Law Schools

Income-Driven Repayment Plans And Student Debt Forgiveness Are Not Going Anywhere

There is just not enough political will to make huge changes, and political winds are shifting so that making such alterations will become more difficult.

By  
on

As many of you may know, recent proposals have been advanced in Congress that would drastically alter income-driven repayment plans and the federal student loan system.  Indeed, a bill has been introduced that would cap the amount of federal student loans offered to graduate students and eliminate income-driven repayment plans in their current form.  This website and other outlets have extensively discussed how such a proposal could impact law schools, and a number of people have emailed me over the past several weeks to ask what I thought of this plan.

I do not profess to be a policy “wonk” in any way.  My expertise almost exclusively concerns how individuals can pay off their student loans early, mainly from boosting their income from side-hustles and saving money.  However, knowing what I know about the federal student loan system and the current political climate, I think it is unlikely that any extensive changes will be made to income-driven repayment plans or the government student loan system.

The main reason why I think no changes will be made to income-driven repayment plans is since it would take an unbelievable amount of political capital to alter the federal student loan system.  Millions of individuals rely on federal student loans to finance their educations, and many more people are parents of students, grandparents of borrowers, or otherwise know someone who would be impacted by any changes.  In addition, student debt is one of those “hot button” political issues, and politicians would dig in their heels and fight vociferously against any attempt to curtail student debt initiatives.  The current student loan system has been in place for over a decade, and has considerable inertia.  It would be extremely difficult to change the way the federal government handles student loans, and as recent examples demonstrate, it is currently hard to summon political capital to make massive policy changes.

Furthermore, as most people can easily see, political winds are shifting.  More likely than not, political influence will change hands after the next midterm election, which will happen sooner than you think.  Once this occurs, it will be all but impossible to alter the federal student loan system.  Even if changes are made before the midterm elections, it is likely that unfavorable initiatives will be changed back to the way they were or even reformed in order to provide more relief to student debt borrowers.  Indeed, more generous income-driven repayment plans were authorized in 2007 when Republicans controlled the White House, and Democrats had come back to power in Congress.  Since political power will soon change hands, it is even less likely that alterations will be made to the federal student loan system.

In addition, I am not altogether convinced that there is much resolve within the Republican establishment to eliminate protections afforded to student debt borrowers.  Indeed, the current administration advertised on the campaign trail that they wished to strengthen income-driven repayment plans so that debt forgiveness could be applied for after only 15 years of timely payments.  Of course, eliminating some student debt initiatives would advance the administration’s goal of reducing government spending, but the cost of affecting so many student debt borrowers might not be worth the benefit.

I will admit that policymakers may cap the amount of debt that can be forgiven through income-driven repayment plans and limit the amount of money that may be borrowed for graduate school.  The past administration also advanced proposals to cap the amount of debt forgiveness available, and limiting this would lessen the moral hazard that might be experienced from current government student loan programs.

If such changes are made, law schools must fill the gap in public sector loan forgiveness.  Many law schools, like my alma mater, currently have programs in which institutions help recent graduates entering the public sector with their student loans so long as the graduate earns less than a certain threshold.  If law schools are truly committed to a philanthropic mission, they would expand public sector student debt programs, and help offset any burdens realized by changes in the federal student loan landscape.

Sponsored

If caps are placed on the amount of student debt that is available to graduate students and the amount of debt that is forgiven, I am not convinced that this would massively impact law students entering the private sector.  Private banks have always offered student loans to qualified borrowers, and many banks provide student debt at interest rates that are far lower than the interest rates offered on government loans.  In addition, since private student loans are more difficult to obtain than government debt, banks could help limit people from borrowing too much debt and minimize the amount of people who have issues with student loans down the road.  Furthermore, and this could just be me thinking optimistically, cutting law schools off from receiving nearly unlimited amounts of government funding from their students could finally help push law schools to lower their tuition costs.  Of course, restricting the amount of government student debt available to students could negatively impact the legal profession, but some positive effects might be realized as well.

All told, if I was a betting man (which I am!), I would bet that the federal student loan system does not change much despite proposals to alter the way federal student debt initiatives currently work.  There is just not enough political will to make huge changes, and political winds are shifting so that making such alterations will become more difficult.  Although minor changes may be made to the federal student loan system, it is possible that some benefits could also be realized from these reforms.

Jordan Rothman is the founder of Student Debt Diaries, a personal finance website discussing how he paid off all $197,890.20 of his college and law school student loans over 46 months of his late 20s. You can reach him at Jordan@studentdebtdiaries.com.

Sponsored

Topics

, , , ,