By Lori Lee
NDG Contributing Writer
Every 26 seconds, someone in the U.S. defaults on a student loan. With over 45 million American borrowers, this $1.7 trillion of debt is second only to American mortgages.
American borrowers, in pursuit of a better life, have found themselves deeply in debt. For many, this debt will last into old age. It puts a strain on their lives and on the American economy.
In trying to alleviate this burden, the Biden administration has taken a two-pronged approach so as to dodge persistent political hurdles, said Adam Minsky, who after financing his education through student loans, has built a law practice on helping student borrowers.
The Supreme Court, siding with six GOP-led states, struck down Biden’s first plan to forgive up to $20,000 via the 2003 Heroes Act. The act, which allowed for special regulations to address a national emergency, was rejected by the court as a vehicle to provide debt relief.
This, despite the act’s statutory allowance for the Department of Education (DOE) to waive nearly any regulation governing student loans during a national emergency.
SCOTUS held that the act did not specifically name loan forgiveness as a way to address the pandemic. As Minsky put it, the court essentially applied some doctrines, which allowed it to strike down Biden’s initial forgiveness plan.
Other efforts at loan forgiveness have been challenged in suits brought by red states, said Minsky, including some of the same states that succeeded in blocking Biden’s initial mass relief plan. The Borrower Defense to Repayment program, which sought to protect those misled by universities who failed to receive a valuable degree, has been caught up in legal battles for years.
By turning to a targeted relief plan, however, the administration has managed to overcome some challenges by tweaking and reforming historically flawed DOE programs. One way they’re doing this, explained Minsky, is through Income Driven Repayment (IDR) Account Adjustment.
The program, fraught with poor record keeping and a lack of oversight, was hurting students. Reduced payments under the program often failed to meet the accruing capitalized interest, making paying off loans next to impossible, while loan consolidation, which effectively reset the clock on loans, also caused problems, he explained.
The account adjustment process now allows DOE to give borrowers credit for past periods of repayment, as well as some periods of deferment and forbearance so they can meet the program’s 25-year requirement for forgiveness. Close to a million borrowers have now received enough IDR credit to achieve loan forgiveness, he said.
The Public Service Loan Forgiveness (PSLF) program, which forgives nonprofit and government worker loans after ten years of repayment, was also mired with problems, said Minsky. Criticized for poor implementation of laboriously complex rules, the program had resulted in a near 99% rejection rate for seekers of loan forgiveness.
Biden’s solution has been to relax some PSLF rules to allow retroactive credit similar to the IDR Account Adjustment program. The result has been a sea change, said Minsky, and it has been life changing for borrowers. Going from only a few thousand approvals prior to 2020 to almost 900,000 approvals recently, the PSLF program is now functioning to help people to afford to take on a low-paying job in the name of public service.
The Total and Permanent Disability (TPD) program now allows forgiveness for those who have been unable to maintain gainful employment due to a medical condition. From September 2021, loans of the disabled have been automatically discharged under the program.
These targeted initiatives have meant relief for over 4 million borrowers, said Minsky. Yet, because this is only a fraction of the 40 million who still owe loans, the administration is taking another shot at broad based relief, a plan B to mass loan forgiveness.
Released last month, the plan offers several pathways to relief for those who might qualify under existing programs but for whatever reason, have not enrolled in one. This will include borrowers experiencing some sort of hardship, said Minsky, such as other debts, expenses, and old age. It will also shelter those who have experienced runaway interest due to long-term deferment and forbearance or because their payments were too low to keep up with the accruing interest. The program is designed to wipe out debt for those burdened for long periods of time, said Minsky.
If a borrower’s payment is not covering the interest growing on their loan, the federal government now subsidizes that for you, explains Michele Shepard Zampini, who works on federal policy for higher education access. Now, depending on the loan balance and the number of payments made, these loans can be paid off in much shorter terms.
After the halting of payments and interest during the pandemic under Trump and Biden, students have found transitioning back to normal difficult, said Zampini. They are confused about the consequences of non-payment as they continue to face economic challenges.
After documented cases were found of people struggling to decide between paying for rent, food, and student loans, the Biden Administration forged the SAVE plan to allow payments low enough to make room for necessary expenses.
The SAVE plan offers dramatic payment reductions for low earners and allows them to keep in good standing. It can also shorten the loan forgiveness timeline from 25 to ten years, said Zampini. Eight million borrowers have enrolled in SAVE, and of those, tens of thousands of borrowers have now received student loan forgiveness.
Minsky explained that the hope is that these new programs, forged under a new legal authority and with a long rule development process, will stand up to mounting legal challenges.
However, as Zampini points out, a lot of these programs are dependent on who is in the White House and can be overturned if the administration changes hands.
As conservative states argue that nothing provides for this scope of relief, the bottom line is that a lot of the forgiveness has already been approved, Minsky said.
Over recent decades, college expenses have largely shifted from public to private funding, with programs like the Pell Grant program, covering a much lower proportion of costs. In many ways, the student loan program has become a replacement for public funding, said Minsky, Though it has helped many students that wouldn’t have been able to attend college on their own, it has come with great public costs.
It will take government efforts at reinvesting in public education to see meaningful, structural change. Until then, we’ll be stuck in a cycle of debt, which is not a good place for young people to get started, said Minsky.
