debt after 20 years. In the runup to the 2016 election the Obama Administration expanded these plans to older borrowers.

Many of the eight million or so borrowers now enrolled in these plans aren’t paying enough to reduce their balances and have continued to accrue interest. This is one reason federal student debt has more than doubled since 2010, even though the number of borrowers has increased by only some 25%.

The plans have also been a headache for loan servicers that have to certify income, which can change. Rather than enroll in the plans, many borrowers have opted to pause payments for a time, though this means their loans won’t eventually be forgiven. Progressives have lambasted servicers for following borrowers’ wishes.

The Education Department is now riding to the rescue by announcing it will credit up to three years of paused payments toward loan forgiveness—on top of the two-years-and-counting pandemic pause. The Administration is taking the “income” and “repayment” out of income-based repayment.

About 3.6 million borrowers will benefit. Who knows how much it will cost, but an internal Trump Administration analysis projected that the government would lose $435 billion on the $1.4 trillion federal loan balance in 2018, mainly due to these loan forgiveness plans. That was before the pandemic pause.

The Administration has already canceled more than $100 billion in student debt by discrete regulatory actions and extending the pandemic pause through August. None of this has been authorized by Congress or satisfied the demands of progressives. White House Press Secretary Jen Psaki tipped last week that the pause will “be extended again or we’re going to make a decision” about “canceling student debt.”

Progressives won’t sleep until President Biden erases all $1.6 trillion in federal student debt. As ever, the saps are those who worked to repay their debt on time."