After over a year of waiting, we finally have something tangible on the student loan issue from Donald Trump to consider. Unfortunately, he has badly missed the mark, and inso doing is kissing off tens of millions of votes, many if not most of which would have come from Hillary Clinton’s side of the ballot ledger.
Trump’s proposal for student loans is to essentially modify President Obama’s repayment scheme where borrowers pay 10 percent of their income for 20 years, and whatever balance that remains after this term is forgiven (with the forgiven amount being considered taxable income). Under Trump’s plan, borrowers would instead pay 12.5 percent for 15 years for the same outcome.
{mosads}Here is the problem: The Department of Education is administering all of the repayment plans in such a way as to kick as many people out of the programs as possible. The Department has no desire or intentions to forgive anyone’s loans, and already has disqualified a whopping 57% of people in the Income Based Repayment program on just one of many grounds they have available to them to eject borrowers from the plan. My best estimate is that ultimately, fewer than 15 percent of the people participating in this repayment program will actually make it through to the end. The vast majority will be unceremoniously booted, and will be left owing far, far more than when they entered.
Trump’s proposal is an insult to the citizenry. It green-lights the big-government monstrosity that is the Department of Education, which profits something like $50 billion per year on the student loan program, and even makes a profit on defaulted student loans in the absence of fundamental consumer protections like bankruptcy rights, statutes of limitations, and other free market protections that have been uniquely stripped from student loans for no valid reason.
Trump and his experts should know that the removal of bankruptcy and other protections has fueled a hyper-inflationary spiral and created a lending system that is not constrained by standard risk metrics. It is a structurally predatory lending system, and Uncle Sam sits atop the hornet’s nest. Make no mistake: The Department of Education fights tooth and nail behind the scenes to keep bankruptcy gone from its cash cow.
All of the repayment programs being touted by Obama, Clinton, and now Trump, are anchors dressed up as life-vests, sick, expensive jokes on the citizens, who expect better from the government and the president’s office.
As I said months ago: Trump could turn the bankruptcy issue from a negative into a positive by showing the voters why the founding fathers put a uniform bankruptcy system near the top of the list when they gave Congress its powers. By championing the return of bankruptcy protections to studentloans, Trump would attract tens of millions of voters who otherwise would be on the fence, or for Clinton. Unlike every other issue where the battle lines are clearly drawn, these voters would come with zero defections going the other way.
Jeb Bush put the return of bankruptcy protections to student loans into his presidential platform. Even conservatives like David Brooks and the Cato Institute have publicly called for the same. That Trump has ignored this opportunity is almost beyond comprehension. This issue is absolutely teed up for him, but if this cowardly wrinkle on Obama’s bad-faith repayment plan is all he plans to offer, he is it in epic fashion.
There is still time for Trump to seize this opportunity and have a chance to win this election, but precious little of it. is author of The Student Loan Scam (Beacon Press), and Founder of StudentLoanJustice.Org
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