While last week’s $ 1.9 billion federal relief plan did not cancel student loans, it included a provision that would make future debt forgiveness tax-free. Senator Warren and others released a declaration of celebration suggesting that the law “paves the way for President Biden to use his authority to write off $ 50,000 in student debt.”
But canceling the student loan is far from a done deal. This is because there are legitimate concerns about cost, equity and equity that come with any of the current plans for waiving student loans. President Biden knows this, and that’s probably why he didn’t.
But, there is a better way to ease the pain of student debt that addresses these concerns while costing taxpayers nothing.
Instead of canceling the debt and sending the bill to taxpayers, it would be an exchange: in exchange for every $ 10,000 of debt relief, recipients delay eligibility for federal retirement benefits by one year. . In exchange for up to $ 40,000 now to pay off student loans, recipients would defer Social Security and Medicare benefits for up to 4 years. Trade would be completely optional and open to all Americans for generations to come. Better yet, it costs taxpayers nothing.
Why trade? First and foremost, it solves the cost problem. Indeed, this approach would be tantamount to unlocking federal dollars set aside for Americans in their 60s for use earlier in life. And that’s not necessarily short-sighted, since those who attend college are healthier, to live longer and ultimately earn more than people with a high school diploma or less. Currently, Americans born after 1960 can draw Social security at 62 (with full benefits at 67) and health insurance at 65. Those who accept a delay would likely work a few more years, or when health issues make them unable to work, they could still access federal disability programs.
Because Social Security and Health Insurance cost the federal government more than $ 30,000 per year per recipient, any American accepting a delay in eligibility saves the government significantly more than the $ 10,000 prepaid for college loan debt. In the end, this could put Social security and health insurance on a more financially viable path. And the more Americans took up the offer, the better off these fundamental retirement programs would be.
This contrasts with the loan cancellation plans currently offered where the estimated price varies from some $ 300 billion for Biden’s more limited plan to provide $ 10,000 relief per eligible borrower to much more 1000 billion dollars for plans to write off more student debt.
Critically, commerce avoids the fundamental inequity of asking people who never went to college to pay off the debts of those who did. Traditional loan forgiveness can function as a deeply inequitable taxpayer giveaway to rich, since high-income Americans hold a disproportionate share of the $ 1.6 trillion in unpaid student debt. To reduce these inequalities, some have proposed limiting participation to people earning less than $ 125,000 who attended public institutions. But such limits seem arbitrary and open to the game. Will those asking for loan forgiveness be reluctant to work to ensure their eligibility? And why give preference to those who have chosen public establishments when the tuition fees in certain public establishments are higher than in certain private establishments?
The trade offered here is not a gift to taxpayers and does not ask some Americans to foot the bill for others. This is important because with the current loan forgiveness proposals, there are real equity and personal responsibility issues at stake, too. When the rules are changed halfway, those who sacrificed under the old rules see themselves as the losers. If we just write off college debt and ask for nothing in return, what message are we sending to those who worked two jobs or attended a cheaper school to avoid getting into debt? What do we say to those currently serving multi-year military engagements in exchange for their ROTC scholarships? And what about the students who delayed college to work and save, and thus miss out on the unique offer of a massive federal giveaway?
Unlike existing loan cancellation plans, this business could be open to all Americans today and in the future. In doing so, it could improve the affordability of colleges for the next generation of perpetual borrowers, not just the generation in debt today. And it could be available to adults of any age wishing to earn a degree, possibly as a refresher for new careers.
An old Freakonomics headline on an unmitigated student loan cancellation plan called it: “The worst idea ever.” Even the trade offered here is not a perfect option. Debt relief of any kind is not an effective stimulus and does not solve out of control tuition fees. Another warning: a business like this may take more political maneuvering as it cannot be done by presidential decree. But if executives are determined to tackle student loan debt, a profession should be far more attractive than any of the current options.