Student loan debt: system simplification is starting to help

Amid relentless pressure from progressives in his party to provide up to $ 50,000 per borrower in student loan forgiveness, President Joe Biden has begun to cancel the debt of some of the most vulnerable, including thousands. borrowers with disabilities and victims of for-profit university fraud. In total, the administration has written off more than $ 12.5 billion in loans owed by more than 650,000 borrowers.

But for every borrower whose financial slate has been wiped, dozens still struggle with unmanageable debt. That $ 12.5 billion is less than 1% of the $ 1.6 trillion in outstanding federal loans.

Why we wrote this

The ongoing debate over approaches to canceling student loans need not necessarily be an obstacle to any relief. Better implementation of existing programs is making a difference for some borrowers right now.

To address this larger issue, a committee of negotiators is meeting to draft a settlement that would extend debt relief to more borrowers in 2023. Meanwhile, the Education Department is taking interim measures to ease debt relief. ” access to existing loan cancellation options.

In August, for example, the agency announced that it would automatically write off the debt of 323,000 borrowers identified by the Social Security Administration as permanently disabled, removing the requirement to submit a request for relief.

Among them was Colin Lovvorn, who was diagnosed with multiple sclerosis and is legally blind.

“I was in disbelief,” said Lovvorn, who learned in October that his $ 60,000 debt would be paid.

This fall, Suzette Kinslow, a mother of three from Indiana, received a life-changing letter: ITT Technical Institute over “misrepresentation” by the now defunct for-profit college chain.

For Ms Kinslow, who couldn’t find work in the field, the news was both a relief and a vindication. For years, she had said the school had misled her about her job prospects and failed to prepare her for the state certification exam.

But Joseph White, a Missouri tech support specialist who has made similar claims against the company, is still awaiting relief from the $ 120,000 he owes for two ITT degrees.

Why we wrote this

The ongoing debate over approaches to canceling student loans need not necessarily be an obstacle to any relief. Better implementation of existing programs is making a difference for some borrowers right now.

“It’s a huge burden and a huge burden,” Mr. White says of the debt.

Amid relentless pressure from progressives in his party to provide up to $ 50,000 per borrower in student loan forgiveness, President Joe Biden has begun to cancel the debt of some of the most vulnerable, including thousands of disabled borrowers and victims of for-profit academic fraud. In total, the administration has written off more than $ 12.5 billion in loans owed by more than 650,000 borrowers.

The one-off cancellations have brought desperately needed and long-awaited relief to people like Ms Kinslow, who can finally refinance her home and co-sign student loans for her two older children, who are now in college themselves.

But such targeted loan forgiveness does little to solve the long-standing problems with the student loan system. And to those like Mr. White, that may seem unfair, says Persis Yu, director of policy and general counsel at the Student Borrower Protection Center.

“It leaves a lot of people wondering: when will it be my turn? She adds.

For every borrower whose financial slate has been wiped out, dozens still struggle with unmanageable debt. While impressive, the $ 12.5 billion figure forgiven so far by the Biden administration is less than 1% of the $ 1.6 trillion in federal loans outstanding.

Is Dramatic Redress the Answer?

Some borrower advocates say the only right approach is to write off everyone’s debt.

“Trying to draw a line between ‘worthy’ and ‘unworthy’ is just arbitrary and cruel,” says Thomas Gokey, co-founder of Debt Collective. “No one should have to go into debt for an education, and Biden can write off all that debt with a signature.”

On the other side, those opposite universal loan cancellation argue, in part, that it would benefit some wealthy borrowers who are able to repay their loans, while not helping those who have never attended college, perhaps because they cannot afford it.

President Biden, who campaign on the cancellation of $ 10,000 of debt per borrower, has not yet done so and has stated that he does not believe he has the power to cancel unilaterally more than that. Instead, he took a targeted approach to loan cancellation, while extending a pause on repayment and interest accumulation put in place by his predecessor at the start of the pandemic.

But both sides of the debt relief debate agree on one thing: the student loan safety net is badly torn and in desperate need of repair.

To that end, the Biden administration has begun to rewrite the rules that govern federal loan cancellation programs, with the goal of making them simpler, fairer and more generous.

Make the current system more user-friendly

Under current law, some borrowers already have access to assistance:

  • Those displaced by brutal school closings, swindled by predatory schools, or permanently disabled and unable to work are entitled to immediate loan cancellation.
  • Civil servants who make monthly loan payments are expected to have their outstanding debt paid after 10 years.
  • Low-income people who pay off their debt as a percentage of their income should have their balance written off after 20 to 25 years.

In practice, however, few have received the promised relief. Ninety-eight percent of requests for relief under the Public Service Loan Forgiveness Program were refuse, a lot for paperwork errors. Only 32 borrowers got a rebate under the oldest income-tested plan, created by Congress in 1995, even though 4.4 million Americans have over 20 years of debt. And tens of thousands of borrowers who attended now-closed for-profit colleges have been waiting for relief for years.

Former President Barack Obama attempted to allow those who attended shoddy for-profit schools to qualify for debt relief, by issuing a series of regulations and policy changes that were then rewritten or repealed. by the Trump administration.

When Mr Biden took office in January, he pledged to restore Obama-era rules and correct public service and income-based reimbursement programs, which advocates say have been chronically poorly managed by the federal Department of Education and its student loan officers. This fall, a committee of negotiators meets to draft a settlement that would extend debt relief to more borrowers. The new rules are expected to come into effect in the summer of 2023.

Extend forgiveness more widely

In the meantime, the Education Department is taking interim measures to extend the cancellation of student loans. Since March, it has paid off the loans of more than 200,000 borrowers who attended for-profit colleges, including ITT Technical Institute.

In August, the agency announced that it would automatically cancel the debt of 323,000 borrowers identified by the Social Security Administration as permanently disabled, removing the requirement to submit a request for relief.

Among them was Colin Lovvorn, who was diagnosed with multiple sclerosis and is legally blind.

“I was in disbelief,” said Lovvorn, who learned in October that his $ 60,000 debt would be paid. “My mental stress will drop so much that I’m probably less likely to have a relapse from MS. “

Courtesy of Colin Lovvorn

Colin Lovvorn has been promised a disability waiver on his student loans as part of a Department of Education decision to automatically cancel loans for borrowers identified by the Social Security Administration as permanently disabled.

Then, in October, the ministry announced that it would temporarily allow all prior payments made by officials to count towards the 10-year repayment requirement, and not just payments made on time and in full on time. loans issued by the government. The one-year waiver, which expires next Halloween, was expected to bring half a million borrowers closer to the forgiveness and allow at least 22,000 borrowers to receive an immediate discount.

Ms. Yu and other borrower advocates are calling on the administration to apply these same principles – automation and retroactivity – to other loan cancellation programs.

“We want a shorter and easier path to forgiveness and relief for those who remain” through restrictive eligibility criteria and changing rules, she said.

What’s the right balance?

But advocates have not given up on comprehensive debt relief and point to the pitfalls of the president’s piecemeal approach.

“It’s incredibly confusing for our clients,” says Robyn Smith, lawyer with the Legal Aid Foundation in Los Angeles. “They see the stories [in the media] and I don’t know if it’s them or not.

Mike Pierce, executive director and co-founder of the Student Borrower Protection Center, says the president’s decisions also carry a political danger. While Mr Pierce welcomed the expansion of the remission, he worries it will be “overshadowed because they don’t write off large sums of debt.”

Even though the administration ultimately cancels more dollars in debt than if it had written off $ 10,000, “the perception is still there that he did not do what he promised,” says Pierce. .

Many advocates expect a tough return to student loan repayments on January 31, when the nearly two-year hiatus is expected to expire – especially as several student loan managers have left the program in recent months.

Debt cancellation now could be “an elegant solution” to the looming administrative nightmare, suggests Pierce.

Nicole Brun-Cottan, an Oregon physiotherapist with $ 130,000 in graduate debt, has another, perhaps simpler, solution to the unmanageable debt problem: lower interest rates. Current rates range from 3.73% for undergraduate loans to 6.28% for some graduate student and parent loans.

“The flat-rate exemption is a great idea, but I don’t know if there is the political will,” says Brun-Cottan, who is registered with the public service loan repayment program. “But lowering interest rates to a non-usurious range is a perfectly reasonable thing to do.”


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