‘Murdered by the student-loan industry’: 2 borrowers describe the crushing interest that keeps them from paying off their debt

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In this May 17, 2018, file photo, new graduates line up before the start of the Bergen Community College commencement at MetLife Stadium in East Rutherford, N.J.

  • High interest rates on student loans are keeping borrowers from paying off their initial debt loads.
  • Insider spoke to two borrowers who are dealing with “crippling” student debt, largely due to interest.
  • They both paid off nearly their full original debt amounts, but still owe thousands of dollars more.
  • See more stories on Insider’s business page.

Alexandria Mavin heard from her high-school teachers that there was a path to the American Dream. If she went to college, graduated, and got an office job, she would get there. She graduated with $117,000 in student debt as a down payment for that dream.

Now 32 years old and a property manager, she’s paid back $70,000 of it, but she still owes $98,000 from her undergraduate education, and she says she “absolutely” regrets seeking an education.

“I’ve paid back almost all of my loans, but I still owe the full amount,” Mavin told Insider. “It’s a never-ending cycle.”

Mavin is talking about interest. It’s why many borrowers have trouble staying on top of payments or eliminating their debt. The $1.7 trillion student debt crisis is largely due to interest that grows each year, so even borrowers who consistently repay their debt face high interest rates that keep their debt equal to what they initially borrowed – or higher.

After President Lyndon B. Johnson passed the Higher Education Act of 1965, banks began raising interest rates on student loans, and the system came to profit lenders at the expense of pushing more and more borrowers further into debt and default, Insider reported. It’s created a prison many borrowers feel they will never escape.

Alexandria Mavin
Alexandria Mavin.

Mavin’s student loans are owned by four servicers, and only one of them – FedLoan Servicing – was included in the federal pause on student-loan payments and interest during the pandemic. But even so, Mavin said being free from interest on even just one of her loans saved her $377 a month, which she put toward savings and helped her pay off, in full, her hospital bills from giving birth during the pandemic.

“It just shows how without student loans, I can afford life,” Mavin said.

‘I’m financially paralyzed by crippling debt’

Daniel Tapia, 41, graduated a decade ago with a bachelor’s degree in dental hygiene – the first in his family to do so. Since then, he told Insider, he’s been driving used cars, living in “crappy” apartments, and moved back in with his mom thanks to the growing student debt he’s been trying to pay off for 10 years.

“I’m financially paralyzed by crippling debt and I can’t get ahead in life,” Tapia said. “Murdered by the student-loan industry.”

Daniel Tapia
Daniel Tapia.

To afford his bachelor’s degree, Tapia borrowed $60,000 in private student loans with a 9% interest rate, and his student-debt load currently stands at just under $86,000, including $22,000 owned by the government, even after making a decade’s worth of monthly payments.

“What I don’t get is if I took out a certain amount, and I paid that amount already, and I still owe more than I originally owed, it’s just nuts,” Tapia said. “It’s mind boggling to me that this total amount is not going down. It’s not going away.”

Insider recently reported that even though federal student-loan payments have been on pause during the pandemic, many borrowers who made at least one payment during the pause were “underwater,” meaning they were not even $1 less in debt than their original balances, keeping some in an endless cycle of repayment.

For many, student-debt cancellation is the only way out

Although President Joe Biden campaigned on canceling $10,000 in student debt per borrower, Mavin said that wouldn’t even be “a drop in the bucket.” She said the alternate plan from Massachusetts Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer to cancel $50,000 per borrower would help “tremendously.”

Some colleges have been using stimulus funds from Biden’s American Rescue Plan to cancel institutional debt, or debt owed by students to schools, and Biden has even canceled student debt for certain groups of borrowers, but widescale student debt forgiveness has yet to occur.

Biden has asked the Education and Justice Departments to review his executive authority to cancel $50,000, but months have passed and there is still no word on where those reviews stand.

“I have gotten screwed with interest so hard that I’ve paid the majority of my loan back, but yet, the banks are the ones profiting, not me,” Mavin said. “I fear it’s a never-ending cycle where I can’t give my daughter the life I want to give her and I can’t give myself the life I want to give myself.”

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A top Democrat wants to make them pay. All the executives behind defunct for-profit schools, that is.

Rep. Bobby Scott
Rep. Bobby Scott.

  • For-profit schools have shut down in recent years amid allegations of fraud and misleading students.
  • House Education Chair Bobby Scott urged the Education Sec. to hold the executives of those schools accountable.
  • He wants the executives to pay for the closure costs that students and taxpayers were saddled with.
  • See more stories on Insider’s business page.

A series of for-profit colleges have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can’t pay off. A top Democrat wants to make these schools’ executives pay.

On Monday, House Education and Labor Committee Chair Bobby Scott wrote a letter to Education Secretary Miguel Cardona, urging him to hold owners, board members, and executives of now-defunct for-profit schools “individually responsible” for money the schools owe to the federal government.

“Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs,” Scott wrote.

After major for-profit chains, notably including Corinthian Colleges and ITT Technical Institutes, shut down, students and taxpayers had to pay the closure costs – not the people who ran the school.

Scott highlighted actions the Securities and Exchange Commission (SEC) has taken, like bringing ITT to court in 2015 for deceiving investors about high rates of late payment and defaults on student loan, but he noted that SEC penalties have been narrow, and the Education Department can do more given its authority under the Higher Education Act – including making them pay for the debt students had to take on.

Last year, Student Defense, which advocates for students’ rights, released a report detailing how executives can be held accountable under the Higher Education Act, and Dan Zibel, author of the report and Vice President of Student Defense, wrote on Twitter on Thursday that “too many predatory colleges have profited from fleecing students & bilking taxpayers.”

Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans in a process known as the “borrower defense to repayment.” This methodology, approved by Education Secretary Betsy DeVos, compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs. The bigger the difference, the more relief the applicant would receive.

But compared to a 99.2% approval rate for defrauded claims filed under President Barack Obama, DeVos had a 99.4% denial rate for borrowers and ran up a huge backlog of claims from eligible defrauded borrowers seeking student debt forgiveness, which is why Cardona reversed that policy to start giving borrowers defrauded by for-profit schools the relief they qualify for.

Scott’s letter is the second asking the Education Department to hold for-profit education executives accountable. In October 2020, Massachusetts Sen. Elizabeth Warren led five of her Democratic colleagues in pushing for the department to use all the legal tools at its disposal to hold executives of the for-profits that “defrauded students personally, financially accountable.”

The lawmakers wrote the department’s failure to enforce accountability “has also encouraged future lawbreaking by executives who feel confident they can enrich themselves at the expense of students and taxpayers without consequence.”

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Black Americans who didn’t finish college are just as likely to have student debt as a white borrower with an advanced degree

student debt graduation
  • US Census researchers released a report detailing the impact of the pandemic on student debt.
  • It found Black borrowers with no degrees were just as likely as white borrowers with advanced degrees to have student debt.
  • Some Democrats believe canceling $50,000 in student debt per person will help close the racial wealth gap.
  • See more stories on Insider’s business page.

Even if they didn’t finish college, Black student-loan borrowers carry the same debt burden as a white adults with an advanced degree.

That’s what two statisticians found after analyzing US Census data on the burden of student loan debt before the pandemic. They also learned that women – Black women in particular – are more likely to carry debt than men, and that people with student loan debt were more likely to also have credit card or medical debt.

On Wednesday, Michael D. King and Lindsay M. Monte, census survey statisticians, and Neil Bennett, a census economist, released a report detailing the added economic hardship COVID-19 brought to those with student debt. Using data from the census’ 2017 Survey of Income and Program Participation, which provides information about debt holders in the years preceding the pandemic, it found that “Black adults were more likely than White adults at every educational attainment level to have student loans.”

Those who attended college but didn’t get a degree were more likely to have experienced a loss of income in their household since the start of the pandemic, the report said, and they were more likely to report having a difficult time paying their typical expenses than those with a bachelor’s degree.

Other findings from the data included:

  • Black women were the most likely out of any group to have student debt – about one in four Black women had debt compared to one in eight white men;
  • Women overall were 28% more likely than men to have student debt;
  • And student debt was associated with more debt overall – 69% of borrowers with student debt had at least one additional type of debt, like credit card or medical, and those with debt on on top of their student loans often owed more in student loans.

“For instance, the median student debt of those with no credit card debt was $16,000 in 2017,” the report said. “However, those with both student and credit card debt owed a median amount of $20,000 in student loans.”

The pandemic has only exacerbated the economic hardships for those who were already carrying the most student debt. Even with pandemic relief, like the pause on student-loan payments and stimulus checks, most people immediately spent the checks to pay down debt, according to the census.

Insider previously reported that of the borrowers under student-loan company Navient who made at least one payment on their debt during the payment freeze, 63% of them are “underwater,” meaning they are not even $1 less in debt than their original balances.

Disproportionate burden of student debt on Black borrowers

Although the student-loan system was created with President Lyndon B. Johnson’s goal to curb racial and income inequality in mind, the opposite ended up happening, placing the student debt burden disproportionately on communities of color.

In April, Insider reported that 36 civil rights organizations released civil-rights principles detailing the benefits that student-debt cancellation would have on Black borrowers. The organizations, including the NAACP, wrote that Black borrowers typically owe 50% more student debt than white borrowers, and four years later, Black borrowers owe 100% more.

HUD Secretary Marcia Fudge even told Axios in June that poor people and people of color hold the most student debt, requiring reform.

“Who has student debt? Poor people, Black people, brown people,” Fudge said. “We’re the people who carry most debt. And so the system’s already skewed toward us not being creditworthy.”

Democratic lawmakers, like Massachusetts Sen. Elizabeth Warren, believe $50,000 in student debt cancellation per borrower will help close the racial wealth gap and even the playing field for Black borrowers.

“$50,000 would help close the racial wealth gap for those with student loan debt,” Massachusetts Sen. Elizabeth Warren told Insider last month. “And it would wipe out all outstanding debt for about 38 million Americans, which would provide an enormous boost to our economy.”

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517,000 student-loan borrowers with disabilities should get their debt wiped out, bipartisan lawmakers say

college students graduation
  • Six bipartisan senators urged Education Sec. Cardona to forgive student debt for 512,000 borrowers with disabilities.
  • They also requested Cardona get rid of the 3-year monitoring period required for debt forgiveness.
  • Those with total and permanent disability qualify for student debt forgiveness, but the process is hard to navigate.
  • See more stories on Insider’s business page.

The Higher Education Act permits borrowers with permanent disabilities to get their student loans forgiven, but the process is lengthy and difficult to navigate. Six bipartisan lawmakers want to change that.

On August 4, Sens. Chris Coons, Tammy Duckworth, Rob Portman, and Angus King, along with Reps. Ron Kind and Brian Fitzpatrick, wrote a letter to Education Secretary Miguel Cardona requesting the quick discharge of student loans for 517,000 borrowers identified by the Social Security Administration (SSA) with a total and permanent disability (TPD).

The Higher Education Act of 1965 allows for borrowers with TPD to have their loans forgiven, but paperwork and a three-year monitoring period make the process difficult for eligible borrowers and most of them never end up getting the debt relief they deserve.

“Therefore, we continue to lead a bipartisan, bicameral effort so that Americans will not longer face costly delays or bureaucratic barriers to receiving a benefit that they are entitled to under the law,” the lawmakers wrote.

Established under President Barack Obama, anyone determined permanently disabled by a physician, the Social Security Administration, or the Department of Veteran Affairs are eligible for federal student-debt cancelation, with a requirement to submit documentation during a three-year monitoring period to verify that their incomes did not exceed the poverty line.

In March, Cardona waived that requirement for 230,000 borrowers with disabilities for the duration of the pandemic, saying at the time it would “ensure no borrower who is totally and permanently disabled risks having to repay their loans simply because they could not submit paperwork.”

The bipartisan lawmakers want the monitoring period to be further waived and requested the Education Department issue a final rule as soon as possible that provides automatic student-loan forgiveness for those who are designated as disabled within the SSA. They want a response from Cardona by the end of this month.

Insider previously reported on the struggles borrowers with disabilities have in getting the relief they deserve. Bethany Lilly, the director of income policy at The Arc, an organization advocating for people with disabilities, told Insider the department has “some very confusing and illogical standards that really hurt the beneficiaries,” referring to disabled borrowers.

Although President Joe Biden has taken steps to provide relief for certain groups of borrowers during the pandemic, he recently said the payment pause extension through January is the “final extension,” meaning that borrowers will have to resume repayment regardless of their financial situation. The bipartisan group, along with other Democrats, are pushing for continued relief.

“The Biden administration’s decision to extend the student loan payment pause has provided immediate relief to millions of struggling families and borrowers,” Massachusetts Sen. Elizabeth Warren wrote on Twitter. “Now, the President should use his existing authority and permanently #CancelStudentDebt.”

Do you have a story to share about student debt or concerns with the restarting student-debt payments? Reach out to Ayelet Sheffey at asheffey@insider.com.

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Student debt is so inescapable that even those who made payments during the pandemic freeze still owe more money than they originally borrowed

Student Loans
  • The Education Dept. released data on Navient borrowers who made voluntary payments during the freeze.
  • It found that 63% of them are “underwater,” meaning they aren’t even $1 less in debt.
  • Democrats say the student-loan payment pause isn’t enough, pushing for $50,000 in debt cancellation.
  • See more stories on Insider’s business page.

President Joe Biden recently extended the student-loan payment freeze that was set to expire in September to give borrowers an additional four months of pandemic relief.

But for those who used the freeze to pay off their debt, many of them couldn’t even make a dent in the amount they initially borrowed.

The National Consumer Law Center and the Center for Responsible Lending received data from the Education Department using a Freedom of Information Act request regarding the debt statuses of borrowers serviced by Navient, the nation’s largest student-loan company. It found that of the 428,268 borrowers who made almost $600 million worth of voluntary payments during the pandemic pause, 63% of them are “underwater,” meaning they are not even $1 less in debt than their original balances.

In addition, of the underwater borrowers, 67% of them owe 100% to 125% of their original balance, 26% of them owe 125% to 150%, and 6% of them owe more than 150% of their original balance.

This shows how even as borrowers might continue to make regular payments, the accumulating interest can keep them in a sometimes endless cycle of repayment.

Insider previously reported that after the passage of the Higher Education Act in 1965, banks began raising interest rates on student loans, and the system came to profit lenders at the expense of pushing more and more borrowers further into debt and default.

“It really is a debtor’s prison,” David Wise, a 59-year-old with whp started with $79,000 in student debt and now owes $236,485, previously told Insider.

The data also reflected some Democratic lawmakers’ concerns that the federal payment pause does not go far enough. Senate Majority Leader Chuck Schumer, Massachusetts Sen. Elizabeth Warren, and Rep. Ayanna Pressley said in a statement following the extension of the pause that given the $1.7 trillion student debt crisis, the president must go further and cancel $50,000 in student debt per borrower.

Once the payment pause lifts in February, millions of borrowers will have to start making payments on loans that have been on pause for almost two years. This will not only be difficult for borrowers, but it presents administrative challenges for the servicers, as well, given that two companies will no longer be continuing their loan services past December and close to 10 million borrowers will have to switch to new loan companies.

“The president has the power to cancel $50,000 in student loan debt right now,” Warren previously told Insider. “Sen. Schumer and I are going to continue to push for this, but Biden doesn’t need any authorization from Congress. He needs to pick up the pen and do it himself.”

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A senator said 3 decades ago the student-loan system was broken. Everything has gotten worse since.

College graduate sitting outside
College graduate sitting outside.

  • Former Sen. Samuel Nunn said three decades ago that the student-loan system might be broken.
  • Josh Mitchell’s new book “The Debt Trap” explains how student-loan companies continue to profit at the expense of borrowers.
  • The student-debt crisis is even worse today, even as Democrats are enforcing stricter oversight.
  • See more stories on Insider’s business page.

In 1991, a senator called out the deep-rooted flaws in the student-loan system that caused borrowers to take out debt they could not repay. He said the loan programs might not be salvageable, and three decades later, the flaws he pointed to are even worse.

The new book by the The Wall Street Journal’s Josh Mitchell, “The Debt Trap,” details how in the early 1990s, former Democratic Sen. Samuel Nunn’s liaison counsel compiled a report that detailed abuses of the student-loan system and for-profit schools.

That counsel, Eleanor Hill, found that the Education Dept. only had three staffers tasked with overseeing hundreds of for-profit schools and student lenders throughout the country, “leaving hundreds of thousands of students with little or no training, no jobs, and significant debts that they cannot repay,” her report said.

These findings came less than two decades since the student-loan system was created. Mitchell explained how President Lyndon B. Johnson created the system to solve racial and income inequality as part of his “war on poverty,” but the opposite of what he intended happened.

Sallie Mae – now known as Navient – for example, which services student loans, prioritized “enormous profits” off of lending to borrowers, “often leaving borrowers in the lurch,” Mitchell wrote.

Nunn released the report’s findings in 1991 and said in a related hearing that he hadn’t seen evidence of “even a single part of the student-loan program that is working efficiently and effectively.”

“The testimony has been so discouraging that one has to wonder if even immediate and concentrated reforms can, at this late date, salvage these programs,” he said.

A conflict of interest and a ‘vicious cycle’

Hill found a major conflict of interest in the way student loans were handled: schools were the biggest beneficiaries of the system they were regulating. Schools continued to recruit students, banks lent to those students and profited off of selling the loans to a servicer, and the servicer would get paid by the government. The borrowers were never prioritized.

This “vicious cycle,” as Mitchell put it, has only gotten worse. The student debt load in the US currently stands at $1.7 trillion. In 1990, a borrower would graduate with an average debt load of about $6,700. Today, that average is close to $37,000. And with interest rates on student loans, along with college tuition, continuing to rise, total student debt is on track to increase absent of debt forgiveness.

For example, Massachusetts Sen. Elizabeth Warren has been a leading advocate in reforming the student debt system. Before she was even elected to the Senate, she cited Sallie Mae – a student-loan servicer now known as Navient – for its abuses of the student-loan system during a “60 Minutes” interview.

She held a hearing in April during which she told Navient’s CEO that he should be fired for misleading borrowers, and she told Insider in an interview last month that “the world has changed for student-loan-debt servicers.”

“They can’t sign a contract, do a lousy job, cost borrowers tons of money, and still get their contracts renewed,” she said.

Oversight of student loan companies has continued to grow over the years, but borrowers continue to be saddled with student debt they cannot pay back – a problem that lawmakers were made aware of 30 years ago.

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Pelosi’s softness on canceling student debt has 80 progressive organizations ‘disappointed’

Chuck Schumer Nancy Pelosi
House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer speak outside the White House on January 9.

  • Nancy Pelosi recently said Biden does not have the authority to cancel $50,000 in student debt.
  • 80 organizations responded to her comments in a letter explaining why Biden does have that authority.
  • Pelosi’s comments contrasted Schumer’s views, who has been a leader in urging debt cancellation.
  • See more stories on Insider’s business page.

Last month, Speaker of the House Nancy Pelosi broke with many of her Democratic colleagues when she told reporters that President Joe Biden does not have the power to cancel student debt.

“People think that the president of the United States has the power for debt forgiveness. He does not,” Pelosi said. “He can postpone, he can delay, but he does not have that power.”

In saying so, Pelosi undercut the hopes of many progressives for massive student-debt cancellation, especially Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer, who have made that the core of their argument that Biden should cancel $50,000 per person. Progressive organizations are angry – 80 of them, at least.

The Student Debt Crisis, which advocates for student debt cancellation, led labor unions, civil rights groups, and more in writing a letter to Pelosi pushing back on her comments. They cited the Higher Education Act as the authority Biden has to cancel student debt, adding that the authority both President Donald Trump and Biden used to extend the pause on student-loan payments during the pandemic is the same authority that can be used for widescale debt cancellation.

“In addition, we were disappointed to hear you raise broader concerns about debt cancellation,” the letter said to Pelosi. “Student debt cancellation doesn’t simply aid the 44 million federal student loan borrowers who would benefit from this critical relief. It also benefits their families and neighborhoods. Indeed, all of America would benefit.”

The letter cited a study from the Roosevelt Institute that analyzed Warren and Chuck’s Schumer’s $50,000 in student-debt cancellation proposal, in which it found the cancellation would be progressive, rather than regressive, meaning low-income borrowers would benefit more.

The racial impact of student-debt cancellation would also be significant, the letter said. Insider reported in April that 36 civil rights organizations released civil-rights principles detailing the benefits that student-debt cancellation would have on Black borrowers. The organizations, including the NAACP, wrote that Black borrowers typically owe 50% more student debt than white borrowers, and four years later, Black borrowers owe 100% more.

While Pelosi initially told reporters that student debt cancellation has to be “an act of Congress,” a member of her staff later clarified her comments, saying that the speaker would support Biden “using any authority he believes he has to address the crisis of student debt in our country.”

Still, Pelosi’s comments came as a shock given that her counterpart in the Senate, Schumer, has been a leader on student-debt cancellation efforts. The Intercept reported last week that Pelosi’s comments came after a memo circulated from Democratic megadonors Steven and Mary Swig – who gave maximum contributions to Pelosi – claiming that Biden cancelling debt is illegal.

But progressives are remaining consistent with their messaging that Biden can legally cancel $50,000 in student debt immediately by signing an executive order.

“The president has the power to cancel $50,000 in student loan debt right now,” Warren told previously Insider. “Sen. Schumer and I are going to continue to push for this, but Biden doesn’t need any authorization from Congress. He needs to pick up the pen and do it himself.”

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Biden’s Education Dept. just made 2,100 students eligible for debt relief

Richard Cordray
FSA Director Rich Cordray.

  • The Federal Student Aid office just found violations that cost taxpayers $6 million from 2015 to 2018.
  • The defunct RWM Fiber Optics incurred 16 violations, while 2,100 former students of Harrison College are eligible for debt relief.
  • The Education Dept. is in the process of reforming the student-loan system amidst calls to cancel all debt.
  • See more stories on Insider’s business page.

In the Education Department’s latest move to protect student-loan borrowers, it found on Tuesday that violations of student-aid requirements and school closures from 2015 to 2018 cost taxpayers over $6 million in liabilities.

The Federal Student Aid (FSA) office announced in a press release that RWM Fiber Optics – a for-profit, now defunct school – improperly handled student loans and related aid, leaving borrowers with unfair debt loads. It also noted that the 2,100 students who attended Harrison College’s 11 campuses are eligible for loan forgiveness after its 2018 closure. This follows the Education Department’s announcement last week that it will form a negotiated rulemaking committee to address a range of issues affecting student loan borrowers, like debt forgiveness from fraudulent schools.

“All institutions are expected to serve the best interests of their students, not serve themselves,” FSA Chief Operating Officer Richard Cordray said in a statement. “Schools that engage in bad behavior or that suddenly close their doors, leaving students out in the cold, will be held accountable, and we expect other schools to pay attention to the actions we are taking today.”

Specifically, FSA found that before RWM’s closure in 2018, the school falsified information to make students eligible for aid they did not qualify for, fictionalized diplomas that students did not earn, and submitted student aid information without the student’s knowledge without checking if the information was accurate.

RWM also used the Federal Work Study program to pay students to clean bathrooms and collect garbage, which didn’t help further students’ careers as the program required. FSA concluded that the school conducted 16 “egregious” violations worth over $2.4 million.

FSA also found that students who attended Harrison College, which closed in 2018, are eligible to get their students loans discharged given that they were unable to complete their programs due to the school’s closure. Harrison owes almost $4 million to taxpayers who paid to forgive loans for those borrowers.

Insider previously reported that Cordray’s role in student aid could signify a possible remedy to the student debt crisis given his alliance with Massachusetts Sen. Elizabeth Warren, a prominent advocate for student debt cancellation.

Last month, he rescinded a Trump-era policy that restricted states’ abilities to oversee student-loan servicers, and separately, the Education Department has begun to forgive debt for students who were defrauded by for-profit schools.

But while the department is in the process of implementing changes to the student-loan system as a whole, through reforming loan forgiveness programs and working to give eligible borrowers student debt relief, the process could take years, and advocates want President Joe Biden to act quickly on widescale student debt forgiveness for every borrower.

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Student loans were invented to help solve racial inequality, a new book says. They’re doing the opposite.

pandemic student loans
  • “The Debt Trap” lays out how President Johnson thought student loans would combat racial inequality.
  • Johnson’s Higher Education Act was part of his “War on Poverty,” but student loans took a different course.
  • Today, communities of color bear a disproportionate student-debt burden.
  • See more stories on Insider’s business page.

More than probably any other president, President Lyndon B. Johnson was known for his “war on poverty,” but a new book lays out how his crusade led to the creation of student debt – and the worsening of racial inequality, the exact problem Johnson was trying to fix. Today, student-loan debt hurts Black Americans much more than white ones.

The Wall Street Journal’s Josh Mitchell has covered student loans for years, and his new book “The Debt Trap” details the rise of the student-loan system. It largely started with Johnson’s vision of creating a fair way for everyone to attend college and reduce poverty.

In his 1964 State of the Union address, Johnson introduced a series of policies that sought to address that time’s 19% national poverty rate. In the decade following the introduction of those policies, the poverty rate was nearly cut in half to 11.1%, according to census data, and it has stayed between that rate and 15% since, most recently 10.5% in 2019.

Poverty rates for Black Americans, however, have been far higher than for the population as a whole, although they have steadily declined over the last several decades, from about 42% in 1966 to just under 19% in 2019.

This war on poverty encompassed higher education, which “is no longer a luxury but a necessity,” Johnson told Congress in January 1965. He said expanding the government’s role in higher education would also be effective poverty reduction.

“The administration assumed that everyone would come out of college with a degree, land a well-paying job, and repay the debt with ease,” Mitchell writes.

Johnson needed banks to make loans to anyone who needed them to fulfill his goal of universal access to higher education, and he thought he had done that with the passage of the Higher Education Act of 1965, which included scholarships for poor people and guaranteed loans for the middle class.

Shortly after the Act’s passage, though, banks began raising interest rates on student loans, and the system came to profit lenders at the expense of pushing more and more borrowers further into debt and default. Mitchell highlights the firm Congress created in 1973, Sallie Mae, as prioritizing “enormous profits” off of lending to borrowers, “often leaving borrowers in the lurch.” Now known as Navient, the company has come under fire from lawmakers including Sen. Elizabeth Warren, who excoriated its CEO for abuses in a Congressional hearing earlier this year.

Johnson thought his student-loan program would solve racial and income inequality by increasing every American’s ability to access a higher education, but today, the student-debt burden falls disproportionately on Black borrowers, the opposite of what Johnson intended.

Black borrowers bear a disproportionate student debt burden

In April, Insider reported that 36 civil rights organizations released civil-rights principles detailing the benefits that student-debt cancellation would have on Black borrowers. The organizations, including the NAACP, wrote that Black borrowers typically owe 50% more student debt than white borrowers, and four years later, Black borrowers owe 100% more.

President Joe Biden’s administration is aware of this. HUD Secretary Marcia Fudge, a Black woman, told Axios in June that poor people and people of color hold the most student debt, requiring reform.

“Who has student debt? Poor people, Black people, brown people,” Fudge said. “We’re the people who carry most debt. And so the system’s already skewed toward us not being creditworthy.”

Biden himself campaigned on forgiving student debt for borrowers who attended Historically Black Colleges and Universities (HBCUs) and minority-serving institutions, but he has not yet fulfilled that promise.

Democratic lawmakers believe $50,000 in student-debt cancellation is the best way to help all borrowers, and especially borrowers of color, and help achieve what Johnson sought out to do.

“$50,000 would help close the racial wealth gap for those with student loan debt,” Massachusetts Sen. Elizabeth Warren told Insider last month. “And it would wipe out all outstanding debt for about 38 million Americans, which would provide an enormous boost to our economy.”

Read the original article on Business Insider

Student-loan debt ‘follows you to your grave,’ a top Democrat says. Here’s how his new bill would prevent that.

student loan debt college
A graduating student wears a money lei, a necklace made of US dollar bills, at the Pasadena City College graduation ceremony, June 14, 2019, in Pasadena, California.

  • Dick Durbin and John Cornyn introduced a bipartisan bill to help borrowers discharge student loans through bankruptcy.
  • The bill would remove the requirement to prove “undue hardship” after a 10-year waiting period.
  • Successfully proving hardship is rare and requires a lengthy and expensive process for borrowers.
  • See more stories on Insider’s business page.

If borrowers want to get rid of their student loans through bankruptcy, they have to prove an extreme circumstance to qualify, which is rare and difficult. A senior Democrat and Republican want to change that.

Last week, 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. Under federal law, according to their fact sheet, student debt is only dischargeable through bankruptcy if the borrower can prove “undue hardship.” This bill would seek to eliminate that requirement for federal loans.

“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.

Along with making student loans eligible for bankruptcy proceedings after 10 years, the bill would:

  • Keep the undue hardship option for private student loans and federal student loans that have been due for less than ten years;
  • Require colleges with more than one-third of their students receiving student loans to partially refund the government if a student’s loans get discharged into bankruptcy;
  • And provide bankruptcy as an option for borrowers who have no realistic way to pay back their “overwhelming” student debt.

Eliminating the undue hardship requirement would make it significantly easier for borrowers to achieve loan discharge through bankruptcy. Currently, borrowers need to file a separate action, known as an “adversary proceeding,” which is a lawsuit brought against their student-loan company, but that process can be expensive and lengthy, and the company usually has more resources than the borrower.

Given that this bill has bipartisan support, and includes requirements for colleges to pay back the government in certain scenarios, it will likely have an easier path to passage through Congress than full student-debt cancellation, which only Democrats support.

Last month, the case Conti v. Arrowood Indemnity Co. was brought before the Supreme Court, in which a borrower with private student loans was attempting to discharge them through bankruptcy, but the court rejected her argument because she did not prove undue hardship.

“Undue hardship should not be the only path to address student loans in bankruptcy,” Durbin said in remarks before. hearing last week. “There should be another option. We should go back to how it was before 1998, when borrowers could also seek relief after a significant waiting period.”

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