Students, profs. debate effects of debt forgiveness

While a report by the New America Foundation said the intended changes to President Barack Obama’s administration’s student debt-relief plan might not benefit all borrowers, a number of Boston University students and professors said they still believe the plan will be effective.

Borrowers pay 15 percent of their discretionary income and the remaining balance with accrued interest is forgiven after 25 years of payment. The Obama administration aims to change this policy to ask for 10 percent of the borrower’s discretionary income and forgive balances after 20 years.

However, Alex Holt, co-author of the report released Tuesday, “Safety Net or Windfall?” said the Income-Based Repayment plan disproportionately helps some borrowers when he studied what happens to a borrower during the entire repayment period.

“If this new policy goes into effect, it will disproportionally help high-income borrowers, people who are making a lot of money,” Holt, a Federal Education Budget Project program associate, said. “Our question is, ‘Is that the best way to appropriate federal funds?’ Should federal funds be going to the wealthiest earners in the country, or should it be going to borrowers who are struggling the most.”

The report offers recommendations to alter the policy to redistribute the relief to those who need it.

“We’re trying to take what we think is the intent of the law, which is to help struggling borrowers,” Holt said. “We want to keep those policies in place to help those struggling borrowers, but we want to make sure people who can pay back their loans in full, do.”

Holt used the example of an attorney making $200,000 a year. After the attorney is out of school and working for 25 years, he or she might have $100,000 left to pay back. At that point, the debt is forgiven even though he or she could potentially pay it back, Holt said.

“It hurts the taxpayer because they are basically subsidizing wealthy people,” he said.

The Obama administration’s new plan will benefit anyone with a student loan, no matter the size of the loan, said School of Management Professor Mark Williams.

Williams said focusing on the size of the loan is missing the point of the financial relief plan.

“College students when they get out, they’re not going to be strapped,” Williams said. “Instead of having a 15-percent requirement of their income going to pay the student loan, 5 percent more is going to be available for other things.”

The distribution is not as disproportionate as the report claims, he said. The high-income borrowers will pay more in taxes because they are making more and, in a sense, they will be paying back for that advantage.

Williams said the plan gives an incentive for more students to continue to graduate school.

“The positive is this is a greater incentive for students to want to go to graduate school,” he said. “If they go to graduate school, they make more money. If they make more money, more debt to get to this higher income producing status will be extinguished.”

Cathie Jo Martin, a political science professor, said this distribution of wealth is not different from what often happens to lower-income classes.

“The use of the tax code to achieve social purposes in America has resulted in many benefits being distributed to the upper-income and middle-income classes,” Martin said.

She said the Obama administration is attempting to give lower-income students the opportunity to loan access.

“Obama is trying to reform the system of Pell grant so that more lower-income students can have access,” Martin said. “I think he has expanded access.”

College of General Studies sophomore Arlene Garcia said the plan is beneficial as long as everyone gets an equal opportunity to have the same assistance.

“But I don’t think they should penalize people for earning more money,” Garcia said.

Garcia said it would not be fair for the government to ask high-income borrowers to pay their loans in entirety when others get their balances forgiven.

“It being ‘forgiven’ doesn’t really mean that it’s forgiven,” said Alex Keiser, an SMG junior. “Somebody still has to pay the bill, which means then it’s just the taxpayers or someone else and, I kind of disagree with that.”

Keiser said people should be responsible for their own expenses, despite their financial background.

“We should be focusing on decreasing the prices of schools rather than trying to help people pay for them,” said Lejla Huskic, a College of Arts and Sciences sophomore. “It’s putting a band-aid on the wound before disinfecting. [It] won’t do anything but trap the disease, and it’ll burst eventually.”

People who have the means should continue to pay their loan bill, she said.

“You should pay a larger percentage based on how much money you make,” Huskic said. “This way, regardless of class, you’re able to pay what you can afford.”