Should President Biden cancel student loan debt?

On Balance with Leland Vittert

(NewsNation) — The freeze on student loan repayments expires May 1. It has been in place since COVID-19 started, and there are new calls not only extend the freeze but cancel student debt loans altogether.

You might remember progressives won the battle with President Joe Biden over the eviction moratorium. He didn’t extend it, they protested on the Capitol steps for a week led by Rep. Cory Bush (R-Mo.). It got a lot of attention and the president caved.

The numbers here are way bigger. The average student loan debt balance is now more than $37,000. More than 43 million Americans have some form of college debt. Do the math. The U.S. government, the taxpayers, are owed $1.3 trillion.

Alan Collinge is co-founder of Student Loan Justice. His change.org petition to cancel federal student debt has more than 1 million signatures. Below is a transcript of his discussion on “On Balance,” edited for clarity.

Leland Vittert: By cancel, you mean people who owe money just shouldn’t have to ever pay it back.

Alan Collinge: Yeah, Leland, you know, for the first 15 years of my organization’s existence, we fought very moderately for only the return of bankruptcy protections to student loans, they’ve been uniquely stripped. But at this point, when COVID rolled around, it became quite obvious that this lending system is catastrophically failed. It is a big government behemoth, and at this point, it probably makes the most sense to take it to the bath and drown it in the tub. You know, just before the pandemic 80% of all borrowers were underwater 64% were not paying at all and the other 16% were paying and paying and paying.

Vittert: I’m a little bit confused here. So if the system’s, in your words, “broken,” then the people who owe the taxpayers money shouldn’t have to pay it back?

Collinge: It’s not going to get paid. Leland. It just is not. I mean, look at the state of Texas: $141 billion in mostly federal student loan debt. What would happen if we took $141 billion out of the state of Texas and sent that money to the federal government? It wouldn’t be good. The loans will not be paid, Leland.

Vittert: Right. I’m wondering where this ends, because there’s a lot of student loan debt. There’s also a lot of loans backed by Fannie and Freddie, federal-backed mortgages. Those people are having tough times too, should we (should declare) they’re dead as well?

Collinge: Well, you know, all of those loans have a real asset behind them. And all of those loans have the same constitutional bankruptcy protections that every other loan enjoys — not so for student loans.

Vittert: So we should we should cancel student debt and forgive all these loans and the taxpayers don’t get paid back because there isn’t bankruptcy protection?

Collinge: The taxpayers are doing great on this lending system. Even Donald Trump before he ran for president noted the fact that the federal government is profiting upwards of $50 billion a year on this program since Obama federalized in 2010. The taxpayers did not pay $1.6 trillion for this loan portfolio, they paid a small fraction of that. And compared to say [Paycheck Protection Program] loans or any of the other stimulus that we’ve seen, particularly during COVID, it is the cheapest, easiest way to stimulate the economy.

Vittert: I’m still confused. Did any of the people who signed the loan documents do so under duress?

Collinge: They did so without any knowledge of how unconstitutional and how viciously predatory these loans are. No other loan in this country has been stripped of bankruptcy.

Vittert: But how is offering somebody money to go to college and giving them a loan to do so, especially after 2010 when we knew they didn’t have bankruptcy protection, predatory?

Collinge: When you take bankruptcy protections away from a loan and statute of limitations, you give the lender, in this case the federal government, a license to steal, and that is precisely what’s been happening for the past 40 years.

Vittert: So I’m confused. How did we get from “we want bankruptcy protections,” which (is) a reasonable debate, and whether or not people should get bankruptcy protections for federal student loans, to “never mind, we should just forgive all the loans altogether?” Those seems like very different things.

Collinge: Well, at this point, you know, subprime home mortgage default rate was 20%. The default rate for 2004 borrowers who were only borrowing one-third of which we borrowed today is double that: 40%. My best estimate is that, certainly after COVID, we’re looking at a 70-75% default rate.

Vittert: Where does the fairness exist for all the people who (didn’t buy) new cars or new homes or vacations or anything else and paid off all their loans? Should we just go back a couple of years and give them all their money back, too?

Collinge: You know, people who made it through the lending system in years or decades past should be glad to be done. That has no bearing on the fact that today, this lending system is finished, it’s done.

Vittert: Your argument is that we should forgive all the debt because some people can’t pay it back?

Collinge: Because the vast majority of people can’t pay it back.

Vittert: Shouldn’t they have to? Should they have to pay something? They took the money, they have the education, they signed the papers, and they shouldn’t pay it back, because some of them can’t?

Collinge: For 15 years, I was right there with you. If they would have returned bankruptcy protections a decade ago, we would have seen hopefully, the stabilization of this lending system. It’s too late. The numbers are too big. We still need bankruptcy protections, don’t get me wrong.

Vittert: Let’s just go with this for a second and say there should be federal student loan forgiveness. Why on earth should the taxpayers then continue to lend money if there’s this precedent set that, “hey, people don’t have to repay it because it’s going to be forgiven at some point?”

Collinge: Well, I don’t think they should. I think this is the end of the federal student loan system.

Vittert: Oh, come on in. And now all of a sudden, you’re not going to then in five years have a big group say, “Oh, gee, poor people can’t get loans to go to school. Therefore, we need to have a federal system”?

Collinge: I’m agnostic on what the future higher education funding system is going to look like.

Vittert: Well, you’re agnostic now, but I would suspect you’re going to change once you get what you want, right?

Collinge: Well, if there’s going to be a lending system going forward, the loans have got to have the same bankruptcy rights, statutes, limitations, fair debt collection practices, truth and lending laws and all other consumer protections.

Vittert: But I still don’t understand why if you give all the loans in the past all of those reforms, why that would not then apply why that wouldn’t be fair and why you then need to cancel all the debt unilaterally?

Collinge: I actually agree with you. In my view … we the government should not be in the lending business. They botched the student loan so badly.

Vittert: Yeah, they botch most things up pretty substantially. No argument there. But I still don’t understand how it is fair to hardworking Americans who paid their taxes paid their loans off that they now don’t get repaid by people who will have enjoyed the benefits of all these loans.

Collinge: You know, Leland, it’s just a fact the loans will not be paid. They will not be paid. It’s not gonna happen. And I don’t call it forgiveness. I call it cancellation.

Vittert: A rose by another name. Fair enough. We got to run, but it was good to chat. You come back, this debate is going to continue in Washington.

Collinge: I would love to.

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