During the primary season, various Democrats were pushing the idea of forgiving outstanding federal student loan debt. While this idea stuck in potential voters’ minds, this policy is not actually what the Democrats have put forward in their party platform. Reading the “Providing Borrowers Relief from Crushing Student Debt” section of the 2020 Democratic Party Platform, we find that they essential propose making the federal student loan program even more a welfare program combined with a tax targeting those who become successful.
These proposals are significant in that the Higher Education Act of 1965 remains up for reauthorization, which is Congress’ opportunity to review and fix the problems in the law that have harmed student borrowers. The platform details are often not supported by the College Affordability Act [HR4674], which provides statutory detail for implementing the Democrats’ preferred actions on HEA reauthorization.
The platform proposals begin with authorizing “up to $10,000 in student debt relief per borrower” related to the COVID crisis. While not specified in the platform, but based upon existing Democratic proposals, this would have the Department of Education “make payments” for the borrower during the health crisis, so not a principal balance reduction but a monthly payment reduction. Given that the COVID shutdown is of limited duration and Congress has not authorized these funds, this Democratic proposal is an empty promise. This proposal contrasts with President Trump’s order that temporarily suspended payments and interest accrual.
In the long term, the Democratic platform promises to “ease the burden of high monthly student loan payments through legislative and administration relief processes, including creating a simplified repayment process.” The College Affordability Act has detailed how the Democrats plan to address lowering payments [see SEC. 4101. TERMINATION OF CERTAIN REPAYMENT PLAN OPTIONS AND OPPORTUNITY TO CHANGE REPAYMENT PLANS in the bill] by limiting repayment plans to either the existing fixed or income-based plans.
The Democratic platform expands this concept with these income-based proposals:
- For those earning less than $25,000, “pause monthly billing and stop interest from accruing on federal student loans,”
- For those earning more than $25,000, “cap payments at no more than five percent of discretionary income,”
- “After 20 years, remaining federal student loan debt should be automatically forgiven without tax liability.”
Essentially, this converts the federal student program into an indentured tax plan. Borrowers will remain indentured for 20 years of repayment. Low-income borrowers do not pay the tax until their income increases. Meanwhile, the tax on higher-income borrowers is determined by an administrative definition of discretionary; fungibility in that definition could increase or decrease the tax amount subject to the winner of the next election while creating campaign contributions from industries that want to be counted as non-discretionary spending. In the end, these repayment terms would create a minor revenue stream to offset a fraction of large debt write-offs that will be the fiscal problem for future Congresses.
Related to principle reductions prosed earlier by various Democrats, the platform is less forgiving. It only targets tuition [not room & board, materials, living expenses, etc.] but only for selected types of schools, “two- and four-year public colleges and universities, and…private HBCUs [Historically Black Colleges & Universities and MSIs [Minority Serving Institutions].” This follows the Democratic tendency to discriminate against private institutions and vocational education while favoring racially discriminatory policies. Further, their proposal is means-tested for those earning less than $125,000 which suggests that the forgiven may be delayed decades while borrowers continue to pay interest on the higher principle.
The Democratic platform expands on the proposals in the College Affordability Act related to the existing Public Service Loan Forgiveness program [see SEC. 4303. AMENDMENTS TO TERMS AND CONDITIONS OF PUBLIC SERVICE LOAN FORGIVENESS of the bill]. Given that the House has not included them in the Higher Education Act reauthorization, these may be empty campaign promises by the Democrats. Currently, a qualified public servant has to make payments for 10 years before being eligible for forgiveness of their remaining balance. The Democratic platform proposes “forgiving up to $10,000 in student debt per year for up to five years, and apply this action to people who have already dedicated 5 years or less of service to working in our schools, government agencies, and non-profit organizations.” This follows the Democratic policy pattern of loan forgiveness being delayed and highly qualified.
The treatment of student loans in bankruptcy is an often-discussed topic. In the Democratic platform, it supports allowing “student debt to be discharged during bankruptcy,” but no such proposal exists in the College Affordability Act, so likely another empty promise to solicit votes. Meanwhile, student loans are already dischargeable in bankruptcy in cases of undue hardship. Given income-based repayment options and insurance for permanent total disability claims, there is not a strong case to be made for increasing taxpayer liability by allowing lower standards for discharges through bankruptcy.
Why do the Democrats make it all so complicated when some proposed simply to forgive the debt? This debt is a patronage trap that indentures debtors to politicians. College is unaffordable [due to federal financing]; if you vote for these politicians, then they will “help” you pay for school, but instead you mortgaged your life to them. Now if you will vote for these politicians, then they will promise to make your burden easier to bear; however, if you do not vote for them, then your debt will crush you. But those politicians will not free you from your debt, because it is how they hold you in obedience. The politicians create the problem, sell you a solution, and then hold you with the consequence of that solution.
The Democrats have been lying to you. They do not want to forgive your student loan debt. They want you dependent upon them to temporarily protect you from the debt that they sold you into.
Is there an alternative to being an indentured servant to politicians as the Democrats propose while also not crushing your life with unpayable student loans? Yes. For details, see “How to Fix Federal Student Loan Debt without the Democrats’ Debt Forgiveness Promises.”