With President Joe Biden in the White House, progressives are pushing for universal student loan forgiveness. New data from the Department of Education provides an excellent snapshot of how badly targeted student loan forgiveness would be. This new data gives us the most detailed view into the roughly $86 billion in student loans taken out by students who graduated and started repaying their loans in 2016-17 and 2017-18.
The data make clear that student loan forgiveness provides massive windfalls to the well-off. The field with the most loan forgiveness per borrower is dentistry, where the average borrower would offload $250,000 of debt onto taxpayers. Borrowers in the field of medicine would have an average of $174,000 forgiven. And borrowers in law would have an average of $119,000 forgiven.
Progressives often portray themselves as fighting against attempts by the rich and powerful to hijack public policy to enrich themselves at taxpayers’ expense. So why, in the name of fighting for the oppressed, are they trying to send well-compensated dentists, doctors, and lawyers six-figure checks? While there are certainly dentists, medical doctors, and lawyers who are struggling with debt, many others are lavishly compensated and can afford to repay their loans.
Nor are these fields unusual. Across all academic fields, the typical borrower in this cohort who earned an Associate’s degree would have $15,000 in student loans forgiven. The typical borrower who earned a Master’s degree would have $45,000 in debt forgiven, even though those with a Master’s degree typically have starting salaries $25,000 higher. Graduate students account for only 19 percent of the degrees awarded but 48 percent of the debt, and would therefore disproportionately benefit from loan forgiveness.
Some alternative Democratic proposals have tried to temper the push for total loan forgiveness by capping the amount that is forgiven. For example, Sens. Elizabeth Warren (D-Mass.) and Chuck Schumer (D.-N.Y.) called for a limit of $50,000 per student. This will reduce but not eliminate the mistargeting. Forgiving $50,000 of student loan debt for a graduate from Harvard law is better than forgiving their average debt of $143,000, but it is still $50,000 too much. Do progressives really think that providing Harvard law graduates with a $50,000 gift from taxpayers is a justified and pressing use of taxpayer dollars?
The Biden administration should avoid these universal approaches to loan forgiveness because they all suffer from the same fatal flaw, namely, a mismatch between the problem — unaffordable debt, which is concentrated among a subset of borrowers — and the proposed remedy, universal loan forgiveness (with or without a cap).
What should be done instead of universal forgiveness? There is already an existing student loan repayment program that can solve — not mitigate, not address, but solve — the problem of unaffordable student loans. Namely, the Revised Pay As You Earn Repayment Plan (REPAYE). Under REPAYE, students pay 10 percent of their discretionary income, ensuring that payments are always affordable. If a graduate loses their job, their loan payment drops to $0. When they start working again, their loan payments resume and are based on their new salary. Any remaining balance after 20 to 25 years of repayment is forgiven.
REPAYE is not perfect. It is far too generous. Given the low payment rate of 10 percent, too much income is exempt (discretionary income starts at 150 percent of the poverty line) resulting in too many students not even covering the interest on their loans. Given such low payments and generous forgiveness provisions, the Congressional Budget Office estimates that in present value terms, for every dollar loaned out and repaid through REPAYE and similar programs, 43 cents will never be repaid. Thus, we urge Congress to amend REPAYE by adjusting the threshold for discretionary income, the payment rate, and eliminating the forgiveness provisions.
But even with its flaws, REPAYE is still the best tool available for the incoming Biden administration. Making REPAYE the default student loan repayment plan for all students gives the Biden administration a golden opportunity to solve the student loan crisis, help struggling students, advance rational public policy, and to do it all without sending six-figure checks to dentists, medical doctors, and lawyers.