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Unsanitized-072920
Proposed student debt reform is inequitable and coming at the worst possible time, advocates say.
First Response
As an anxious nation waits for news from Washington, they might want to avert their eyes. The Senate Republican bill, the HEALS Act, came in way too hot and crashed within 24 hours. Cutting back the $600 unemployment boost put the party at odds with swing state voters. Inanities like the $2 billion to move FBI headquarters were so toxic that Mitch McConnell came out against it, even though it was in the bill he designed.
The provision designed to cut Social Security and Medicare drew a rebuke from AARP, which typically goes all in on nominally bipartisan solutions of this nature. There are $8 billion straight-up for weapons systems in the bill, and much of the Defense Department piece effectively restores the money diverted by Donald Trump to pay for his border wall. That was kind of an existential crisis for the legislative branch, a usurpation of their power to control federal spending, and Richard Shelby is just acting like it never happened.
McConnell’s terrible bill seems to have squeezed him and his caucus completely out of the negotiations on the package, which are apparently being waged between the White House and the Democratic leadership. But he’s still demanding full corporate liability—including a piece that could effectively end all medical malpractice suits for five years—as a red line.
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Notice that funding for big business is not part of this package at all. That’s because they got their fill in the CARES Act, $4.5 trillion worth in a Federal Reserve money cannon. It’s nice when you get relief all at once and don’t have to beg for more, like mass transit authorities are doing right now, for example.
As negotiations roll on, Democrats must not lose sight of the overlooked pieces of the HEALS Act that could get grandfathered in. Because it’s such a big bill, this level of attention is important. McConnell has disqualified the HEALS Act from being the baseline. That should nullify all of his provisions. One big one is student loans.
The student loan cliff doesn’t hit until September, when the pause on payments expires. The question is what to do after that. Sen. Lamar Alexander (R-TN), who is retiring and wants education to be his legacy, has proposed a complete overhaul of the federal student loan payment system, using the pandemic to implement a pretty radical change. This plan made its way into the HEALS Act.
His proposal would shift to a full income-based repayment system, where borrowers would pay 10 percent of their income, excluding housing and food. Loan balances would be forgiven after 20 years of these payments for undergraduate loans, and 25 years for graduate loans. If you have no income, you don’t pay; ten percent of nothing is nothing.
What might have been seen as a left-leaning policy ten years ago is now to the right of arguments to cancel student debt. The Alexander plan would “offer little in the way of direct relief for Americans facing the most pressing financial distress,” according to a letter from dozens of progressive groups.
The income-based repayment option in the bill already exists for most borrowers; Alexander really just narrows repayment options to that, and extends the payment period for grad student borrowers from 20 to 25 years. Resetting to one repayment plan restarts the clock on things like Public Service Loan Forgiveness, which should move to forgiveness within 10 years.
Importantly, the repayment as a percentage of income will apparently be based on 2019 tax returns, which is irrelevant in 2020, with millions out of work. People could presumably get that changed, but it would require navigating the thicket of private student loan servicers, which are notoriously unreliable and hard to reach.
The plan could also force student borrowers to actually pay more than they would owe in a standard repayment that pays off in twenty years, depending on their income (other plans cap repayment at the standard rate). The phase-outs are set differently, which would force some borrowers to pay who aren’t paying now. Finally, the Alexander plan would restart repayment in October, when we’re still likely to be in the middle of the pandemic, even for the 9 million who are in default.
Borrower advocates have blasted the proposal. “This is an insult to millions who have been struggling to navigate a collapsing economy and a pandemic made worse at every turn by the government’s incompetence and neglect,” said Mike Pierce, policy director for the Student Borrower Protection Center, in a statement. “This moment demands a response at the scale of the enormous challenges facing borrowers and the economy. This is certainly not it.”
Without throwing out McConnell’s weak gambit entirely, the risk is that elements like Alexander’s plan remains in the base bill, only to be modified rather than torched. McConnell’s failure should have consequences. His bill, and everything about it, should be set aside.
Odds and Sods
The most important hearings about corporate power in generations are happening today in the House Antitrust Subcommittee at 12pm ET, as the CEOs of Apple, Amazon, Google, and Facebook testify. I’ll be monitoring it at my Twitter feed and will have coverage in the Prospect tomorrow.
Tonight at 7:30pm PT I’m appearing at Town Hall, a great venue in Seattle, to talk about my book Monopolized. You can register for that event and support an incredible venue space here.
I have a piece at the site today about credit reporting. The crisis is wreaking havoc on credit scores as people miss payments. Those negative credit items stick with you for seven years, and it’s not an accurate measure of creditworthiness outside a pandemic disaster. So consumer advocates want to temporarily ban negative credit items during the crisis. Big banks want none of that; they can’t raise the cost of credit unless they get those negative items. So they’ve employed Pat Toomey, a willing stooge to banking interests, to block the effort. You can read about that here.
Also today we have Sonya Michel, a longtime expert on childcare, with a fascinating history of how we got our fragile childcare system, and how it broke in the pandemic.
You can find all of our coronavirus coverage at prospect.org/coronavirus. And reach out to me via email with tips, comments, and perspectives.
Days Without a Bailout Oversight Chair
124.
Today I Learned
- The president is a superspreader of misinformation. (New York Times)
- California is considering its own weekly $600 unemployment boost, I don’t see where they get the money for it though. (Los Angeles Times)
- The little-known SBA disaster loan program (not the PPP) is rife with fraud. (Washington Post)
- Teachers union says they’ll strike if teachers are asked back to work without safety protections. (The Hill)
- As expected, restaurant sales are hitting the wall. (CNBC)
- The best response to the opioid crisis has been damaged by the pandemic. (New Republic)
- A bunch of anesthesiologist residents at the University of Florida held a party, and now they all have coronavirus. (Miami Herald)
- American Airlines flights are slow, so the company that sold them their premium mixed nuts have a ton of unused packets, and they’re selling them. (Wall Street Journal)
