Sen. Elizabeth Warren, D-Mass., is partnering with House Majority Whip James Clyburn, D-S.C., to introduce legislation that will eliminate up to $50,000 in student loan debt for 42 million Americans. The legislation would cancel the debt of 75% of borrowers — there are currently about 45 million owing a total $1.5 trillion — and offer relief to another 20% or so.
The two lawmakers said they will introduce legislation in both houses of Congress in the coming weeks. The bills will include enabling student loan debtors to get loan bankruptcy relief for any remaining student debt post-cancellation, which current law does not allow, unlike almost all other forms of personal debt.
No details of the plan are available yet, but Warren, who’s running for the Democratic nomination for president, had announced previously that her plan would eliminate up to $50,000 in student loan debt for every person whose household income was less than $100,000 and eliminate less for borrowers with incomes between $100,000 and $250,000. She proposed an increase in taxes for the wealthiest American families and corporations to help fund the forgiveness program.
“The student debt crisis is real and it’s crushing millions of people — especially people of color,” Warren said in a statement. It has meant “a lifetime of student loan repayments” for “far too many students and families,” Clyburn said in that same statement.
Warren previously pegged the cost of her student loan forgiveness plan at $1.25 trillion over 10 years, which would be financed by a 2% annual tax on assets over $50 billion and 3% on assets over $1 billion. Her wealth tax would raise $2.75 trillion over 10 years and used for other programs besides student debt relief.
Another idea circulating in Washington to reduce student loan debt is the income share agreement, which is a loan substitute. Instead of repaying a loan to finance a college education, a student forfeits a portion of his or her earnings for a number of years, usually up to 10, to finance a college education.
Diane Auer Jones, principal deputy undersecretary at the Department of Education, has said the department is considering experimenting with such a program and a bipartisan bill was introduced in the House in 2017 that amends the tax code to allow an ISA to be considered a qualified education loan — one that like all current education loans would not be dischargeable in bankruptcy. (There has been no reported action on that bill other than its introduction).
Last week, Warren and Reps. Ayanna Pressley, D-Mass., and Katie Porter, D-Calif., who are both members of the House Financial Services Committee, wrote the Department of Education about their concerns about such an experiment and wrote the presidents of several colleges and universities about their schools’ ISA programs.
“At a time when student debt stands at more than $1.5 trillion, it is deeply disturbing to see a Department official boosting novel forms of student debt instead of trying to stem the tide of indebtedness — and even more disturbing to hear the official propose using federal taxpayers dollars to do so,” the larmakers wrote.
ISAs “carry many common pitfalls of traditional private student loans — with the added danger of deceptive rhetoric and marketing that can obscure their terms and include “some of the most exploitative terms in the private student loan industry, including mandatory arbitration agreements and class action bans [and] unlike private student student loans … have virtually no transparency… and little to no oversight from federal regulators.”
The lawmakers requested documents, including ISA contracts and information from the Department of Education and individual schools about the steps taken to evaluate whether ISAs serve the best interest of students.
— Check out College Is Worth the Rising Costs: NY Fed on ThinkAdvisor.