Student loans: ‘It is time we get back to a new normal’ of repayment, BPC director says
Shai Akabas, Director of Economic Policy at the Bipartisan Policy Center, joins Yahoo Finance Live to discuss the extension of the pandemic-era federal student loan repayment pause and whether or not the government should forgive student debt.
Video Transcript
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JARED BLIKRE: Last week, President Biden extended a pause on student loan repayments through May 1st of the new year. Those loan payments were scheduled to restart as of February 1st. So the measure gives borrowers an additional three months.
And we want to dig into the details here with Shai Akabas, director of Economic Policy at the Bipartisan Policy Center. Shai thank you for joining us here today. Any other details about this because we know this is an issue that was-- has and it continues to affect millions and millions of American students here.
SHAI AKABAS: Yeah. This is something that now has gone on for a couple of years because the pause was started at the beginning of the pandemic back in the spring of 2020. And at that time, there was an acute massive disruption to our economy and to the household finances of millions of Americans. You know, something like 50% of households said that someone in their family's employment had been affected by the onset of the pandemic.
And at that time, it was entirely appropriate for the federal government to issue a pause and provide relief to federal borrowers, just like it was providing relief to many other elements of our economy. But as time has gone on and household balance sheets have recovered, often fully recovered are more than fully recovered, it's time that we get back to a new normal, where people who owe student loans are beginning to repay again, many of them have the ability to do so. If they don't have the ability to do so, there are options for them to either get deferment or forbearance, where you can put-- they can themselves put a pause on their loan repayments or enroll in an income-driven repayment plan that makes sure that they're not paying more than a certain share of their income in loans. Those are the options that are available and the Department of Education should be making sure that people are fully aware of those options and educated about the availability that they have.
KARINA MITCHELL: Literally the morning that it was announced that there would be an extension until May, I was up at 6 o'clock in the morning wondering, how do I start repaying because they were supposed to start in January. So this gives a reprieve but it also creates a lot of confusion. And I'm wondering, what should we be doing to help people sort of figure out how they repay, when they repay? And I want to just get your opinion on you know, President Biden said he wanted to have $10,000 in loan forgiveness for every student. Progressives are calling for up to $50,000. Is that something that you're in favor of?
SHAI AKABAS: So on your first point, I do think it's really important that we give elements of predictability here. I thought the administration was doing a really good job informing borrowers and letting them know what the options are, and directing them to resources that can help them get on a plan that would provide them the relief that they need. But then they interrupted all of that by extending what they said was going to be the final temporary extension of this pause and borrowers like yourself who had been preparing for this, now have to do it all again in a few months. So I think they've sort of undermined the confidence that people had in the system that they'd set up.
More broadly though, the forgiveness question I think is one that is really top of mind, of course, for many borrowers. And we do need to find policy options that can provide relief to those who need it. But the idea that we would be giving across the board student loan relief to borrowers who, in most cases that have the most debt, went to grad school and ended up with degrees that are going to ensure that they have lifetime incomes that are among the highest in the country-- those are not the types of people that we should be giving $50,000 of loan relief to. The people who are going to be paying for that loan relief are taxpayers who often didn't go to college, didn't take out student loans, and may be much lower down the income distribution.
So that's an equity issue that we need to grapple with. I think there are solutions that we can provide targeted relief to the people who need it most. And I'm happy to get into those further. I don't think an across-the-board type of forgiveness is that type of targeted narrow relief.
JARED BLIKRE: All right. I'll bite on that. And can you tell us what are some of those other options that you're looking at here? That are what you think should be available to students?
SHAI AKABAS: Sure. Part of the problem that we have right now is that there are these multiple income-driven repayment plans, each of which has different parameters and lots of complexity in terms of the paperwork that needs to be submitted to enroll and re-enroll in them. We need to have a simplified system so that borrowers aren't paying more than an affordable share of their income. Part of that means automatically enrolling borrowers into those plans.
So if they're eligible for it, they'll just know-- they'll know that they will not need to pay more than an affordable share of their income rather than having to worry about this enrollment. And part of the key there is making sure that the Department of Education has access to borrowers' income so that they don't have to submit it and then resubmit it. There should be data sharing that goes on between the IRS and the Department of Education so that they have access to that.
The other piece here is to make sure that the repayment plan, the income-driven plan is progressive enough so that it makes sure that the people who are near the bottom end of the income distribution, who are making minimum wage or somewhat more than that, really aren't paying much of their income in student loans. But also that it's progressive so that people who do have six-figure incomes, who got law degrees or medical degrees, they're paying more than they have to today because right now, they only have to pay 10% of their income above a certain threshold. And that means that these people can stay on these income-driven plans for a long time and then get their debt forgiven after a period of 20 or 25 years.
And if you're a lawyer or a doctor or some other professional who's making hundreds of thousands of dollars, those aren't the people we need to be providing relief towards. So there's a couple of elements of this solution that can make sure that we provide that support to the borrowers who need it most. But also not let others who borrowed on the taxpayer's dime get off scot-free when they can afford to repay all of their loans.
KARINA MITCHELL: But Shai, don't you think one other solution or option could be to make college education more affordable so kids aren't sort of looking at whether they have to get a job or saying that listen, I can't afford to pay these loans, I can't afford to go into debt. So I'm just not going to go to college like so many other countries around the world do?
SHAI AKABAS: Absolutely. So this whole discussion is focused on a narrow part of the problem, which is just how do we provide relief to struggling borrowers? Taking a broader lens like you're doing in your question is entirely appropriate. We need to be talking about why college is this expensive? What other tools do we have to make college more affordable? So expanding Pell grants, that's something we certainly support at the Bipartisan Policy Center.
Another element is making sure that institutions, higher ed institutions, are held more accountable for the fact that many of their borrowers are graduating or finishing school or not finishing school, and not able to repay their loans. The fact that they are charging 40, 50 more than that, thousand dollars a year, and having students take that on and having them take it on in debt, and then those students aren't able to repay it because they get a job that isn't making nearly as much as they expected, we need to put in place more accountability measures so that higher education institutions are accountable for the prices that they're charging and the debt that their students are taking on.
JARED BLIKRE: And I couldn't personally be happier that I graduated in the 1990s, when prices were much, much lower. Really appreciate you stopping by here, Shai Akabas, director of economic policy at the Bipartisan Policy Center.
