by Edwin Quinabo
Over 44 million college graduates are saddled in student debt ranging from an average of $30,000 to as high as over $200,000 for professionals like medical students. Depending on a borrower’s plan for repayment, a $200,000 loan could take about 20-25 years to pay off.
At some point, does the rising cost of education become too steep a burden for even average-income families to take on? This conundrum – widespread and beleaguering of a plum electorate – is an attractive political talking point for Democrats who promised student loan forgiveness. But almost two years into President Joe Biden’s administration, delivery on that promise has failed to materialize.
Meanwhile the nation’s total student loan debt is at $1.7 trillion, and by 2022, it will be a staggering $2 trillion. With an average bill of $400 a month dedicated to student loans, new graduates entering a soft post-COVID employment market are finding it harder to pay their bills, save for their future, launch small businesses, and start families.
For new graduates with low-paying jobs and high student debt (often those with majors outside of STEM), their debt load is crippling, and sometimes leads to loan default, bad credit, and years of financial hardship. 1 in 5 borrowers is in default.
“There is a very long way to go to deliver on the promises for student loan borrowers, between what was promised and where we are,” said Seth Frotman, executive director of the Student Borrowers Protection Center (SBPC). “A lot of that is obviously because of how broken the system is and how many of the problems we’re facing are decades in the making.”
While Biden has removed student debt cancellation from his budget blueprint released this Spring which focuses mostly on infrastructure, he said student loan forgiveness is not off the table.
Political analysts say he hasn’t soured on the idea; but is prioritizing his platform and realistic of what can and cannot be done.
There are three major actions in the work concerning federal student loans. Two are going to take a while to see progress if any: 1. wide-scale student federal loan cancellation via congressional action; and 2. partial student loan forgiveness via executive order; and a third (extending student loan relief brought about by the COVID-19 pandemic) could see action soon.
Mason Aquino, Honolulu, a graduate from a private university in Oahu, is one of many Filipinos hoping for federal student loan forgiveness. His current student loan balance is $35,000; about 40% of it, around $14,000 is loaned by the federal government. He says he pays $400 a month that will run through 10 years.
“I fully support federal college loan forgiveness because it is a huge step towards fixing our education system. It will not only help the current generation with their loan payments but also the future generations to come. It’s the government’s job to support its people. Student loan forgiveness would be such a huge help to millions of graduates in the country. I understand why some people would be against this, but at the same time, that’s just being selfishness right there,” said Aquino.
Like many other students, Aquino said he is currently paying his student loans with more loans, “it’s a never-ending loan cycle. And I know a lot of people are doing this too.”He’s hopeful that “at least there are talks of loan forgiveness.”
Possible Actions, Universal Student Loan Cancellation or Partial Student Loan Cancellation
The current US Senate composition would make any Universal Student Loan Debt Cancellation a dead-on-arrival bill with Republicans against it. Universal student debt relief (excusing all federal loans, no matter the amount or area of study) is unlikely to pass both the House and the Senate, where Democrats have only small majorities. Universal Student Loan Debt Cancellation would take congressional action.
A more realistic goal but still poses an uphill challenge, political analysts say, is the passage of partial student loan forgiveness by way of executive order by the President. The amount and whether or not it is possible via executive order are being investigated. Democrat Progressives, now a formidable force within the party, are pushing for $50,000 federal student loan debt forgiveness; while Biden is leaning in favor of $10,000.Senate Majority Leader Chuck Schumer said, “Student loan debt is weighing down millions of families. We must do everything in our power to deliver real relief to the American people.”
Schumer is in favor of forgiving $50,000. “I promise I’ll keep pushing the Biden administration to do it. With Joe Biden in the White House and Democratic majorities in the House and Senate, the time is now to take action.”
Senator Elizabeth Warren (D-Mass.), who also favors $50,000 debt relief said, “People need this. Our country needs this. And one of the best ways to create a 21st-century economy is by investing in people who have invested in their own education.”
$50,000 vs $10,000 debt forgiveness
While forgiving $50,000 would not end the total federal student loan debt, it would eliminate an estimated 93% of borrowers debt and largely benefit middle to lower-wealth bracket families.
A $10,000 blanket forgiveness would reduce outstanding federal student loan debt by $380 billion, but more than half of this relief would go toward families in the top 40 percent of income-earners, while the bottom 40 percent would receive just a quarter of the relief because lower-income families take on larger student debt loans.
President Biden asked the U.S. Department of Education to investigate if his executive authority gives him the ability to enact massive student loan forgiveness without congressional approval.
He has also requested the Department of Education and the Justice Department craft a memo about the use of executive authority to cancel student loans.
Biden still would rather Congress to take up action on student loan forgiveness.
Legal experts have argued that the Higher Education Act provides the president with broad authority to “compromise, waive, or release” a borrower’s student loan liability.
How would Federal Student Loan Debt Forgiveness work?
The exact details are not clear yet for federal student loan forgiveness, but the amount determined by Biden or Congress, would apply only to loans held by the federal government, not private loans.
There could be confusion since government loans are usually applied for at private banks.
Some FFELP Loans and Perkins Loans aren’t owned by the federal government and would not be forgiven by the current one being worked on. But there could already be existing forgiveness on some Perkins Loans with regard to certain majors like education and whether teachers are teaching in certain school districts that serve lower-income communities.
FFELP Loans were issued prior to 2010 mostly by banks and may be owned by financial institutions or third-party investors. Perkins Loans are issued through colleges and universities. Student loan borrowers with FFELP Loans or Perkins Loans have largely been excluded from the student loan relief from the Cares Act, including paused student loan payments.
Federal student loans such as Direct Loans, subsidized student loans and unsubsidized student loans are expected to be eligible.
Experts say congressional action on student loans would be more encompassing than forgiveness by executive action due to possible legal limitations.
Loans that parents usually take out for their children’s education
The two main types of loans parents take out to fund education are 1) private loans borrowed from a private lender and 2) Parent PLUS Loans offered through the federal government.
There isn’t much discussion on private loans that parents take out so experts say they are unlikely to be included in any student loan cancellation.
Parent PLUS Loans, which are owned by the federal government, likely would be included in federal loan forgiveness. The latest student loan debt statistics show that there are approximately $100 billion Parent PLUS Loans outstanding. Parents who owe Parent PLUS Loans may be retired and therefore have limited income, even if they have higher net worth. Many of these retired parents have difficulty paying those loans.
Tess Bernales, Kailua, said, “I am lucky that my son is fully assuming all his responsibility to pay off his student loan. This is not relinquishing our duty as parents but it is allowing your child to be a functioning independent and responsible individual.
“I support complete forgiveness after a certain period of time. I support the Federal college loan forgiveness program. Having student loans is part of the college experience and as well as the growing-up process into maturity with accountability and responsibility. A student will have greater awareness to finish college if the student is paying for that education through loans and grants. However, a fresh graduate starting at the bottom of the salary scale and with loan repayment added to the expenses of living independently, finds a month-to-month existence untenable. I feel that after 10 years he has already given enough time and money to repay his debt by following the specific loan forgiveness requirements.”
Loreen Salvador-Takai, Moanalua, had two children who graduated from the University of Hawaii at Manoa. “Both my children specifically choose to attend school locally to save on their college education. My first child already paid off her student debt. My second one is getting caught up.“I have nieces and nephews who went to private universities on the mainland. Some have gone through graduate school and have major outstanding balances on their student loans. I have another niece who just started medical school. She just signed up for a loan of $250,000 to cover several years of her education. I don’t know the details, but I hope that loan is at least partly federally owned.
“I don’t think parents, especially before all these talks of federal loan forgiveness, would even pay attention to whether a loan is federally owned, part-federally owned or privately held. I think going forward, whether or not federal loan forgiveness is passed this time around, parents will be paying more attention and seek federally-owned loans just in case the government does cancel federal student loan debt in the future. I know I would be conscious of this distinction if I had children entering or still in college,” said Salvador-Takai.
On privately held loans
Since private loans are not expected to be included in the federal student loan forgiveness programs, loan experts are encouraging students and parents to look into possibly refinancing these type of loans with record low-interest rates at this time. It’s possible to lower your interest rate, lower your monthly payment, and choose between a fixed or variable rate more suitable for your overall and current goals, student loan experts say.
Existing loan forgiveness options
Loan experts say there are already government programs like Public Service Loan Forgiveness (PSLF) that can reduce or eliminate existing federal student loans after a certain amount of time.PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. PSLF is available to government (public service workers) and qualifying nonprofit employees with federal student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free. They can have up to $17,500 in federal direct or Stafford loans forgiven.
Critics of PSLF say this system is flawed and a great percentage of applicants are rejected. Biden also promised to reform PSLF, which is currently under changes.
The new rules are expected to be in place by April 2022.
Extending COVID-19 Student Loan Relief
While student debt cancellation via Congress or by executive order are being debated and worked on, the more immediate action of extending the relief provided by the CARES Act could come to an end soon.
In one of his first moves as president, Biden, through executive order, extended loan forbearance for eight months. His executive order was a continuation of relief provided by the CARES Act passed in March 2020 that gave 42 million student loan borrowers a break from making payments and accruing interest during the coronavirus pandemic.
The pandemic relief included: no federal student loan payments due; interest rates on federal loans set to 0% temporarily; and no collection on federal student loans in default.
The pandemic relief expires on Sept. 30, which means all payments must resume Oct. 1, 2021.
Student Debt Crisis surveyed more than 23,000 borrowers across the U.S. between June 17 and June 22 and found 9 in 10 borrowers are not prepared to start paying off their loans again. The survey also found that the temporary pause in student loan collection has been critical to 75% of respondents’ financial well-being.
Due to less money earned, respondents say 33% of their income will go toward paying off their debt if it goes into effect Oct. 1.
The Congressional Budget Office recently predicted that the jobless rates for younger workers will be slower than the overall rate.
The unemployment rate for those with an associate’s degree was more than 5% in May, compared with 2.8% before the pandemic.
Close to 3% of bachelor’s degree recipients remain jobless, up from around 2.2% pre-Covid.
“During the campaign, President Biden made a lot of big promises about how he’s going to fix the student-loan system,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.
“It doesn’t make a lot of sense to turn the student-loan system back on before those fixes are there. We have a once-in-a-lifetime opportunity while the pause is in place to make those changes.”
Aquino said, “it is still too early to resume the loan payments. Many of us are still struggling to find a job and/or pay our monthly bills that is more of a priority compared to student loans. I would rather pay my rent than my student loans right now. I think when the virus is fully under control, that would be a great time to fully bring back loan payments. But right now, we are truly far from that.”
Bernales believes the resuming of federal student loans should be structured like the repayment after graduation, six months after being on the job. “Giving a specific date for the resumption of repayment appears to be unreasonable. Some people may be going back to their previous job, some may have to find a new job. Each person’s circumstance is different.”
Salvador-Takai says these loans will still need to be repaid. “Why cause extra burden on young adults who took the right track to get educated and become productive members of society? It shouldn’t hurt to give these students more time especially since so many of their working lives have been disrupted by the pandemic. If they’re not ready and don’t have jobs, having them default on loans is a worse scenario.”
Opponents of an extension say the federal government is losing out on money owed to them, saying the pause has amounted to $5 billion per month of lost revenues.
Political analysts say a political calculus could come into play in determining whether an extension is allowed, which is — it’s difficult for the President to argue the economy is rebounding and doing well if student loan borrowers are given an extension due to a slow economy.
“There is a very long way to go to deliver on the promises for student loan borrowers, between what was promised and where we are. A lot of that is obviously because of how broken the system is and how many of the problems we’re facing are decades in the making.”— Seth Frotman, Executive Director, Student Borrowers Protection Center
Student advocates say politics should stay out of it and that it’s possible that both the economy is picking up and at the same time young, new graduates are still struggling.
Actions already taken on federal student loans
Action on federal student loans hasn’t been entirely a wait-and-see situation. Besides the temporary COVID-19 CARES Act pause, the administration has so far cancelled $2.8 billion in student debt for about 131,000 borrowers in three ways:
*$1 billion for 72,000 borrowers through borrower defense; (The Biden administration reversed a Trump-era policy that allowed for partial student loan cancellation for borrowers granted relief under the Borrower Defense to Repayment program, which cancels federal student loan debt for borrowers defrauded by their schools. The change would allow around 72,000 borrowers who were eligible for full Borrower Defense relief.)
*$1.3 billion for 41,000 borrowers with total and/or permanent disabilities; and
*$500 million for 18,000 students that were defrauded by ITT Technical Institute, also through borrower defense.
“The department will continue doing its part to review and approve borrower defense claims quickly and fairly so that borrowers receive the relief that they need and deserve,” said Education Secretary Miguel Cardona.
The loan forgiveness on the Borrower Defense to Repayment program could go beyond $1 billion as more educational fraud cases are reviewed.
But critics say these three actions amount to less than 0.002% of outstanding federal student loans and effect just over 0.003 percent of borrowers.
They also point out that Biden made a lot of promises to millennials and Gen Z on forgiving student loans. That’s one reason this group overwhelmingly supported his candidacy. It’s surprising that getting just some relief looks impossible to get. Some critics admit though, it is a little premature to conclude that the President abandoned them on this issue. There is still time.
One of the federal government’s largest student loan servicers FedLoan which oversees the loans of 8.5 million student borrowers — said it would not renew its contract with the federal government when it ends later this year. The millions of borrowers whose loans are overseen by FedLoan will have to be moved to a new servicer, which means these borrowers could have a few more months before collection on loans resumes.
Historically student loan debt cancellation has been considered taxable income. But a provision in the CARES stimulus bill exempts forgiven student debt from any existing forgiveness program and any possible future one through December 31, 2025.
“It’s good to know that this tax-free feature is already in place. Now we just need to get the help students and parents need with a federal college debt cancellation. Maybe right now is not the right time to talk about it, but if loan forgiveness happens in the near future, what about students in the far future. I think the whole college tuition cost needs to be looked at. It’s just too expensive,” said Salvador-Takai.