Leading economist Larry Summers reiterates Senator Elizabeth Warren on tackling student debt
A day later criticize Former Treasury Secretary Larry Summers offered an alternative to any efforts by the Biden Administration to clear student loan debt.
“I think the best way to relieve student debt is to allow it to go bankrupt in bankruptcy,” he said. Written Tuesday on Twitter. “I will support this reform.”
That means those with student debt can work it out by successfully filing for personal bankruptcy. Currently legal under chapters 7 and 13 of the U.S. Bankruptcy Code, insolvent individuals can restructure their debts, albeit at some personal expense, such as incurring a liability. their movements. credit score.
Summers added that bankruptcy “will also punish other private creditors, unlike a government debt relief that will partially subsidize them.”
President Joe Biden is expected to announce its student loan forgiveness plan Wednesday that could write off $10,000 of student debt per borrower for those earning less than $125,000 annually. Changes to the enforcement of the Bankruptcy Code are unlikely to be included in the plan.
Summers, a former Treasury Secretary under Bill Clinton and a top economic adviser to Barack Obama, was a strong critic of the Biden Administration. Just yesterday, on Twitter, he warned that reducing student debt could contribute to inflation.
Summers has no formal role in the Biden Administration. But he is said to have saved money the president’s health and climate change agenda by appointing a key senator to support the Inflation Reduction Act.
Summers, now a Harvard professor of economics, isn’t the only one in favor of canceling student loans through bankruptcy proceedings. There was also his former Harvard colleague, Senator Elizabeth Warren.
“Nearly Impossible” to Get Out of Student Debt Through Bankruptcy
Before becoming one of two Democratic senators from Massachusetts, Warren spent much of his career as a law professor researching why American families fell into debt and break. In particular, the plan to repair the US bankruptcy system was the main reason why she entered politics.
In the mid-2000s, Warren had a “Bankruptcy Blog” where she regularly wrote about these issues for Talking Points Memo, or TPM, a news and political opinion website. In 2008, before running for the Senate, she advised Obama on the bailout and pitched the idea to the Consumer Financial Protection Bureau.
During the 2020 presidential campaign, Warren Debate that the bankruptcy system makes it nearly impossible for many Americans to get out of debt. She blamed Congress and the courts for making it difficult to deal with student debt as part of the process.
She wrote in a post on her campaign website: “Congress originally passed a law stating that publicly supported student loans could only be repaid when the borrower was able to repay the loan. show ‘excessive difficulty’. “The courts eventually interpreted that language to impose a very high standard for mortgage release — a standard that does not normally apply to other forms of consumer debt. Then, as part of the bankruptcy bill of 2005, Congress explicitly protected private student loans with the same unduly difficult standard. ”
When campaigning for president, she proposed to cancel up to $50,000 in debt for 95% of those who had it compared to Biden’s possible $10,000.
Her plan includes making student debt serviceable like other consumer debt, allowing individuals to get relief by filing for bankruptcy, which is exactly what Summers says. you will assist.
Summers and Warren have disagreed on monetary policy in the past. Recently, after writing an op-ed for The Wall Street Journal criticize Fed raises interest rates and call Summers was the “cheerleader” of the approach, Summers clapped in return.
“@SenWarren’s attacks on @Federalreserve’s monetary policy and my economic analysis are, in my opinion, misguided and if heeded, could have devastating consequences for tens of millions of workers,” he said. Written on Twitter in response to her article.
The economist even appeared in her 2014 memoir Fighting chancein which she mentioned the dinner the two of you had.
“Larry leaned back in his chair and gave me some advice,” Warren wrote. “I had a choice. I can be an insider or I can be an outsider. Outsiders can say whatever they want. But the people inside didn’t listen to them. However, insiders have plenty of access and opportunities to promote their ideas. People – those in power – listen to what they have to say. But insiders also understand an unbreakable rule: They don’t criticize other insiders. “
Warren said: “I was warned.
Currently, Warren and Summers are outside looking into Biden’s plan to cancel student debt.
Register Fortune feature email list so you don’t miss our biggest features, exclusive interviews and surveys.
