Administration Is Engaging in Backdoor Student Debt Cancellation

The Education Department announced today that they will quadruple the auto-pay incentive to reduce a student loan borrower’s interest rate by 1 percent through 2028 if they enroll in auto-pay. We estimate this will cost at least $5 billion.    

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:  

Student debt cancellation was a mistake when the last administration tried it, and it’s a mistake now.

Make no mistake: quadrupling the auto-pay incentive is debt cancellation by another name. And worse, it’s targeted at people already making repayments.  

The auto-pay interest deductions don't even reduce monthly payments or improve affordability — they just wipe out debt balances, especially for high earning professionals that are already doing quite well.  

It’s not even clear this is legal, given how the courts have rolled on previous attempts to wipe out student debt. And even if it is, why do we keep adding to the federal deficit for no particular purpose?  

The current quarter-point discount to auto-pay has been in effect since 1999.  It is working just fine. Once we expand it, what's to stop the next President (or this one) from implementing a 5% auto-pay discount, effectively making federal student loans interest-free for those making payments?  

Congress just put in place a new Repayment Assistance Plan that includes the interest subsidy’s intent. We shouldn’t be expanding those further without offsets and by executive fiat.  

If the administration really wants to make education affordable, they’d focus on working with Congress to close the $100 billion-plus Pell Grant shortfall that will leave low-income college students with significantly reduced Pell Grants.

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org