President Trump: Cancel Student Loans by Executive Order.
No tax money required. Nothing will be added to the national debt.
here are 44 million federal student loan borrowers in the country carrying about $1.5 Trillion in federal student loan debt. According to Education Secretary Betsy DeVos last year, 75% of these people were either unable to make payments on their loans, or were paying, but their balances were going up. Trump appointee Wayne Johnson, who ran the federal lending system under DeVos, said that this was closer to 80% just before covid-19 hit. Also, we now know that the class of 2004 are defaulting on their loans 40% of the time. This class, however, was only borrowing a third of what students are borrowing today. It is no stretch to say that the default rate for more recent borrowers will surely be 70% if not higher…and even higher still considering the pandemic and the uneven economic recovery that we are seeing. By comparison, The default rate for sub-prime home mortgages was less than 20%.
To be blunt: it is a catastrophically failed lending system, and this was true before the pandemic.
A majority of these 44 million, largely distressed borrowers identify as being politically independent or republican. More than 60% never graduated. All of them are losing sleep over their student loans, and they vote, or would vote if given a strong reason to. In a campaign where every other issue is well defined, this is the wild west of American politics. These voters are the biggest bonanza in modern presidential election history for the candidate with the courage to solve this problem. These voters can turn a loss into a landslide…or vice versa.
4 years ago, these voters had no one to pull the lever for. Hillary had nothing but plans for future students, and Donald Trump had nothing. This time, however, Joe Biden is proposing both widespread loan cancellation, and the return of bankruptcy protections to student loans. Biden’s partial loan cancellation plan requires Congress to “pay for” it by raising taxes or adding to the national debt. So, it is unlikely to happen. Also, the Department of Education will surely bureaucratize such a program into meaninglessness, as it has done to other loan forgiveness programs. Despite widespread media reports to the contrary, Biden’s bankruptcy pledge appears to only be related to private student loans, which comprise not even 10% of all student loans. Nevertheless, just by mouthing the words “loan cancellation”, and “bankruptcy”, Biden is sure to attract the large majority of these distressed, desperate voters if Trump fails to respond. That turns a difficult election into an impossible one for the President.
ake no mistake: This is a big-government, nationally threatening lending system that no true conservative should support. Since Obama/Biden nationalized the federal loan program, it has more than doubled in size- making the Department of Education the largest lender on earth- and the government has made out obscenely well. Despite President Lyndon Johnson declaring that these loans would be “free of interest” when he signed the Higher Education Act into law in 1965, $100 billion in interest alone is now sucked out of the economy every year, and fed into the government, which was booking over $50 billion in annual profits as far back as 2012. These profits have surely increased since then. President Trump was decrying this fact even before he decided to run for public office.
Interestingly, some of these government profits are used to subsidize Obamacare. What is truly disturbing: in the absence of constitutionally enshrined bankruptcy protections, statutes of limitations, and other bedrock consumer protections that exist for all other loans, White House Budget data going back decades show that the government has- astonishingly- managed to make a profit, even, on defaulted loans- a claim that no other lender can make. This is a defining characteristic of a predatory lending system.
The colleges, who are funded to the tune of $100 billion in student loan revenue annually, have been the chief beneficiaries of this lending scam. They are practically drowning in cash, despite their fraudulent claims to the contrary. This federal credit has allowed them to hyper-inflate their price of attendance, spoil the students with extravagant, unnecessary excesses like lazy rivers, 4 star dining, climbing rock walls, and the like. Not to mention the exploding administrative salaries and massive capital projects (notice all the construction cranes at the universities in your town?). The greatest outrage: roughly since the last financial crisis, the colleges have begun stockpiling slush-funds (University of Virginia Rector Helen Dragas’ words, not mine)- completely separate from their endowments- of obscene proportions. We are talking hundreds of billions, here, cumulatively.
Meanwhile, the citizens stuck with the bill for all of this in the form of predatory student loans are being crushed. Young people aren’t able to start families, buy homes, or start businesses. Senior citizens are having their social security taken away by the government, middle aged parents are having to liquidate their nest eggs to cover exploded loans taken out by, or for their kids. People are being arrested by federal marshals, are losing their professional and even driver’s licenses. Some are fleeing the country, or even committing suicide.
This is not right. This was never right.
There are many reasons this monstrosity was allowed to form, persist, and grow to such threatening proportions- too many to list here- but suffice it to say that it was a bipartisan scheme, enabled in part by swamp “experts” who claim to be conservatives, but who are in fact working behind the scenes to perpetuate, rather than fix- or even end- this lending system. Thankfully, as it becomes increasingly clear that the lending system is in a death spiral, the disquises are coming off of these big-government operatives.
he bottom line: The President can, without needing congressional approval or appropriation, cancel these federal loans with the stroke of his pen. This could be done without spending one dime of tax money, or adding even one penny to the national debt. During this pandemic where we are throwing trillions at the economy- much of it in the form of loans that don’t have to be repaid- there simply is no cheaper, more expedient, or better targeted way to stimulate the economy.
The colleges could even be made to cover- out of the rainy day funds they built up under Obama/Biden- a significant portion of whatever part of the portfolio constitutes original, unpaid principal. While not even the Department knows how much this is due to frenetic consolidation, reconsolidation, rehabilitating, and re-principalization of the loans, I suspect this is less than $500 Billion, perhaps far less given the astonishing historical government profits on these loans.
This is long overdue. The lending system is vanishing into a mist of illegitimacy as we speak (along with its swamp defenders). The President (whether this one or the next) will have to- in the words of Grover Norquist- take this lending system to the bath, and drown it in the tub.
eading democrats have clued into this. Last month, Elizabeth Warren and Chuck Schumer pulled on this new thread by challenging Trump to cancel “up to $50,000” in loans by executive order, and even introduced a Senate resolution to that end. Although their proposal doesn’t stand up to serious scrutiny (“up to $50,000” could mean anything), they will cement their lock the majority of distressed student loan voters if Trump comes out against it, or even ignores it (which he appears to be doing). Simply put: The President cannot win this election without these voters.
Trump shouldn’t take the bait. He should instead not just call their bluff, but actually cancel all federal loans, call on Congress to decrease loan funding for- if not defund- the colleges going forward. The Student Loan Swamp will surely protest, but the citizens will cheer. And Trump will reap the reward- an electoral windfall the likes of which our country has not seen in decades (certainly in my lifetime).
This counterpunch will be a master stroke. An October Surprise for the ages. Trump will drain the swamp, rein-in the colleges, check the democrats, massively stimulate the economy, and win the election- all in one fell-swoop. Not to mention, it is exactly the right thing to do for the country during this pandemic and beyond.
Please sign this petition if you agree.
Alan Collinge is Founder of StudentLoanJustice.Org, author of The Student Loan Scam (Beacon Press), and creator of the petition to cancel federal student loans by executive order.
