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Canceling Student Loan Debt Isn’t Smart or Fair Response to COVID-19

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Unread 03.23.20, 08:40 PM
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Canceling Student Loan Debt Isn’t Smart or Fair Response to COVID-19

On 03.23.20 11:15 AM posted by Lindsey Burke

The Senate is considering a coronavirusfiscal stimulus package aimed at minimizing the adverse economic impactresulting from the pandemic.

Yet this proposal is neither targeted nor temporary—two important hallmarks of any proposed fiscal stimulus Congress introduces—nor is it adequately linked to the coronavirus pandemic.

Compounding the problemsof the legislation, called the Coronavirus Aid, Relief,and Economic Security (CARES) Act, efforts are underway to make the proposaleven more expansive.

That fact left Senate Majority Leader Mitch McConnell unable to advance the bill Sunday night through the next procedural hurdle. As Politico reported:
Among the many ‘major problems’ with the bill, according to a senior Democratic aide, was that it doesn’t ‘provide adequate relief for the 44 million federal student loan borrowers.’ … Senate Democrats, led by [Minority Leader] Chuck Schumer, are pushing a counter proposal:They want to cancel the monthly payments owed during the national emergency and guarantee each borrower receive at least $10,000 in loan forgiveness.

Providing blanket student loanforgiveness of at least $10,000 to each borrower would be neither targeted nortemporary, which should guide federal policy efforts to address the fiscalimpact of the pandemic.

In the House, Reps. Ayanna Pressley, D-Mass., and Ilhan Omar, D-Minn., have introduced a bill they want included in the House stimulus bill to forgive a whopping $30,000 in student loan debt per individual, Politico reports.

These are breathtaking proposals that would add to the national debt, forgiven on the backs of all American taxpayers.

Moreover,thecurrent Senate proposal already would suspendstudent loan payments for six months and waive any accrual of interest duringthe three-month period that students are not required to make payments.

That approach smartlyaddresses the issue of borrowers who are unable to make repayments because theyare out of a job or have reduced work hours due to the COVID-19 pandemic. Iteffectively would enable borrowers who are having trouble paying back studentsloans to qualify for interest-free forbearance.

Suspending payments and interest—not forgiving student loans on the backs of American taxpayers—is the way to provide temporary, targeted relief that is actually tied to the pandemic.

Suspending payments issmart emergency policy that avoids blanket student loan forgiveness.Large-scale student loan forgiveness would be inappropriate and place an additionalburden on those who did not take out loans (the vast majority of taxpayers).

Cumulatively, Americans hold some $1.6 trillion in outstanding student loan debt today. And because the federal government originates and services nearly 90% of all student loans, American taxpayers—nearly one-third of whom do not hold bachelor’s degrees—remain greatly exposed to this outstanding debt.

These taxpayers footthe bill for loan forgiveness policies like those being proposed byleft-leaning members of Congress.

Either $10,000 or$30,000 in student loan forgiveness to borrowers would be a massive handout tograduate students. Fully 40% of student loan debt is held by graduatestudents; the equivalent of $37 billion goes out the door to these studentsannually.

And an astonishing 80%of federal subsidies currently provided through income-driven repayment will begoing to graduate students over the next decade, a cost expected to exceed $167 billion from 2020 through 2029, according to the CongressionalBudget Office.

Households with income below $27,000 per year hold just 12% of all outstanding student loan debt, compared to more affluent households—those in the top 25% of earners—who hold 34% of all student loan debt, according to an analysis by the Urban Institute.

The top 10% of households by income, theUrban Institute found, hold 11% of the outstanding student loan debt. “In otherwords,” the researchers note, “education debt is disproportionatelyconcentrated among the well off.”

Canceling student loan debt is an inappropriate response to coronavirus-related economic issues. It would be neither temporary nor targeted, representing instead a permanent policy shift that disproportionately helps families who are better off financially.

Suspending student loan payments andinterest for six months is far more appropriate. This would meet the needs ofborrowers who are struggling to make payments during the pandemic whileprotecting taxpayers over the long term.

The post Canceling Student Loan Debt Isn’t Smart or Fair Response to COVID-19 appeared first on The Daily Signal.

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