Pershing Square founder Bill Ackman weighed in on the Supreme Court’s decision to shoot down President Joe Biden’s plan to forgive student loans. Ackman said on Twitter that the Supreme Court has made the right decision.
“Student loans are unnecessarily burdensome to millions of Americans,” the hedge fund manager said. “And to state the obvious, overburdening our younger generations at their most productive time of life is bad for America.”
Government-guaranteed student loans are like mortgages. The wider thinking is that education is like homeownership and good for America, Ackman explained.
But unlike agency mortgages, student loans have a fixed rate and they cannot be refinanced if rates decline, he added. If refinancing is done with a private lender, one will lose some of the protections government loans offer (i.e., deferment during school and income-based programs).
Additionally, Ackman noted that student loans cannot be discharged in bankruptcy.
Offering his thoughts on how to fix the problem, Ackman said student loan balances should be recalculated as if they were continually refinanced at the lowest rate offered during their entire term. This would have the effect of materially reducing the rates that students pay, he said.
“Once the loan rates are recalculated assuming their rates decline with prevailing rates, any excess payments made by the borrower above the adjusted lower refinancing rates should be used to recalculate the now amortized balance of the loan,” Ackman said. This, according to the fund manager, will have the effect of greatly reducing the amounts owed by student loan borrowers.
Ackman also recommended that student loans should be dischargeable in bankruptcy when the borrower reaches the age of 40.
“If a bankruptcy judge then determined due to hardship that the student loan should be written off or reduced, then it should be legal to do so,” he said.
Ackman also calls for improving the disclosures provided to student borrowers at the time the loans are made. “Analysis and other disclosures should be provided to the student borrower that can help them understand their ability to repay based on their education and career plan among other disclosures,” he said.
The fund manager also called out the “absurdly escalating cost of a college and/or graduate school education.”
“The more calculated students (and parents) are in their decision-making about the finances of their education, the more colleges and graduate programs will be forced to think about the cost of their programs, likely leading to moderation of the cost of their programs so they can be more competitive.”
Produced in association with Benzinga
Edited by Kyana Jeanin Rubinfeld and Jessi Rexroad Shull
