USA TODAY International Edition

A fair way to help pay off student loan debt

Who should get relief ? How much? It’s complex.

- Scott MacDonald Scott MacDonald, founder of the MacDonald Community Scholarshi­p Program, is the author of the new book “Education Without Debt: Giving Back and Paying it Forward.”

What should be done about America’s $ 1.6 trillion in outstandin­g student debt? There is more student debt than credit card debt or any other kind of debt except mortgage debt.

Almost 45 million Americans have student debt, and the level is increasing. Seven in 10 seniors in the class of 2019 took out student loans.

With so much debt and comparativ­ely low increases in wages, more debt is in arrears. About 11% of student loans are delinquent or in default. With so much debt, graduates are unable to participat­e fully in the national economy. Homebuying, marriage and childbeari­ng are often delayed and consumer purchases deferred.

The U. S. economy is largely based on consumer buying, and with newer members of the workforce burdened by high levels of debt, national economic growth will suffer, leading to fewer jobs and business opportunit­ies.

Almost everyone acknowledg­es the country has a major problem, but there is little agreement about what to do. Some, like Vermont Sen. Bernie Sanders and Minnesota Rep. Ilhan Omar, would cancel all outstandin­g debt.

Massachuse­tts Sen. Elizabeth Warren would cancel up to $ 50,000 for borrowers making less than $ 250,000 a year. President Joe Biden has proposed canceling up to $ 10,000 per borrower.

Others believe that student borrowers willingly borrowed the money and are obliged to pay it back. They support proposals for streamlini­ng forms and processes and providing informatio­n, but oppose debt forgivenes­s.

Details matter

Arguing that forgiving student debt is justified because it will help the economy is a difficult argument. If the government forgave all credit card debt, which is about $ 1 trillion, that would help the economy, too. But is it fair to give benefit to those who use their credit cards more than others?

There are other concerns about canceling student debt. Should taxpayers cancel debt of those making high incomes? Should borrowers from families with millions of dollars of assets get student debt relief?

When deciding whose debt to forgive, details matter.

The fairness issue also is apparent when talking to graduates and parents who sacrificed and struggled to avoid or minimize debt while the student was in school. Is it fair to not give a rebate on expenditur­es to a student who worked during school and vacations, and whose parents stopped taking vacations and deferred other expenditur­es to avoid student debt, when the government gives one to students who did not take the same measures?

The highest levels of debt are usually held by students who went to medical school, law school or graduate school. If a doctor has $ 200,000 in student debt but has very high earning potential, should he or she be given taxpayer funds to pay off debt early?

There are many “fairness” arguments against giving money to graduates in debt and treating graduates who avoided or paid off their debt differently, but this does not solve the problem. Similarly, what about students in school who are still incurring debt? Do graduates get a free ride but those yet to graduate get nothing?

One could argue that student debt is different than other kinds of debt, and that reducing student debt is fair. The students who borrowed the money were typically 18 or 19 years old. They were often so happy to attend college, they did not realize what they were signing up for, and their financial intelligen­ce was limited by lack of prior experience dealing with such issues.

Yes, they signed the papers agreeing to the debt obligation­s, but too often schools took advantage of signing up young students and enabling them to pay necessary tuition and fees, which the college needed.

A middle- ground solution

There is a middle- ground solution to the problem of too much debt while respecting fairness considerat­ions. A student borrower of government loans who is not in default or delinquent on these loans would be entitled to debt forgivenes­s of $ 1 for every dollar of loan principal they paid during the year with a maximum of $ 6,000 per year.

For example, if the student paid down their federal debt by $ 500 in a year, their loan balance would decrease by $ 1,000. Such a program would reduce outstandin­g student debt, reduce likely default rates on government loans, incentiviz­e borrowers to save and pay down debt as soon as possible, avoid windfall payments to borrowers and not to nonborrowe­rs, spread federal loan write- offs over time and eliminate most student debt in five years.

Such a plan would also respect the sacrifices made by those who avoided debt or already repaid their debt. Those earlier students likely attended school when tuition was less, requiring fewer loans. And current borrowers would still be required to make payments.

The average student debt is about $ 30,000. If a borrower paid $ 250 a month in principal or $ 3,000 a year and that was matched, his or her $ 30,000 would be paid off in five years. If they managed to pay $ 500 a month, the debt would be retired in 2 1/ 2 years. If a borrower paid the maximum $ 6,000 a year for five years and was matched, $ 60,000 of debt would be retired. If every borrower did this, roughly 85% of borrowers would have no student debt in five years.

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