A day later criticizing any effort by the Biden administration to forgive student loan debt, former Treasury Secretary Larry Summers has offered an alternative.
“I believe the best way to alleviate student debt would be to allow it to be discharged in bankruptcy,” He wrote Tuesday on Twitter. “I would support this reform.”
This means that people with student debt could pay it off by successfully filing for personal bankruptcy. Currently, legally under Chapters 7 and 13 of the US Bankruptcy Code, insolvent individuals can restructure their debts, albeit at some personal cost, such as taking a hit to their credit scores.
Summers added that bankruptcy “would also penalize other private creditors, as opposed to government debt relief that would partially subsidize them.”
President Joe Biden is expected to announce his student loan debt relief plan on Wednesday, which could forgive $10,000 in student debt per borrower for those making less than $125,000 a year. Changes to Bankruptcy Code enforcement are unlikely to be included in the plan.
Summers, a former Treasury secretary under Bill Clinton and a top economic adviser to Barack Obama, has been a vocal critic of the Biden administration. Just yesterday, on Twitter, he warned that student debt relief could contribute to inflation.
Summers has no official role in the Biden administration. But it is said to have helped save the president’s climate change and health care agenda by persuading a key senator to support the Inflation Reduction Act.
Summers, now an economics professor at Harvard University, isn’t the only person who has advocated for student loan discharge through the bankruptcy process. There is also his former Harvard colleague, Senator Elizabeth Warren.
‘Nearly Impossible’ To Get Rid Of Student Debt Through Bankruptcy
Before becoming one of two Democratic senators from Massachusetts, Warren spent most of her career as a law professor studying why American families fall into debt and break down. Her plan to fix the US bankruptcy system, in particular, was the main reason she entered politics.
In the mid-2000s, Warren had a “Bankruptcy Blog” where she wrote consistently about these topics for Talking Points Memo, or TPM, a political news and opinion website. In 2008, before running for Senate, he advised Obama on the bailout and came up with the idea for the Consumer Financial Protection Bureau.
On the 2020 presidential campaign, Warren argued that the bankruptcy system makes it “almost impossible” for many Americans to get out of debt. He blamed Congress and the courts for making it increasingly difficult to clear student debt as part of the process.
“Congress originally passed a law that said publicly-backed student loans could only be discharged upon a showing of ‘undue hardship’ by the borrower,” she wrote in a post on her campaign website. “Courts have ultimately interpreted this language to impose a very high standard of discharge—a standard that generally does not apply to other forms of consumer debt. Then, as part of the 2005 bankruptcy bill, Congress specifically protected private student loans with the same undue hardship standard.”
During the presidential campaign, he proposed canceling up to $50,000 in debt for 95% of people who have it versus Biden’s potential $10,000.
Her plan included making student debt dischargeable like other consumer debt, allowing individuals to seek relief by filing for bankruptcy, which is exactly what Summers says she would support.
Summers and Warren have clashed over monetary policy in the past. Recently, after writing an op-ed about the Wall Street Journal criticizing the Fed’s rate hikes and calling Summers a “cheerleader” of the approach, Summers responded to applause.
“@SenWarren’s attacks on the @federalreserve’s monetary policy and my economic analysis are, I believe, misguided and if heeded could have devastating consequences for tens of millions of workers,” He wrote on Twitter in response to her article.
The economist even made an appearance in her memoirs in 2014 A fighting chancein which he referred to a dinner the two had.
“Larry leaned back in his chair and gave me some advice,” Warren wrote. “I had a choice. I could be an insider or I could be an outsider. Foreigners can say whatever they want. But the people inside don’t listen to them. However, experienced people have a lot of access and opportunity to promote their ideas. People – powerful people – listen to what they have to say. But initiates also understand an unbreakable rule: They do not criticize other initiates.”
“I had been warned,” Warren said.
For now, Warren and Summers are out looking at Biden’s student debt relief plan.
This story was originally featured on Fortune.com