The Education Dept. announced it extended contracts for six student-loan companies through 2023.
The companies agreed to higher standards to protect borrowers and ensure a smooth transition to repayment in 2022.
FSA head Richard Cordray previously said student-loan companies were shutting down due to fear of accountability.
After President Joe Biden announced in August the “final” extension of the student-loan payment freeze during the pandemic, threestudent-loancompanies announced plans to shut down their federal services, raising alarms for borrowers and advocates who fear an administrative mess with restarting payments next year.
But the Education Department made clear on Friday that the six student-loan companies continuing their contracts agreed to higher standards, both during the transition to repayment and for the duration of their contracts.
The department announced in a press release that it extended contracts for six student-loan companies, and within those contracts are stronger standards for performance, transparency, and accountability that will protect borrowers that will be “critical” in ensuring a smooth transition into repayment. Specifically, the new terms give the Federal Student Aid (FSA) office greater ability to monitor issues with servicers as they arise and requires the companies to comply with state, local, and federal law related to loan servicing.
“FSA is raising the bar for the level of service student loan borrowers will receive,” FSA head Richard Cordray said in a statement. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”
The press release noted that the six companies – Great Lakes, HESC/Edfinancial, MOHELA, Navient, Nelnet, and OSLA Servicing – agreed to contract extensions through December 2023. Notably, while Navient signed a contract extension in September, it later became the third company last month to request a shut down of its federal loan services, which the department is currently reviewing.
FSA will measure the companies each quarter on their abilities to meet goals related to:
The percentage of borrowers who end a call before reaching a customer service representative;
How well customer service representatives answer borrowers’ questions and navigate repayment options;
Whether servicers process borrowers’ request accurately the first time;
And the overall level of customer service provided to borrowers.
Cordray said during remarks at a conference earlier this month that student-loan companies are choosing to shut down rather than face more accountability. To be sure, he did not comment on specific companies but noted that “not everybody was thrilled” with his plans to strengthen oversight of the industry.
This is the Biden administration’s latest effort cracking down on student-loan abuses. Last week, FSA announced it is reviving an enforcement office to “vigorously investigate” schools’ student-loan and federal aid abuses, and it comes on the tail of Rohit Chopra’s confirmation to lead the Consumer Financial Protection Bureau (CFPB), who emphasized his plans to protect student-loan borrowers.
As Insider has previously reported, borrowers have experienced immense difficulty receiving help from their student-loan companies, preventing them from paying off their student debt. Charles Moore, 49, previously told Insider he had a simple question about consolidating his loan with his wife’s, and he ended up being on the phone for four hours trying to get an answer.
“Nobody wants to assist you,” Moore, said. “And you don’t know how to get help. Even though you go back and forth, the lender doesn’t know what the servicer is doing and the servicer doesn’t know what the lender is doing.”
Sinema is frustrating many Democrats on Capitol Hill as talks on Biden’s social spending bill stall.
Two Senate Democratic aides tell Insider she’s opposed to any corporate and individual income tax increases.
“I can’t put myself in her head,” House Budget Chair John Yarmuth recently told reporters.
It’s not just Bernie Sanders. Sen. Kyrsten Sinema of Arizona is vexing many of her Democratic colleagues on Capitol Hill.
The Arizona Democrat is off fundraising in Europe, The New York Times reported, as negotiations on Democrats’ social spending bill stall out with few signs that Sinema and Sen. Joe Manchin of West Virginia will resolve their differences over a large climate, education, and healthcare spending bill.
The centrist pair are sparking frustration among rank-and-file Democrats, who want to quickly wrap up talks and muscle the spending plan through the reconciliation process. That allows the party to approve it with a simple majority and bypass unified GOP opposition,along with the Senate’s usual 60-vote threshold. Democrats need Manchin and Sinema’s votes for the plan to clear the Senate. But at least it’s (somewhat) clear what Manchin wants.
Manchin says he wants to contain the bill’s price tag to $1.5 trillion and restrain the eligibility for new benefit programs like the child tax credit to low-income Americans. But Sinema doesn’t speak with reporters on Capitol Hill and has only negotiated with the White House.
Rep. John Yarmuth of Kentucky, chair of the House Budget Committee, told reporters on Tuesday, “I have no sense of what Sinema wants.”
“I can’t put myself in her head,” the retiring Kentucky Democrat said. “And don’t want to.”
A major holdup in the ongoing talks is Sinema’s opposition to any tax rate increases for individuals and large corporations, per two Senate Democratic aides familiar with the matter. Her position threatens to deprive the package of over $700 billion in revenue to finance the bulk of Biden’s agenda. The president has repeatedly promised his plan will be fully paid for and won’t add to the deficit. Most Democrats are also fervent in their desire to roll back President Donald Trump’s 2017 tax cuts.
“I do not think anyone in the caucus believes that to be a tenable position,” one of the aides told Insider. The New York Times first reported Sinema’s position. Her office didn’t immediately respond to Insider’s request for comment.
“So far this week, Senator Sinema has held several calls – including with President Biden, the White House team, Senator Schumer’s team, and other Senate and House colleagues – to continue discussions on the proposed budget reconciliation package,” a Sinema spokesperson told Politico.
Biden expressed a flash of frustration with Manchin and Sinema last week during a press conference. “I was able to close the deal with 99% of my party,” Biden said as he held up two fingers. “Two. Two people.”
Progressives recently assailed Sinema and Manchin for not being clear in laying out their priorities. Sen. Bernie Sanders said on a press call on Tuesday “the time is now long overdue” for both senators to tell Democrats what priorities they’d be willing to eject from the spending bill, ranging from prescription drug negotiations
Rep. Pramila Jayapal of Washington, chair of the 96-member Congressional Progressive Caucus, told reporters that progressives were open to cutting the price tag but not the overall scope of the package, favoring packing as many priorities into the legislation as possible, with shorter expiration dates.
“We’re not going to pit childcare against climate change,” she said. “We’re not going to pit seniors against young people.”
Whether Sinema ends up budging or digging in on her views means the difference between a hefty bill that transforms the economy or a skinnier one that only changes it around the edges. If she’s serious about no tax increases, then the bill could be even smaller than anyone is talking about.
The White House says Biden still believes in a $15-per-hour minimum wage.
Psaki said Biden believes it’s “long overdue,” but he’s done little to prod Congress on it.
Wages are climbing with employers scrambling for workers, but many more could benefit from a pay bump.
President Joe Biden still supports a $15 minimum wage, the White House says – but he hasn’t made any moves to raise it for the vast majority of workers since it was shot down from the stimulus law in March.
Press Secretary Jen Psaki said in a Wednesday briefing, “absolutely, he wants to increase the minimum wage to $15 an hour,” and Biden thinks “it’s long overdue.”
Psaki pointed to the guidance of a top Senate official that blocked its inclusion from the rescue package as the main hurdle. In February, Senate parliamentarian Elizabeth MacDonough advised that a minimum wage proposal was “merely incidental” and therefore ineligible to pass through party-line reconciliation. Eight Democratic senators – including key centrists Joe Manchin and Kyrsten Sinema – voted against putting the wage increase back into the package.
Some progressives urged the party to either fire or overrule the parliamentarian, which requires a majority vote in the 50-50 Senate. But cracks in the party over the speed and amount of a wage increase largely kept them from unifying around a plan.
It’s true that Biden has been a vocal proponent of a $15 minimum wage. The proposed hike formed a key plank of his presidential candidacy, and he has continually reiterated his support for a raise.
“We’re at $7.25 an hour. No one should work 40 hours a week and live in poverty,” Biden said in his first presidential town hall.
The federal minimum wage has remained stagnant for the past 12 years. It was last raised to $7.25 in 2009 – and hasn’t been raised since. Poll after poll shows Americans support a higher rate, but Congress is still stuck at an impasse. There hasn’t been a meaningful legislative push to raise it since March’s stimulus package. Senior Democrats gathered to discuss the issue at least once but those talks fizzled out.
In the meantime, some states have taken matters into their own hands. Florida, which former president Donald Trump won in the 2020 election, was the most recent state to hike its minimum; it will go up to $15 by 2026. All told, more than half of states have a federal minimum wage above $7.25.
Current wage pressures from ongoing labor crunches have also de facto pushed up the minimum wage across industries. Consistent wage growth pushed the average hourly wage up to $30.85 in September. In leisure and hospitality, the average hourly wage was $16.71 in September.
To be sure, Biden has utilized the limited mechanisms available to a president without party consensus to raise wages where he can. Biden issued an executive order to bring federal contractor pay up to at least $15 an hour, which is set to take effect by January 2022.
Even so, that leaves a wide swath of workers still uncovered by higher wage requirements. A January report from the left-leaning Economic Policy Institute found that a gradual raise to $15 by 2025 would give 32 million workers a raise.
The American Federation of Teachers reached a settlement with the Education Dept. on student-loan forgiveness.
The settlement requires the department to revisit denied applications to the Public Service Loan Forgiveness program.
The lawsuit targeted Trump’s administration, which ran up a 98% denial rate for the program.
A week after the Education Department announced reforms to a program that forgives student debt for public servants like firefighters, teachers, and nonprofit workers after ten years of monthly payments, a teacher’s union announced a victory that’s taking those reforms a step further.
The American Federation of Teachers (AFT) announced on Wednesday that it reached a settlement with the Education Department on a 2019 case – Weingarten v. DeVos – to hold President Donald Trump’s administration accountable for its mismanagement of the Public Service Loan Forgiveness (PSLF) program. The first borrowers who completed ten years of payments should have become eligible for debt forgiveness in 2017, but under Education Secretary Betsy DeVos, the program ran up a 98% denial rate, which continued into the beginning of President Joe Biden’s term.
The settlement will require the Education Department to revisit the thousands of applications that were denied student-loan forgiveness. Specifically, it will require the department to:
Reconsider, upon request, the application of any borrower who was denied forgiveness through PSLF, and those borrowers will now have an official process to submit those requests;
Review, within 90 days from today, all PSLF applications denied prior to November 2020;
And give borrowers with denied applications a detailed response as to why they were denied, and who they should reach out to with any questions.
“Congress pledged relief to those who dedicated their lives to serving the public, but 98 percent got a debt sentence instead,” AFT President Randi Weingarten said in a statement. “Today is a day of vindication for the millions of borrowers who took the government at its word but were cruelly denied through no fault of their own.”
The settlement will also completely discharge $400,000 in student debt for the eight plaintiffs in the case, who made their qualifying PSLF payments but got denied.
Last week, the Education Department announced an overhaul of PSLF that would implement a limited-time waiver through October 31, 2022, that will allow borrowers to count payments from any federal-loan programs or repayment plans toward loan forgiveness through PSLF, including programs and plans that were not previously eligible.
That waiver alone would bring 550,000 borrowers closer to student-debt relief automatically, and the department also said it would review denied applications before October of next year, which is not as expansive as Wednesday’s settlement.
Insider reported earlier this month that if PSLF had continued on its current track, it might see minor improvements but still only approve 20% of borrowers for forgiveness by 2026; the department’s overhaul, along with the settlement, will likely set borrowers on a much better track.
“This agreement unravels the Gordian knot of PSLF’s implementation and shows the power of advocacy and collective action,” Weingarten said. “It represents a game-changing victory for the millions of educators, nurses, public employees and other AFT members yoked to crushing monthly repayments that have upended their lives.”
Some Democrats are open to another reconciliation bill early next year as the current one is being trimmed.
“There is certainly a willingness to pursue that idea if it makes sense at the time,” House Budget Chair John Yarmuth told Insider.
Another party-line spending bill could be tough to achieve in 2022 given policy tends to take a backseat to midterm campaigning.
If Democrats can’t cram all of Biden’s social spending promises into the reconciliation bill this year, they may try again next year.
Congressional Democrats are grappling with key decisions on which measures should be scaled back or axed as they struggle to reach a middle ground with a small but potent centrist faction made up of figures like Sens. Joe Manchin of West Virginia and Kyrsten Sinema. Progressives are spearheading efforts to avoid pitting measures against each other, like affordable childcare against tuition-free community college.
But some in the party are starting to float another Democrat-only spending bill next year, perhaps as a way to score additional policy wins or pick up what was ejected ahead of the 2022 midterms.
“I have broached the subject with a number of people in leadership positions in the caucus,” Rep. John Yarmuth of Kentucky, chair of the House Budget Committee, told Insider on Tuesday. “And there is certainly a willingness to pursue that idea if it makes sense at the time.”
“I do think it’s feasible,” Rep. Donald Beyer of Virginia, a member of the tax-writing House Ways and Means panel, said of another party-line bill next year. “We all are aware of the fragility of the majorities in the Senate and the House, we’re gonna do our very best to keep building on them.”
He cautioned that many frontline Democrats in swing House districts may become harder sells on another party-line bill and it would depend what measures are included. Still, Yarmuth mapped out a scenario where potentially dropped provisions like a Medicare expansion that’s popular with older voters essentially dares Republicans to oppose it.
He called it a good opportunity to “put Republicans on the spot” adding it was “good politics and good policy.”
Democrats do have another chance at a reconciliation next year, the same legislative maneuver they’re using to skirt GOP opposition and approve the social safety net bill with only a simple majority rather than the 60 votes typically needed. They seek to expand education, healthcare, child tax credits and more.
“Anytime you can pass something with just your own party, you have a shot,” Jim Kessler, executive vice president for policy at the center-left Third Way think tank. “That’s going to depend on the appetite of a lot of members, including Manchin, Sinema and others. But I think it’s important for Democrats not to think that we get one year and then the rest of the Biden era is lost.”
Speaker Nancy Pelosi didn’t rule out another spending bill last month, telling reporters that possibility “is not excluded.”
But policymaking tends to be harder as the midterms get closer and campaigning takes precedence. The strict procedures governing reconciliation means Democrats may not be able to act on another bill until after April 1.
“I don’t think as a caucus we should close the door on potentially doing another bill early next year,” a Senate Democratic aide granted anonymity to speak candidly said. “It just seems silly to me that you would say, ‘”we’re done legislating after this point.'”
Rep. Jim Costa of California, among the 10 centrist Democrats who demanded an immediate vote on an infrastructure bill in August and nearly blew up Biden’s agenda, said he wouldn’t necessarily shut the door on another party-line bill as Democrats mull cuts.
“I think there could be,” he told Insider. “I mean, I keep trying. Just because it doesn’t get in one piece of legislation doesn’t mean I throw my hands up.”
Democrats are grappling with the likelihood of harsh cuts in their safety net bill.
“It’ll definitely be painful. And I don’t know how that’s going to shake out,” Rep. Don Beyer of Virginia said in an interview.
Some top Democrats are already floating another reconciliation bill next year to pick up what gets cut.
House Speaker Nancy Pelosi of California made it crystal clear on Tuesday: You can’t always get what you want – and it’s time for Democrats to make some tough decisions as negotiations on their social spending bill reach a make-or-break phase.
Pelosi is bracing lawmakers for the massive cuts required to assemble a spending package capable of clearing their threadbare majorities in the House and Senate, garnering the votes of a small centrist faction made up of figures like Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona.
She lamented at a news conference that Democrats won’t be able to pass a social safety net package amounting to $3.5 trillion due to centrist resistance. But she argued the plan that emerges from back-and-forth negotiations will still be “transformative” and aligned with the party’s goal to remake the economy for the better.
Congressional Democrats and the White House are wrestling with huge dilemmas as they labor to get President Joe Biden’s economic plans over the finish line. Measures including childcare subsidies, new Medicare benefits, a revamped child tax credit, tuition-free community college, and affordable housing are all on the chopping block. Pelosi has opened the door to both dropping spending priorities and shortening their duration to squeeze as much as possible into the final legislation, with no price tag locked in yet.
Some are acknowledging grueling sacrifices will have to be made as pent-up frustration with centrists spills out into the open amid the slog. “It’ll definitely be painful,” Rep. Donald Beyer of Virginia, who sits on the tax-writing House Ways and Means panel, said in an interview. “And I don’t know how that’s going to shake out.”
Beyer, who chairs the Joint Economic Committee, said he was “frustrated” with Manchin and Sinema. “I certainly wish that Manchin and Sinema were of the same commitment to Build Back Better bill than the other 48 senators are,” he told Insider. “But they aren’t and this is what you get.”
‘Always a high-wire act’
Democrats pushing for a sweeping anti-poverty package financed with tax hikes on large firms and wealthy individuals are crashing into resistance from Manchin and Sinema. Since they’re employing a legislative maneuver called reconciliation to pass it with a simple majority, Democrats can’t lose their votes in a 50-50 Senate.
“With Democrats, it’s always a high-wire act,” Jim Kessler, the executive vice president for policy at the center-left think tank Third Way, told Insider. “The negotiations are always public and caustic.”
Kessler, a former Senate Democratic aide, said he believed the legislation will brush against “at least 20” near-death experiences, similar to the passage of President Barack Obama’s signature health law a decade ago, the Affordable Care Act.
He laid out the possibility of a bill tailored to three areas: climate spending and related tax credits, then tax cuts for middle class families, and provisions that strengthen people’s ability to work like tuition-free community college that totals roughly $2 trillion. The sum is in line with what Biden privately told House Democrats about a potential compromise that could range from $1.9 trillion to $2.3 trillion.
That amount would cut the size and scope of the package’s major planks and probably force Democrats to eject others. They pushed a pathway to citizenship for 8 million unauthorized immigrants in the party-line bill. But the Senate parliamentarian has advised that it be excluded and Manchin told Latino Rebels it was “too big” to include.
Sen. Tim Kaine of Virginia recently suggested to Insider the idea of adding a means test for tuition-free community college, since that would target federal assistance to lower-income Americans. A Democratic aide told Insider that possibility was on the table to cut down on costs.
The Committee for a Responsible Federal Budget released an analysis on Tuesday, illustrating what a $2.3 trillion bill could look like. It would include an expanded child tax credit, permanently extending ACA health insurance subsidies, paid family leave, and “affordable” pre-K and community college. But it would exclude medical leave.
Beyer said given that Democrats view fighting the climate emergency as critically important, those tax breaks and green energy provisions stand the best chance of having a longer duration.
Referring to the Biden child tax credit as “kiddie checks,” the Virginia Democrat said he believed they could be “reasonably reduced,” and a future Congress would renew them.
Some Democrats float another reconciliation bill next year
Some centrist House Democrats have blamed progressives for pushing priorities that cost the party over a dozen seats in last year’s election, handing them only a three-vote majority. But progressives argue the dynamic has flipped and they occupy a new space in the party: Rescuers who pulled an economic agenda from the brink of oblivion, and salvaged their odds of scoring wins in the 2022 midterms.
“We’re not going to pit child care against climate change,” Rep. Pramila Jayapal of Washington, leader of the Congressional Progressive Caucus, said on a press call on Tuesday. “We’re not going to pit housing against paid leave. We’re not going to pit seniors against young people.”
Affordable housing is another big priority that faces being cut. House Democrats set aside $300 billion to help renovate public housing and build new homes for low-income Americans, Insider’s Ben Winck reported.
“You can’t try to fit all this stuff into a bill half the size,” a Senate Democratic aide told Insider, who spoke on condition of anonymity to be candid. “Then nothing will work well and it will be like ACA all over again, where people experienced no benefit in their lives for years.”
In late September, progressives forced Pelosi to bail on approving a $550 billion infrastructure package focused on roads and bridges – legislation that Manchin and Sinema helped design – until the bigger spending bill containing the bulk of Biden’s priorities gets hammered out. They are pushing for the biggest bill they can get and favor sunsetting new benefit programs within a few years, daring Republicans to block their extension.
Kessler argues it “makes more sense” to fund fewer programs robustly so they wind up more effective and quickly produce tangible improvements in people’s lives. There’s also a high risk Democrats won’t be able to go back and fix mistakes in their sprawling bill: For years during the Obama administration, Republicans blocked efforts to repair the ACA’s flaws as it got off the ground, and they would likely do so for this bill if they win back a chamber or both in the 2022 midterms.
Some Democrats are starting to float the possibility of another reconciliation bill next year, a long shot given that policy usually takes a backseat to campaigning in midterm years. But Pelosi and her top lieutenants aren’t closing the door.
“I have broached the subject with a number of people in leadership positions in the caucus,” Rep. John Yarmuth of Kentucky, chair of the House Budget Committee, told Insider. “And there is certainly a willingness to pursue that idea if it makes sense at the time.”
Yarmuth, who recently announced his retirement, said he views anothe reconciliation bill as a chance to “put Republicans on the spot.” He mapped out a scenario where Democrats stuff a bill with potentially excluded but popular provisions like expanded Medicare benefits and bait Republicans into opposing it, calling it “good politics and good policy.”
“I do think it’s feasible,” Beyer said of another party-line bill next year. “We all are aware of the fragility of the majorities in the Senate and the House, we’re gonna do our very best to keep building on them.”
He cautioned that dozens of frontline Democrats in swing districts may become harder to court on another bill. But the potential for more legislation is there.
“It’s important for Democrats not to think that we get one year and then the rest of the Biden era is lost,” Kessler said.
Lee Jae-myung, a South Korean presidential candidate, is pushing for universal basic income.
The candidate touted a five-year plan to give residents 500,000 won, or $420, each month.
Universal basic income is rising in prominence in the US, with some cities implementing similar programs.
South Korea could become the first Asian country to implement universal basic income if the Democratic presidential candidate wins the upcoming election.
Lee Jae-myung, who won the Democratic Party’s primary race this past weekend and once said he aspired to be “a successful Bernie Sanders,” touted guaranteed monthly payments, no strings attached, for South Koreans should he win the presidential election. Under his five-year plan, South Koreans would initially receive a 1 million won, or $840, annual payment that would be expanded over the years until residents would get monthly payments of 500,000 won, or $420.
“Real freedom is possible only when basic life conditions are guaranteed in all areas including income, housing and financing,” Lee said during his acceptance speech on Sunday.
He added that he will work to “root out unfairness, inequality and corruption” and restore economic equality in the region.
The 57-year-old is currently governor of South Korea’s most populous Gyeonggi province, which surrounds Seoul, and during the pandemic, all residents in his jurisdiction received regular payments to help them remain financially stable in the midst of COVID-19.
But some critics are unsure how plausible implementing a universal basic income would be in South Korea, with some economists telling the Financial Times that guaranteed monthly payments would produce a “steroid effect,” but might not help root out economic inequality in the long-term.
Still, universal basic income is picking up steam globally. Insider previously reported on the growingnumber of cities and states in the US implementing versions of guaranteed payment programs, with California recently launching the nation’s largest statewide universal basic income program prioritized for pregnant people and those aging out of the foster system.
Some lawmakers in the US want it to become a permanent feature of America’s economy.
After the pandemic spurred Congress to approve three stimulus checks for Americans, some Democrats called to continue those checks well beyond the end of the pandemic, and in late March, amid infrastructure negotiations, 21 Democratic senators urged President Joe Biden in a letter to include recurring direct payments in his infrastructure plan, saying that when checks ran out after the CARES Act, poverty rose.
Tesla CEO Elon Musk even joined the conversation, saying during an August presentation that the rise of robots might compromise jobs that humans currently do, necessitating a form of guaranteed income.
“Essentially, in the future, physical work will be a choice,” Musk said during the presentation. “This is why I think long term there will need to be a universal basic income,” he added.
A veteran was granted $221,000 in student-loan forgiveness through bankruptcy last year.
But a federal judge revoked that decision because of failure to prove hardship caused by the loans.
Lawmakers are pushing for bankruptcy reforms to make it easier for borrowers with no other way to repay their debt.
In 2020, a bankruptcy judge granted Kevin Rosenberg, a Navy veteran, $221,000 in student-loan forgiveness from his undergraduate education and law school. A year later, a federal judge reversed that decision leaving Rosenberg on the hook for his massive debt.
And it comes down to complexities in bankruptcy law that keep many borrowers trapped in student debt.
Lawmakers have been pushing to reform bankruptcy standards for student loan discharges because of how difficult it is to prove enough hardship to qualify for forgiveness, and Rosenberg’s original ruling showed some possible hope for debtors who are trying to do the same. But now the case is back to square one.
US Bankruptcy Court Judge Cecilia Morris forgave Rosenberg’s loans through bankruptcy last year using the Brunner test – a legal test created in 1987 that requires borrowers to show “undue hardship” caused by their student debt. The test defines that hardship as meaning they cannot maintain a minimal standard of living, their circumstances will likely not improve, and they have made a good-faith effort in repaying their debt.
Morris wrote in her ruling that Rosenberg satisfied the legal test, saying she would not perpetuate “myths” that it’s impossible to discharge student debt through bankruptcy.
But federal New York Judge Philip Halpern may have just proved the issue isn’t so mythical after all. Shortly after Morris’ ruling, the Educational Credit Management Corporation (ECMC) – the company that owned Rosenberg’s student debt – challenged the ruling under the argument that while Rosenberg took out debt to practice law, he pursued jobs in the “outdoor adventure industry,” and the company also criticized Morris’ interpretation of the Brunner test.
“Inability to pay one’s debts by itself cannot be sufficient to establish an undue hardship; otherwise all bankruptcy litigants would have an undue hardship,” ECMC wrote in its appeal.
Halpern sided with the student-loan company and revoked Rosenberg’s loan forgiveness last month because he did not prove why his loans from college and law school created “undue hardship,” saying Rosenberg must go back to bankruptcy court and reevaluate the case.
The challenges with loan forgiveness through bankruptcy
After his loans were first forgiven, Rosenberg told Yahoo Finance that it’s “really insane” that borrowers cannot discharge their debt through bankruptcy when “executives get golden parachutes” for making mistakes.
That notion is something advocates and lawmakers have been stressing as a reason to make student loan discharge through bankruptcy a more accessible method for borrowers. Insider reported in August that Senate Majority Whip Dick Durbin and Sen. John Cornyn of Texas introduced the FRESH START Through Bankruptcy Act of 2021, which would allow borrowers to seek a bankruptcy discharge of their federal student loans after 10 years.
The bill would seek to eliminate the requirement of proving “undue hardship,” which would significantly increase student debtors’ chance of getting loan forgiveness.
“Student loan debt follows you to your grave,” Durbin said in a statement. “Our bipartisan bill finally gives student borrowers – some who were misled into taking out costly loans by predatory for-profit colleges – a chance to get back on their feet when they have no other realistic path to repay their loans,” he added.
While veterans like Rosenberg had the option to seek loan forgiveness through the Public Service Loan Forgiveness (PSLF) program, which forgives student debt for public servants after ten years, the program had a 98% denial rate prior to major reforms announced last week, making bankruptcy the quicker, and more viable, option.
“Undue hardship should not be the only path to address student loans in bankruptcy,” Durbin said in an August hearing. “There should be another option.”
Janet Yellen reiterated her personal support of getting rid of the debt limit.
Mitch McConnell insists the Senate GOP will blockade the next effort to raise the debt ceiling, pushing the US toward defaulting on its debt.
“I will not be a party to any future effort to mitigate the consequences of Democratic mismanagement,” he wrote to Biden.
The US just barely avoided breaching the debt ceiling and defaulting on the national debt in October, and two of the main players are sounding different tunes on the future. Republicans are already firing warning shots about another fight coming in just two months, while some Democrats are eyeing ways to defuse the GOP’s increasing use of the debt ceiling as a political grenade.
Treasury Secretary Janet Yellen reaffirmed her support of getting rid of the debt ceiling on Sunday, only days after Senate Minority Leader Mitch McConnell insisted that Senate Republicans will have another debt-ceiling fight in December. His efforts to derail President Joe Biden’s domestic agenda could risk a first-ever default on the national debt.
In an interview on ABC News “This Week” on Sunday, Yellen said she wants to get rid of the debt limit but added it was a personal choice. She insisted it’s ultimately up to Congress to act.
On Friday, McConnell said Republicans wouldn’t give any more help to Democrats when it comes to the debt limit, teeing up another political brawl in late November.
“I will not be a party to any future effort to mitigate the consequences of Democratic mismanagement,” the Kentucky Republican wrote in a fiery letter to Biden. “Your lieutenants on Capitol Hill now have the time they claimed they lacked to address the debt ceiling.”
He added that Democrats “cannot invent another crisis and ask for my help,” even as McConnell effectively engineered the standoff along with its temporary resolution.
McConnell argued Democrats must employ an arduous procedure known as reconciliation to approve a debt-limit hike on their own, the same demand he’s made since July. The process allows some measures to be passed with only a simple majority, shielding it from the filibuster’s 60-vote threshold in the Senate.
Congressional Democrats are using reconciliation to approve a $3.5 trillion social spending plan, though major cuts to plan are likely to appease moderates given their threadbare majorities in the House and Senate.
They want to approve the plan on October 30, but that appears to be a long-shot since Democrats haven’t settled on a price tag yet. It raises the possibility of a major Congressional traffic jam in late fall. McConnell may be banking on that.
Jeff O’Kelley wants to be clear: he was not defrauded by the student-loan system.
In hindsight, however, he wishes that it had been a bit harder for him to take out such a large loan to pay for his son’s college, considering his income at the time and the ballooning interest rates since.
When O’Kelley’s son graduated high school with honors and an International Baccalaureate diploma in 2019, he had high hopes for college. At the time, the 57-year-old was self-employed as an entertainment photographer with an income of around $40,000, his finances weren’t joined with those of his second wife, and he didn’t want his son to miss out on any opportunities because of money.
So he turned to parent PLUS loans to pay for his son’s education at George Washington University, and he told Insider the process was “extraordinarily simple.”
“I go online, put in a little information and hit submit, and 60 seconds later, there’s another $30,000,” O’Kelley said. “I got very little information and very little confirmation and I think that’s the part that gets me the most. It was too easy, and it shouldn’t have been.”
Now he has $104,118.60 in student debt with 360 monthly payments to go – each payment about $760 – meaning he will be 88 years old when he finishes paying off his debt, “that is, if I live that long,” O’Kelley said.
Parent PLUS loans, the type that O’Kelley is paying off, are federal loans for parents to pay for their children’s education. The company that services the loan does not factor in the parent’s income when issuing the loan, instead basing it on the cost of the student’s attendance minus any financial aid the child already received. PLUS loans are the most expensive type of loan with the highest interest rate – 6.28% – compared with 3.73% for undergraduate loans, allowing debt to accumulate a lot quicker for parents.
O’Kelley said it would have made sense for Nelnet, the company that services his loans, to have turned him down given that he didn’t have a verifiable income, but that didn’t occur to him at the time because his main focus was giving his son the best future that he could.
Nelnet did not immediately respond to Insider’s request for comment.
“It was my obligation to do the best I could for him,” O’Kelley said. “It got my son what he really wanted, and I felt like it was my obligation to do that as a parent.”
‘This is a horrible, horrible black hole to fall down into’
There’s a Ferrari dealership a mile away from O’Kelley’s Florida house, and he said that if he were to walk into the dealership and ask to buy a car, they would never just sell it to him on the spot – they would need confirmation that he could afford it.
But with his PLUS loan, he said, he essentially got a Ferrari with no verification.
“I got sucked into it and probably lots of other people did the same thing,” O’Kelley said. “This is a horrible, horrible black hole to fall down into.”
O’Kelley isn’t the only parent to have fallen into the “black hole” of PLUS loans without realizing how quickly the debt would accumulate. Insider previously spoke to two borrowers, one with $550,000 in debt for his five kids and one with $265,000 in debt for his two kids, who said they wished the system hadn’t been so easy to take out loans.
“I wish there were more constraints on it, or something that might have forced me to think twice about it or make a different decision,” O’Kelley said. “I wish things would change because you don’t want to see other people in the same situation.”
The Texas Public Policy Foundation released a report last month showing that for every 100 student-loan borrowers, there are 22 parent borrowers, and for every $100 in student loans, there are about $30 in parent loans.
O’Kelley’s wife makes a livable salary, and combined with his own, he’s not too worried about making monthly payments once the pandemic pause lifts in February. But his wife is planning to retire in just a few years, and that’s when the $760 monthly payments will “become an issue.”
Still, even with the financial burden it brings, O’Kelley isn’t sure whether he deserves student-loan forgiveness because it was his choice to take out the loans. But he said the huge debt loads that so many people hold is a “hindrance on the economy,” and more oversight would lessen its negative impact.
He said loan forgiveness is a “moral issue” to him as he knows he chose to spend money on his son’s education, “but somewhere in the back of my mind, it’s always been a hopefully fingers-crossed thing that maybe Congress will do something.”
Do you have a story to share about student debt? Reach out to Ayelet Sheffey at firstname.lastname@example.org.