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Student Loan Forgiveness in Exchange for Delayed Social Security

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A new Republican proposal would allow young people to choose a reprieve on student debt in exchange for delaying the age when they can collect social security.

While the nation’s eyes were fixated on a major tax overhaul that passed Congress before Christmas, a freshman Republican has introduced a bold, yet practical, plan to deal with the student debt crisis.

Student debt is a top concern for young Americans, and it is preventing them from making the most of their future. With college tuition continuing its astronomic rise, young graduates are becoming saddled with more and more debt as the cost of their college degrees increases.

Young people have looked to their elected representatives for help, but they have received pandering from one side and impractical policies from the other. They are looking for leadership. Virginia Congressman Tom Garrett’s H.R. 4584, dubbed the Student Security Act of 2017, shows how conservatives can truly be the leaders for the next generation.

Student debt is a very real problem for an overwhelming number of young Americans. Since 2010, student loans have surpassed credit card debt, becoming the second largest source of personal debt in America. Today that figure exceeds $1.3 trillion in debt. Four-in-ten Americans under the age of 30 owe student loans. There are over 44 million borrowers, and the average 2016 graduate owes more than $37,172. Terming the student debt problem a “crisis” would, unfortunately, be more than accurate. 

Solutions posed by many on the Left, however, are far from realistic. Even the editorial board of The Washington Post has criticized what it termed “Democrats’ loose talk on student loans.” Hillary Clinton’s plan to offer free tuition to families making $125,000 per year or less would have cost American taxpayers $350 billion over the span of ten years (the more ambitious plan proposed by Clinton’s primary rival Bernie Sanders would have cost taxpayers over twice as much).

In the heated days of the 2016 presidential campaign, the Post said Mrs. Clinton’s plan committed scarce resources to a solution even more expansive than the problem itself. The Democrats’ proposals would be financed, of course, by higher taxes. At a time when the prevailing mood in Washington is that taxes ought to be lowered, not raised, this is not only a non-starter, but also something likely to have costly economic consequences that are not even factored into the stated budgetary costs.

Mere talk of loan forgiveness, meanwhile, has contributed to a spike of defaults by individuals that economists like the University of Georgia’s Jeffrey Dorfman refer to as strategic defaulters. These individuals can afford to make student loan payments, but they choose not to because they have bought into the notion that the federal government will eventually forgive their remaining balances.

The rate of borrowers who are in default or are more than 90 days past due on payment is now nearly 40 percent and growing. It is hard to estimate how many of these are strategic defaults. Democratic talking points on student debt reform are not only practically untenable; they are also reckless in their effect on human behavior.

Rep. Tom Garrett’s (R-Va.) Student Security Act stands in stark contrast to the efforts of his colleagues across the aisle. Rather than dispense unconditional loan forgiveness, H.R. 4584 gives graduates a choice. Graduates can choose to delay retirement in exchange for immediate relief on their student debt.

For each month that they delay Social Security benefits, they would receive $550 in loan forgiveness. This amounts to $6,600 per year and is capped at $40,150 in debt relief, which would be achieved if an individual delayed their retirement by six years and one month. The full retirement age for those born after 1960 is 67.

This would mean that someone who took the full amount of relief would be delaying retirement until he or she was 73 years old. This is not unreasonable. The original age of retirement for full benefits set by the Social Security Act of 1935 was 65. At that time, the average life expectancy was 61.7 years. Today the average life expectancy, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics, is 78.8 years.

In the 82 years since Social Security was introduced, life expectancy has increased by over 17 years, yet the retirement age has only increased by 2. It is understandable why so many believe a change in the retirement age is overdue. The Student Security Act would not be a mandatory change, though, but a voluntary one for future retirees.

Social Security’s failure to keep up with the lengthened retirement period of beneficiaries has put it on an unsustainable course. The Social Security Administration projects that its trust fund reserves will become exhausted by 2037. The Social Security Board of Trustees estimates that an immediate reduction in benefits of 13 percent or an increase in the combined payroll tax rate from 12.4 percent to 14.4 percent would be sufficient to achieve solvency for the next 75 years.

It would also be unfair to current retirees to cut the benefits that so many are dependent on. No one who has proposed reforming Social Security, however, has advocated changes for those who are at or near the age of retirement.

Young Americans, on the other hand, are living longer and working longer than their parents and grandparents’ generations. Furthermore, half of Millennials don’t believe Social Security will exist when they retire, and only five percent believe it will exist at the same level that it does today. They are already preparing or should be preparing for a future without full Social Security benefits.

While Social Security is a distant and abstract idea to young Americans, student debt is very much real and present in their daily lives. If asked, therefore, if they would voluntarily delay full retirement in order to receive immediate relief on their student loan debt, young graduates can be expected to overwhelmingly say yes. The Social Security Administration infers that Garrett’s proposed legislation would save more than $700 billion in the lifetime of the program, more than 11 percent of the amount needed to keep Social Security solvent. It would also give student debtors a way out of their current woes that isn’t a bailout.

After passing the tax plan, Republicans should consider the Student Security Act as a way to deliver a substantive solution to graduates that could improve the party’s long troubled standing with young voters. Democrats should consider it, too, as a way to replace their partisan grandstanding with a commonsense plan that Americans of both parties should be able to get behind.  This practical proposal simultaneously helps rein in student debt while also helping to stabilize Social Security for a new generation. Rep. Garrett’s Student Security Act is a win for young Americans and is real leadership in a social security program long overdue for an overhaul.

Peter Finocchio served as a field director on Ed Gillespie’s campaign for Governor of Virginia.

Peter Finocchio served as a field director on Ed Gillespie's campaign for Governor of Virginia.

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