The Trump administration’s point person for overhauling the federal student loan system abruptly resigned Thursday after calling for the government to wipe out most of the nation’s $1.6 trillion of student debt.
A. Wayne Johnson — a Republican and former financial services executive whom U.S. Education Secretary Betsy DeVos had appointed to a series of senior roles — said that the federal government needs to wipe out the first $50,000 of debt owed for higher education by some 42 million Americans. That, he said, would jump-start economic growth by eliminating more than $900 billion of federal student loans — and completely erase the debt for the vast majority of borrowers.
“As a banker, you recognize problematic situations and you deal with it through write-offs,” Johnson, who formerly worked at financial companies such as First Data Corp. and Visa Inc. and now is hoping for a Senate seat, said in an interview. “From an economic standpoint, it is absolutely the right thing to do.”
Johnson joins Sens. Elizabeth Warren and Bernie Sanders, both candidates for the Democratic nomination for president, in demanding mass debt forgiveness. The growing movement is fueled by a generation of overburdened Americans who say they paid too much for an education that failed to provide the earnings boost that would justify the cost.
Johnson appears to be betting that debt forgiveness will appeal to Republicans too. He’s using the forgiveness plan to launch his candidacy for the seat held by Sen. Johnny Isakson, a Georgia Republican whose retirement at the end of 2019 will give Georgia Gov. Brian Kemp the power to appoint an interim successor. More than 1.5 million people in the state collectively owe almost $61 billion on their federal student loans, U.S. Education Department data show.
Nationwide, a 1% tax on employers’ earnings would provide more than enough funding to cover the government’s debt write-downs — losses that would result anyhow, Johnson said, because much of the nation’s student loan debt ultimately won’t be repaid.
About one-fifth of borrowers are in default, Education Department data show, and millions more are behind on their bills. Borrowers as a group are paying down about 1% of their federal debt every year, a Bloomberg Businessweek analysis found — the equivalent of a former student annually reducing the balance of a typical $30,000 college loan by just $300.
As a Republican and as a former Trump administration official, Johnson stands out from the crowd of Democrats clamoring for debt relief. After a career in financial services, Johnson enrolled in a doctorate program in higher education at Mercer University and wrote his dissertation on student loans. Last week, DeVos, his former boss, criticized Democratic proposals to cancel debt: She argued it would be unfair to the millions of Americans who never went to college but ultimately would foot the bill through taxes.
Johnson’s plan includes two separate provisions meant to address criticism that it would be unfair or insufficient. First, he wants the federal government to reimburse past borrowers who have already paid off their loans by giving them as much as $50,000 in income tax credits. Second, he’d eliminate the federal loan program and replace it with grants to cover college tuition and work training and licensing programs.
It was a chance meeting with a struggling borrower from Utah that prompted Johnson to reconsider the role that student debt plays in people’s lives, he said. The man had never been late on a bill, but his initial $40,000 balance had ballooned to some $120,000 after years of postponing his payments. The borrower asked Johnson if his agency would negotiate a final payment that would allow him to pay less than what he owed.
“Like millions of Americans, every day he woke up owing more than the day before,” Johnson said. “That’s when I said, ‘This is nuts.’”