The buzz in Washington, D.C. over a new proposal from Dr. A. Wayne Johnson, a former U.S. Department of Education official and Trump appointee, is heating up, just as the student loan debt issue keeps growing worse.
Currently, the total amount of student loan debt stands at $1.6 trillion in 2019, and the average monthly student loan payment ballooning to $393. That makes student loans the second-highest consumer debt category in the U.S. – only household mortgages are higher.
Johnson notes that his firsthand experience with college loan debt shows a problematic and burgeoning student loan debt “disaster.” Cumulative student loan defaults for the 2004 academic year stand at about 40% of all loans taken out that year. Worse, borrowing levels in 2004 were roughly 70% lower than the amount of student loan money borrowed by today’s college student.
It’s not just the size of the loans, although those figures are harsh enough, Johnson says. The national student loan system is also saddled with rising interest rates, skyrocketing college tuition costs that continue to outpace inflation, byzantine loan repayment options and high taxes linked to student loan forgiveness programs.
How Johnson Wants to Help Struggling Student Loan Borrowers
Johnson, like many borrowers, says he has had enough.
“Our national student loan debt system is fundamentally broken,” Johnson says. “The federal government simply cannot continue making student loans, and we need to help loan borrowers who are struggling with massive student loan debt.”
“Washington policy makers need to advance a bold, comprehensive, decisive plan to fix this crisis,” Johnson added. “Students shouldn’t have to graduate with a diploma and a mountain of debt; or worse yet, take on life-long debt obligations without completion of a degree.”
Who is Wayne Johnson?
Johnson certainly has a high profile on the student loan front. He served as chief operating officer of Federal Student Aid in 2017 for the U.S. Department of Education until October of this year, when he resigned to focus on replacing Republican Sen. Johnny Isakson (R) as a U.S. Senator from Georgia (Johnson’s a native of Macon, Georgia.)
Johnson’s department oversaw approximately $1.5 trillion of federal-based student loan debt, giving him a unique view of the magnitude of student loan debt. “We shouldn’t be in the business of making student loans,” he said. “As it stands right now, much of those loans won’t be repaid at all.”
Ultimately, Johnson didn’t get the Senate post – that went to Bakkt CEO Kelly Loeffler, who was appointed by Georgia Governor Brian Kemp. But, Johnson is very much in the public eye as a high-profile critic of the federal student loan system and for his eye-opening new proposals to fix the nation’s student loan problem.
“From what I see, it’s critically important that the federal government not be making student loans directly to consumers – it’s unlimited funds chasing unlimited demand, which just doesn’t work,” Johnson says, who has 35 years of professional experience in the consumer finance sector. “It’s crystal clear that we have a broken and flawed system.”
What Johnson is Proposing to Fix the Student Loan Crisis
Based upon the premise that the current federal student loan model is “unsustainable” and “unworkable”, Johnson believes that most outstanding loan debt “will never be collected.”
He says he has a better plan. Here are three primary pillars to Johnson’s game-changing student loan system proposal:
To rebalance and reinvigorate the system, Johnson calls for the federal government to cancel up to $50,000 in student loan debt per borrower, to provide up to $50,000 in grants for new college students, and to provide up to $50,000 in tax credits to student loan borrowers who’ve already paid off their student loans. “The grant money would be available for every U.S. high school graduate, and the $50,000 in debt relief would be made available for 44 million current U.S. student loan borrowers,” Johnson noted. For Americans who’ve paid off their student loan debt, access to $50,000 in grant funding (per borrower) would “allow for loan borrowers to re-engage” in the student loan system, Johnson added. The plan would cost about $140 billion annually, he says.
The proposal would be funded by a 1% tax on corporations, an outcome that would have to clear Congress first. “That makes the most sense, as corporations are the primary beneficiaries from a skilled and educated workforce,” Johnson said.
In cancelling student loan debt, Johnson’s model would also eliminate the federal student loan program and call for the student grant monies to be available at private and public colleges and universities. His plan wouldn’t include student loan forgiveness for private student loan borrowers, but it does call for the expansion of income-share agreements, where students trade a fixed percentage of future income for college funding from investors.
In a recent speech at the American Enterprise Institute, Johnson says that before the U.S. student loan system can be overhauled, it must address the current state of struggling borrowers first.
“It’s not a waste of money to invest in America, but we’re not deploying money in a transparent way,” Johnson said. “The conservative case that I’m building, or hope to be building here, is that we must stop making unlimited amounts of money available through loans. If we’re going to stop that, we should (first) relieve from an equity standpoint an equal amount of money that’s already on the books.”
Other Plans to Help the Student Loan Crisis
Johnson’s plan to restructure the student loan system is hardly alone.
Both Sen. Bernie Sanders and Sen. Elizabeth Warren have called for the cancellation of the vast majority of U.S. student loan debt, but would limit loan cancellations based on household income (for example, $100,000 or less, for Warren’s plan) and would fund the program through higher taxes on financial transactions, as Sanders advocates.
Warren would raise the money through a 2% “Ultra-Millionaire” tax on the top 5% of U.S. income earners.
Johnson says that it’s wrong to inject household income into the student loan reform debate. Everyone needs help no matter what their economic situation. “At the end of the day, this is equity for all,” he notes.
Johnson also says the chances of his proposal’s passage in Congress “are high” as the status quo is unsustainable. “Everyone knows that the current student loan system is abominable and that there has to be a change.”
“The federal government just can’t continue to make student loans, anymore.”
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