With her new proposal to forgive almost $1 trillion in student debt, Senator Elizabeth Warren (D., Mass.) has made an excellent case to immediately cut benefits from their existing levels under Obama-era student-loan programs, even if her plan is never enacted.
Despite her plan’s apparent generosity, it would impose limits on who can qualify for debt forgiveness based on income. It would also limit how much each borrower can be forgiven. Yet under the existing Income-Based Repayment (IBR) program, which Democrats in Congress and the Obama administration redesigned in 2010, borrowers can stand to have more forgiven than under Warren’s proposal. And while IBR forgives borrowers only after a repayment period, even borrowers who have high incomes are eligible for college-debt forgiveness.
Specifically, Warren’s plan would cap the amount of debt that can be forgiven at $50,000, an amount that is reduced on a sliding scale for borrowers earning over $100,000, offering no college-debt forgiveness for anyone earning above $250,000. It sure looks like Warren believes that no one should have more than $50,000 in federal student loans forgiven, and that higher-income borrowers should qualify for even less, or none at all if their incomes reach $250,000.
The existing IBR program, by contrast, places no limit on the amount borrowers can be forgiven, and there is no absolute income limit on who can receive loan forgiveness. Here is how the program works — and how borrowers earning over $100,000 can easily qualify for loan forgiveness well in excess of the limits that Warren recommends.
Under current law, anyone who takes out a federal student loan today can enroll in IBR and have his payments fixed at 10 percent of his income, less an exemption of $18,700 (which increases with household size). It does not matter if those payments are less than what is needed to repay the debt; that’s the point. Payments are based solely on income. Then, after 20 years of payments (or only ten years for those working in any government or non-profit job), all of the remaining balance is forgiven, no matter how high it is.
The U.S. Department of Education provides a handy calculator to show how borrowers can easily have more forgiven under current rules than what the Warren proposal would allow.
Consider someone with $80,000 in debt and a starting income of $60,000. According to the calculator, this borrower would have $62,000 forgiven under the current IBR program if he holds a government or non-profit job. That’s well above what Warren thinks is reasonable.
Or consider a borrower with a starting income of $75,000 and $150,000 in debt. The department’s calculator says he would have $88,500 forgiven after 20 years of payments under IBR. Again, that is well outside the limits of Warren’s proposal. And by the time this borrower receives debt forgiveness, his income would exceed $100,000 (the calculator assumes income increases by 5 percent annually), the income level at which Warren says borrowers should qualify for reduced loan forgiveness.
To be fair, the IBR program predates the Obama administration. But the changes that President Obama and Democratic lawmakers made in 2010 push the loan-forgiveness amounts beyond what even a far-left progressive like Warren believes are acceptable.
All lawmakers would need to do to keep the program within Warren’s prescribed limits is repeal the Obama-era changes. President Trump and congressional Republicans have proposed policies along those lines. They now appear to have a progressive, if unwitting, ally in that effort.