Washington Wednesday: Saving the education budget

MYRNA BROWN, HOST: It’s Wednesday the 2nd of August, 2023.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Myrna Brown.

MARY REICHARD, HOST: 

And I’m Mary Reichard. It’s time for Washington Wednesday.

Today… Student debt forgiveness, take two.

On Monday, the Biden Administration launched a beta-testing web portal for the SAVE repayment plan. SAVE…short for Saving on a Valuable Education.

BROWN: Clever!

REICHARD: Yeah, well, maybe not…because just 33 days ago, the Supreme Court struck down the Biden Administration’s previous plan to cancel student debt across the board. The 6-3 majority ruled that the executive branch did not have the power to cancel student loans… that were authorized by Congress.

BROWN: But that didn’t end the matter. In addition to Biden’s revised repayment program, the Department of Education announced last month that it would forgive 39 billion dollars worth of federal student loans. That’s billion, with a “b.” That would apply to over eight hundred thousand borrowers already enrolled in what are known as “income driven repayment programs.”

What’s different now and will this plan work?

REICHARD: Joining us to talk about it is Marc Goldwein. He’s the senior vice president and policy director of the Committee for a Responsible Federal Budget.

Marc, welcome.

MARC GOLDWEIN, GUEST: Thank you so much for having me. Very glad to be here.

REICHARD: Well, let's start with the basics here. What is the SAVE repayment plan? And how is it different from the original plan to cancel debt that the Supreme Court already struck down?

GOLDWEIN: Well, the President really has several different student debt higher education plans. The two major ones where he wanted to cancel $10,000 to $20,000 of student debt for almost everyone. And he separately wanted to overhaul the income driven repayment program. This new SAVE provision is part of the income-driven repayment program. The idea of that program, which is in legislation already, is that students who borrow a lot of money can be capped as a percent of their income, how much they pay back each year, it's been typically 10, or 15%. So you never have to pay back more than 10 or 15% of your income. And then after 20 or 25 years, if you've been making your payments the whole time, the rest is forgiven. What the President wants to do, and has started to do, is dramatically expand that - cut that 10% down to 5% for undergraduates, create a group big income disregard so the first 225% of poverty worth of income isn't subject to it, shorten the period of repayment to 10 years for some folks, as short as 10 years for some folks, cancel interest accumulation, that that goes beyond what your payments and a few other things. And so the President's basically doing here is making income-driven repayment way more generous than what it was just a few weeks ago.

REICHARD: Well, you know, one of the criticisms of the original plan was that it shifted the financial burden to taxpayers, even people who paid off their own debts or opted not to get those student loans in the first place. How does the new plan handle that objection?

GOLDWEIN: Well, I would think of these plans as additive to each other, not replacements. The President wants to do both. He wants to cancel 10 to $20,000 of everyone's debt. That's going to cost the taxpayers about $400 billion. And then he also wants to expand this ongoing income-driven repayment, that's going to cost another maybe $300 billion, so it is very expensive. And some of this $300 billion is to support students that, or former students that really are struggling and needing it. But a lot of it actually is going to end up going to medical doctors, dentists, lawyers, those with very high debt balances, but very, very, very high earnings potential.

REICHARD: Marc, from a budget perspective now, I think you mentioned this, but what is the projected effect on the nation's finances as a whole? Is it financially responsible to do this at this moment?

GOLDWEIN: In my opinion, no, this is not fiscally responsible. The total policies that President Biden has proposed, including the ones that the court has ruled illegal, will cost us over $900 billion. To give you some reference, that is more than the Department of Education has spent on higher education through the nation's entire history up to this point, so the President wants to spend more over the next few years than we've spent over the last 250 on higher education. It's not particularly well targeted. We've done some analysis; most of these policies are gonna actually boost inflation, they probably are responsible for one interest rate hike from the Federal Reserve. And our debt as a whole, our national debt is already approaching WWII levels, a new record; they're gonna get there faster as a result of these policies.

REICHARD: You know, one of the terms that has annoyed many people is this idea of loan forgiveness. It rather sounds Orwellian. You can't forgive something that is owed to somebody else, you know, third party really can't do that. And that's why cancellation seems to be the more accurate term. Has the Biden administration given up on the idea of loan forgiveness?

GOLDWEIN: Well, I guess I think of it as loan forgiveness is when you have a specific program that's designed to help people that play by the rules and pay down their debt as scheduled. Loan cancellation is when you arbitrarily decide, we're going to send people checks, basically refund checks. And to me that the 10 to $20,000 wiped off their people's balance sheets, that's debt cancellation. The President tried to do it through some emergency authority that was designed to basically help soldiers at war to not have fees if their balances are late. He tried to use it to cancel everybody's debt. The Supreme Court says that's illegal. That was clearly not the intent of the law, and it was a violation. So now the President is going to try again, with different authority. This new authority basically says that the Department of Education has, [the] they have the authority to adjust balances if that's the most efficient way to collect the money. It's just like if you owe $300,000 of taxes, back taxes, but you only have $20,000, the IRS will negotiate with you. It's the same thing. The Department of Education has the ability to negotiate with people that they think they're never actually going to get the money back from. The President, I think, is trying to abuse this authority again, to say, well, that's everybody, we're gonna cancel 10 or $20,000 of debt from everybody. We haven't seen the plan. They're still developing it. But the signals they've been sending is it's gonna look pretty much like the plan the Supreme Court just ruled illegal. And I don't know, they're gonna keep trying until maybe until he's out of office.

REICHARD: I'm wondering, without further wrecking the budget, or, or this unfairness problem that we talked about, Marc, what would you do to resolve the problem the Biden administration says it's trying to resolve?

GOLDWEIN: Well, I think they were on the right course, and that we do need to fix income-driven repayment. But they're doing it in a very irresponsible way. What we need to do is let students understand their options better. We need to cap how much they take out in grad school debt so there isn't, you know, $400,000 of medical school debt that's going to income-driven repayment. We need to rationalize and consolidate these plans, we need to differentiate undergrads for graduates. And that's going to save money. We can use that money to actually offer more generous terms to those people that are really struggling. So that's part of it is we need to actually fix income-driven repayment.

The bigger part is we need to get down college costs and get college quality up overall. And we can do that in part through the loan program by giving colleges skin in the game. You know, if they were responsible for just 10% of the loans, they’d have more incentive to keep their tuition sound and to make sure they're graduating people that actually have earnings potential. But part of it is also I think, pressuring colleges to cut out their administrative bloat to offer more three year degrees instead of four year degrees, to accept AP credits, to, you know, we don't need a water slide at every major elite university with warm temperature, even though those are fun. So there's a lot that can be done to get college costs down. And then the last part is information. The Senate's doing some great work here, a lot of it on a bipartisan basis. Students are borrowing without real information about how much this isn't going to actually cost them, about what it's going to mean about what their earnings potential is. I think better informed students can make better borrowing choices and be more equipped to pay back that money later.

REICHARD: Marc Goldwein is with the Committee for a Responsible Federal Budget. Marc, thank you so much!

GOLDWEIN: Thank you.

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