President Trump: Drain the Student Loan Swamp Before You Go.
Trump’s last official act in office should be cancelling all federally owned student loans by executive order.
As many feared- and some probably hoped- it appears that Trump’s tenure as President its not going to end well. Trump will be leaving office in a storm of violent controversy not seen before in our nation’s history, and in his wake will be a looming economic catastrophy brought on by the pandemic. At the forefront of this new reality is the student loan problem.
There 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 until recently, 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, but they were only borrowing a third of what is being borrowed today.
We are looking at a default rate of 75% or higher for more recent borrowers. That is about four times higher than the default rate of sub-prime home mortgage loans. By every reasonable metric, this was a catastrophically failed lending system even before the pandemic.
A majority of these 44 million, largely distressed borrowers identify as being politically independent or republican. More than 40% never graduated. All of them are losing sleep over their student loans, and they span the political spectrum. Interestingly, traditionally “red states” are being hurt significantly worse by these loans than “blue states”. The most successful student loan borrowers refinanced their loans in the private market. The rest- many who went to trade schools- are wrecked…probably for life.
Despite popular misconceptions, there are more people over 50 years old with student loans than there are people under the age of 25, and they owe triple what the younger generation owes. This is the largest emerging frontier of American politics today.
While it is obviously too late to impact the election, President Trump can cancel all federally owned student loans by executive order. He should appoint a pro-tem Education Secretary, and make this his last Presidential Act. He should also leave standing orders for the Department of Education to stop opposing people in bankruptcy court on loans that cannot be cancelled administratively.
Analysts have predicted that canceling student loans will increase GDP by about $100 billion for the next ten years, but they do not take into account the borrowing capacity (and thus spending) that such a move would free up. This would be another $1 Trillion injected into the economy in the near and medium-term. Some experts even believe that debt cancellation is the only way to avoid a depression.
President Trump said he was going to drain the swamp. This is his last, best chance to actually do that. While Betsy DeVos and the unelected bureaucrats and lobbyists in- and around the Department of Education may protest loudly, the people will cheer loudly. This would be economic populism in its finest hour.
There is no better way for the President to leave the White House, both for himself, and for the country.
