Bloomberg’s plan to tackle the $1.7 trillion student loan crisisFebruary 21, 2020
Democratic presidential candidate former New York City mayor Mike Bloomberg speaks during the Democratic presidential primary debate at Paris Las Vegas on February 19, 2020 in Las Vegas, Nevada.
Mario Tama | Getty Images
Michael Bloomberg, billionaire and former mayor of New York, is the latest Democratic presidential candidate to turn his attention to the country’s $1.7 trillion outstanding student loan balance.
“At its best, higher education serves as an engine of economic mobility and a pathway to the middle class,” the 78-year-old wrote in his $700 million proposal released this week. “Our system is not fulfilling that promise.”
Bloomberg would make community college free and double Pell Grants. The grants typically go to around 7 million students a year for families with an income below $20,000. Four-year colleges would also be “debt-free” for low-income students. His campaign says it will fund his higher education plan by raising taxes on the wealthy.
For people already saddled with student debt, Bloomberg says he would slash borrowers payments in half. Specifically, borrowers would automatically be enrolled in repayment plans that cap their monthly bills at 5% of their discretionary income. People on those plans now can pay between 10% and 20% of their income.
According to the plan, borrowers would have the option to pay their bills through their employer under the payroll withholding system. Sen. Lamar Alexander, R-Tenn., floated a similar proposal last year. However, it quickly drew criticism from consumer advocates, who called it “mandatory wage garnishment.”
After 20 years on Bloomberg’s repayment plan, undergraduate borrowers can get their remaining debt cancelled tax-free on up to $57,000 of federal student loans. Currently, debt forgiven under these programs is considered taxable income.
Bloomberg would also cancel the debt of students who went to predatory, for-profit colleges and end the government’s collection of defaulted borrowers’ Social Security checks and tax refunds. The candidate would also do away with the collection charges on past-due loans for low- and middle-income borrowers.
Lastly, Bloomberg says he would fix the challenged public service loan forgiveness program by “extending debt relief to all qualifying public servants who’ve applied for forgiveness in good faith.” The Consumer Financial Protection Bureau estimated that one-quarter of American workers could be eligible for that program. Most borrowers in public service jobs believe they’re paying their way to loan forgiveness, only to discover at some point in the process that they don’t qualify for one technical reason or another.
Bloomberg says he will make it easier to discharge student debt in bankruptcy.
At least one Republican, in addition to a host of Democratic lawmakers and presidential candidates, wants to allow student debt to be discharged in normal bankruptcy proceedings. Currently, borrowers can have to exhibit a “certainty of hopelessness” to walk away…