Mass forgiveness of student loans is already happening – Reason.com
While Progressive Democrats in Congress have yet to pass a Universal Student Loan Cancellation Bill, the Education Department has nonetheless canceled billions of dollars in federal student loan debt since Joe Biden became president. And even without a new statutory authority, the federal government is expected to write off more and more student loan debt in the future, thanks to the Biden administration’s broad interpretation of existing Department of Education authorities, as well as to a law signed by George W. Bush a long time ago. in 2007 which made the cancellation of the loan compulsory for certain borrowers.
Let’s start with the cancellation of federal student loan debt for low-income and disabled borrowers, which the Education Department says has wiped out “$ 9.5 billion, affecting over 563,000 borrowers.” since January 1, 2021. This sum breaks down roughly as follows:
- $ 1.1 billion in federal student loan debt forgiveness for 115,000 borrowers under a policy called “extended release of closed schools.” The action benefits former participants of the now-closed, for-profit ITT Technical Institute, who “did not graduate or graduate and left ITT on or after March 31, 2008.”
- $ 1.5 billion in student debt relief for 92,000 borrowers under “defending the borrower against repayment, which allows for the clearance of federal loans if borrowers can prove that their school has “misled” them about their job prospects or the portability of university credit, or if it has wrongly characterized the loans as grants, or if the school “has committed other wrongdoing in violation of certain state laws.”
- $ 7.1 billion in “full and permanent disability releases” for borrowers classified as disabled by the Social Security Administration. According to the Department of Education website, “this includes $ 5.8 billion in automatic student loan discharges to 323,000 borrowers and the reinstatement of $ 1.3 billion in loan discharges for another 41,000 borrowers.” .
Yes, that sounds like $ 9.7 billion. But there is probably some overlap between the groups.
There is also an interesting wrinkle to the announcement of disability release. The press release from the Ministry of Education indicates that 98% of the 41,000 borrowers whose loan discharge is restored initially lost their discharge because they “did not submit the requested documents, and not because their income. were too high “. To prevent their releases from being revoked in the future, “the ministry will indefinitely stop sending automatic requests for income information even after the national emergency ends. This continues a practice announced by the ministry in March. 2021 for the duration of the national emergency. Next, the Ministry will propose to eliminate the [3-year] monitoring period entirely in the next negotiated regulation which will begin in October. ”
The above actions can be attributed to the Biden administration’s interpretation of a section of the Higher Education Act of 1965 which authorizes the Secretary of Education to “enforce, pay, compromise, waive or release any right, title, claim, lien or demand, however acquired, including any equity or right of redemption. President Donald Trump’s Education Department had a much more limited view of this authority, though he used the law in unprecedented ways when he suspended payments and interest on student loans federal governments at the start of the COVID-19 pandemic. (You can read my analysis of the debate on this authority here.)
Aside from people with disabilities and for-profit college alumni, an entirely different category of federal student loan borrowers also enjoy federal student loan forgiveness, thanks to George W. Bush and the Cost Reduction and Access to Colleges Act, 2007.
The Cost Reduction and Access to Colleges Act states that anyone receiving a federal direct loan who makes 120 eligible payments after October 1, 2007, while employed by a non-political non-profit organization 501 (c) 3 or a government agency, will have the remainder of its direct loan forgiven under a program called Public Service Loan Discount. It doesn’t matter how much your loan is. If your employer qualifies, your loan type qualifies, and you make 120 payments on time, the rest is forfeited tax-free on the remitted amount.
According to a spokesperson for the Ministry of Education,
From July 2020 to June 2021, the cumulative number of borrowers receiving a Public Service Loan Discount (PSLF) increased from 2,860 to 8,334, and the cumulative total amount forgiven increased from $ 201 million to 756 millions of dollars.
From July 2020 to June 2021, the cumulative number of borrowers benefiting from an Extended Temporary PSLF (TEPSLF) increased from 1,943 to 3,724, and the cumulative total amount of cancellation increased from $ 83 million to 166 millions of dollars.
While $ 756 million and $ 166 million are well below $ 9.5 billion, the most important figure, compared to the larger student loan forgiveness debate, is the amount of forgiveness per borrower. Using the numbers above,
- Recipients of the Borrower Defense and Closed Schools Liberation received, on average, $ 12,560 in federal debt relief per borrower.
- borrowers with disabilities received, on average, $ 19,505 in federal debt forgiveness per borrower
- TEPSLF recipients received, on average, $ 50,702 in federal debt forgiveness per borrower
- PSLF recipients received, on average, $ 90,712 in federal debt forgiveness per borrower.
These last two numbers are why I think the PSLF (which is a non-discretionary law program) and, to a lesser extent, TEPSLF (which is limited by the crediting process) are more important for the broader student loan debate, even though for-profit participants and borrowers with disabilities grabbed the headlines.
Considering the high default rate among for-profit college borrowers and the truly awful business practices of some for-profit colleges, these low-income borrowers are a sympathetic bunch. Although I have already argued that making student debt dischargeable in bankruptcy would go a long way in aligning incentives properly and lowering the costs of higher education, by freeing them up. federal A student loan in bankruptcy has the same impact on the public tax system as forgiving it. The same argument applies to the permanently disabled. With the federal government everything except displacement in the private student loan market over the past decade, bankruptcy versus forgiveness is an indistinguishable distinction.
PSLF beneficiaries are not so sympathetic. They have good jobs in government and in non-profit organizations. They are well educated. While certain types of jobs command significantly higher salaries in the for-profit world, many with master’s and bachelor’s degrees can earn more in combined salary and benefits while working for the government. Holders of a terminal degree may earn more in the private sector, but they are also the highest paid public sector workers.
The PSLF program, on the other hand, is designed to ensure that all of these borrowers pay off their principal balances as little as possible by using “income-based repayment” (IDR) rather than the standard 10-year repayment program. This means that what you pay each month is a small percentage of your income, rather than determined by the life of your loan. For years, the Ministry of Education To presentations given to financial aid managers showing that the PSLF makes sense alone if you use the IDR, because there would be no debt to write off after 10 years of standard repayment. Additionally, PSLF applicants received an additional bonus from the Department of Education during the pandemic: while all federal student loan payments and interest accrual have been frozen since March 2020 and will end at least until at least. January 2022, PSLF applicants can count each month in this period as an eligible payment even if they have not actually made a payment.
And if there are currently not many PSLF beneficiaries, there will soon be. When the first cohort of borrowers reached eligibility on October 1, 2017, student loan watchers expected a flood of forgiveness. In July 2021, the Department of Education posted a request for comment in the Federal Register indicating that to date, nearly 98% of student loan borrowers who have applied for the PSLF have not received a rebate at the time of their application.
But the Education Department is working, with the backing of Democrats in Congress, to change that. From October 1, 2017 to April 1, 2021, $ 452.7 million in student loan forgiveness was granted to 5,467 approved PSLF applicants. This comes down to $ 82,804 per borrower. We are now at 8,334 people, $ 756 million, and $ 90,712 in remission per borrower.
These first two numbers are almost certain to increase. PSLF applicants are encouraged to submit a form to the education department once a year, so that the department can tell borrowers if their employer is PSLF eligible and how many forgiveness payments they have made. TThe education department received 391,333 of these forms from November 2020 to April 2021. Of these, 168,197 forms met the PSLF criteria.
So, while the cancellation of student loans to worst-off borrowers may be making headlines, the U.S. government and nonprofits are quietly securing a massive reprieve on debt they’ve taken on for advance their careers. And more is likely on the way.
It’s probably only a matter of time before millions of private sector workers start to wonder why you have to be poor or work for the government or a nonprofit to get your loans canceled. And we can partly thank George W. Bush for helping to accentuate this contradiction.