As lawmakers in Congress and presidential candidates continue to put forth ideas to improve college affordability, particularly with respect to tuition and lowering student debt for future students, policymakers should also keep in mind changes to the student loan repayment system that would help current borrowers, according to a new report from the Center for American Progress (CAP).
The report—co-authored by CAP’s Ben Miller, Colleen Campbell, Brent Cohen, and Charlotte Hancock—digs into six different options to provide relief to current borrowers. These policy proposals, the authors emphasized, are meant to be considered outside of broader loan reforms like borrower defense to repayment claims, and are examined with the presumption that current benefits are maintained.
“Effectively targeting key stress points when it comes to the student debt crisis requires understanding the different ways student loans can and do create challenges for borrowers,” they wrote.
The options the authors explore are:
Forgiving all student loans
Forgiving up to a set dollar amount for all borrowers
Forgiving debt held by former Pell Grant recipients
Reforming loan repayment to address interest rate growth and provide quicker paths to forgiveness
Changing repayment options to provide more regular forgiveness
Allowing for student loan refinancing
“Understanding the potential implications of each of these policies, overlaid with considerations about equity, simplicity, aiming for broad impact, and whether the solution provides tangible relief, can provide policymakers with a clearer sense of the different ways to address the nation’s $1.5 trillion in outstanding student debt,” the report said.
The policies focus on different aspects of the student debt problem, such as providing immediate relief through forgiveness, or reducing long-term financial strain through lower interest rates. The authors focus on equity, simplicity, striving for broad impact, and providing a sense of meaningful relief as four factors to consider in any policy proposal. Equity, for example, should be considered when discussing policies for non-completers, black and African American borrowers, borrowers with dependents, and Pell Grant recipients—all of whom have a higher risk of default.
The authors also noted that it is currently not possible to model any of the proposals and their potential costs due to data limitations.
“For example, the authors cannot model changes to IDR, because the Education Department does not release data on incomes paired with debt levels of borrowers who use these plans,” they wrote. “Similarly, the cost of changes to interest rates are unknown, because they are affected by assumptions about broader economic situations.”
They also pointed out, however, that the costs would be different from other policy proposals because they would not be ongoing expenses. The most extreme of the proposals—forgiving all student loan debt—would cost at least $1.5 trillion plus any anticipated interest payments, while the estimated cost for forgiving a certain dollar amount would be lower. Forgiving $10,000 for each borrower would cost at least $370.5 billion, the report said, plus other additional costs in the form of expected interest payments.
A more unusual proposal, providing interim principal forgiveness on income-driven repayment (IDR), would give borrowers a set amount of principal forgiveness for each increment of time spent in the repayment plan. For example, a borrower might receive $2,000 in principal forgiveness for every two years in an IDR plan.
The authors went on to say that student loans, “a tool meant to help individuals secure a brighter future,” have instead caused financial hardship for many.
“It is imperative that this problem be fixed for future generations by implementing bold ideas that make it possible to access and succeed in higher education without the burden of excessive debt. Yet, in doing so, any solutions must not neglect those already being crushed by student debt, the result of decades of declining state investment and rising prices,” they wrote. “While tackling the existing $1.5 trillion in student debt is a major challenge, the good news is that there is no one path to relief. … The only set condition is that all policy options must keep a sharp focus on equity and simplicity, as well as on the recognition that borrowers must feel the help in a meaningful way.”
Publication Date: 6/13/2019