Calls student loan system ‘fundamentally broken’
Student loan forgiveness is a policy proposal most people associate with progressive politicians in the mold of Bernie Sanders and Elizabeth Warren. It is hardly, if ever, associated with conservative politicians, who generally decry the idea as costly and fiscally irresponsible.
But a former Trump administration official in the Department of Education official is now making the case that the federal government should forgive student loan debt, and that doing so is actually a conservative position.
A. Wayne Johnson resigned last month as the head of the Office of Federal Student Aid, declaring that the federal student loan program is “fundamentally broken.”
He made the case that debt forgiveness is a conservative position at the American Enterprise Institute Thursday, calling for the forgiveness of up to $50,000 in student loans.
Johnson would extend an equivalent tax credit to those who have already paid off their loans, and then abolish the federal student loan system. Furthermore, Johnson would award a $50,000 college grant to every high school graduate going forward.
In an interview with AEI resident fellow Jason Delisle, who specializes in higher education financing, Johnson made clear that he did not want this to extend to private loans because “I don’t want it to go into the private sector.”
Secretary of Education Betsy DeVos* hired Johnson in 2017, which he credited to giving her a copy of his doctoral dissertation on private student loan debt.
An economic stimulus
To pay for his plan, Johnson proposes a 1 percent tax increase on corporate earnings. He argues that corporations are the ultimate beneficiaries of college graduates and therefore should take part in the investment into their creation.
Student loan forgiveness and education grants weren’t the only specific details of Johnson’s plan. He also wants to see federal income share agreements, championed most prominently by Purdue University President Mitch Daniels. ISAs require students to pay a fixed percentage of future income to an investor who finances their education.
Johnson said ISAs could be a “very powerful component” of his plan, kicking in “after the $50,000 credit has been exhausted.” He would like to see a college explain to him why $50,000 was “not enough money.”
At several points in the discussion, Johnson was clear to emphasize that his plan was still a work in progress and that he was still working through many of the details.
Those include a “lookback period” for the tax credit for those who had paid off their loans. That means that, up to a certain number of years in the past, those who have paid off their loans will be eligible for the $50,000 tax credit.
Johnson said the problems with the federal student aid system are “hiding in plain sight” and that people throughout the country feel the burden of the debt. But he added: “It’s not just the debt itself – it’s the whole system that got them into that state of affairs.”
Though some specific programs were “well intended,” when looking “at the structure of those programs from a requirement standpoint … some of these things make no sense when you try and operationalize them,” Johnson said.
He believes that the vast majority of ]loans disbursed by the Department of Education “will not be collected,” because of the number of people who “owe more money now than they did before making payments” because of compounded rates of interest.
A big chunk of the $1.5 trillion in owed student loans nationwide is “accumulated interest,” he went on.
During the question and answer period of the discussion, Johnson was challenged by audience members, who did not agree that his proposal was in any way conservative.
But in response to one particular question, Johnson called his proposal an “economic stimulus,” which makes it conservative.