Millennials are about to get screwed yet again if Biden doesn’t cancel student-loan debt

student debt millennials
If Biden doesn’t cancel student debt, millennials are in store for another economic challenge.

Millions of Americans have enjoyed a reprieve from the squeeze of student debt during the pandemic. But, come fall, the student-debt crisis could pick up where it left off – or snowball into an even bigger problem.

The pause on student-loan payments and zero interest accrual that have been in place since March 2020 will lift at the end of September. When it does, borrowers will be paying 1% more in interest than they did in 2019. Although rates are still relatively low compared to previous years, Forbes reported that the new interest rates will cost borrowers as much as an additional $590 per $10,000 borrowed on a 10-year repayment term.

The impending lift on the payment pause, coupled with rising interest rates, doesn’t bode well for millions of borrowers, who have been able to stay financially afloat during the pandemic without the burden of paying off their student-loan debt. That’s especially true for millennials, for which student-loan debt has been one of many balls in a long-time juggling act of financial challenges.

Many have been hoping they wouldn’t have any student-loan debt at all come fall – or at least, a much lighter load.

Joe Biden campaigned on supporting $10,000 in student debt cancelation per person, but since becoming president, he’s given no clear timeline for doing so. He hasn’t included his campaign promise in his stimulus plan, infrastructure plan, or his budget, and has resisted calls from Democratic lawmakers to cancel up to $50,000 per person using his executive powers. While he released a regulatory agenda on Friday that plans to improve student-loan forgiveness programs by 2022, it’s not the immediate relief Democrats are looking for, and its details are vague.

Millennials have had bad economic luck. They’ve ventured through one financial woe after another since the oldest of them graduated into the dismal job market of the 2008 financial crisis. A dozen years later, many are still grappling with the lingering effects of The Great Recession, struggling to build wealth while trying to afford soaring living costs for things like housing and healthcare. The pandemic threw yet another wrench into their plans by giving them their second recession and second housing crisis before the age of 40.

And the generation has dealt with all of this while shouldering the lion’s share of student-loan debt. If Biden continues not to act on debt relief, the student-loan crisis has the potential to intensify, adding to the pile of millennial economic challenges.

Student debt has left a stain on millennials’ adulthood

Forty-three million borrowers currently share the $1.7 trillion of national student-loan debt. As of 2019, the 15.1 million borrowers ages 25 to 34 – a large chunk of the millennial population – owed an average of $33,000.

The burden is so great that it’s prevented many millennials from achieving life milestones like buying a house, having kids, or moving to their dream city.

“I still haven’t been able to save enough to put a down payment on a house and commit to another 30-year loan,” Daniela Capparelli, who graduated with $150,000 debt, told Insider in the beginning of 2020, when she was 35. “I often feel like I already have a mortgage without the house.”

student graduate
Student debt has been one of millennials’ many economic woes.

Read more: Millennials are finally catching up in earnings and homeownership, but student debt is keeping the generational wealth gap as vast as ever

Student loans are also keeping the generational wealth gap as vast as ever. If student loans didn’t exist, millennials ages 28 to 38 would have a 76% net wealth-to-income ratio, higher than their current 56% wealth-to-income ratio, per a report by the Center for Retirement Research at Boston College.

For the millennials who have found themselves at the bottom of the intragenerational millennial wealth gap that the pandemic has exacerbated, student debt is especially painful. This group was more likely to already have lower earnings pre-pandemic, and to burn through savings when hit by unemployment or pay cuts.

The pause in payments has been a temporary solution to the nation’s debt burden. Borrowers have saved $2,000 on average in interest during this time, per a report by travel research group Upgraded Points which also noted, “while those couple thousand dollars could have been imperative in keeping borrowers in the black during pandemic-related hardships, these borrowers are still far from climbing out of the holes they dug in college.”

When the pause lifts, it has the potential to leave struggling millennials feeling more slammed with student debt than before, after a year spent falling further financially behind on other areas.

Biden has canceled billions of student loans that are only 0.2% of the total

Now, Biden has taken some steps toward student-loan debt assistance. He extended the payment pause, which was set to end in January, through September 30. And, through the Department of Education, he cleared up billions of dollars in debt in just a few months for borrowers defrauded by for-profit schools and borrowers with disabilities.

But, as Insider’s Ayelet Sheffey reported, this still left trillions of outstanding debt. Alan Collinge, the founder of Student Loan Justice, told her that compared with the scale of the student-debt crisis, canceling debt for defrauded borrowers and borrowers with disabilities is “massively unimpressive.”

“We’re in a pandemic, and we’ve lost tens of millions of jobs,” he said. “The people who are hurt the worst tend to be the people who have student-loan debt.”

student loan debt college
Millions of borrowers are waiting for Biden to fulfill his campaign promise of cancelling $10,000 in student debt per borrower.

Read more: The case for cancelling student debt isn’t political – it’s practical. Here are the benefits of erasing $1.6 trillion, no strings attached.

So far, $2.3 billion in student debt has been cancelled – only 0.2% of student loans swimming through the system.

In February, he effectively rejected a plan put forward by Sens. Elizabeth Warren and Chuck Schumer to wipe out $50,000 in student-loan debt per borrower.

“I will not make that happen,” he had said to a CNN town-hall audience, adding that he believed loan forgiveness depends on whether borrowers attended a private or public college. “I’m prepared to write off $10,000 in debt, but not 50. I don’t think I have the authority to do it.”

Both Democrats and cities have urged Biden to cancel $50,000 in student debt per borrower, arguing that it would provide immediate relief to borrowers if Biden used his executive authority to do so. But there’s a discrepancy among Biden and lawmakers on whether he can actually use his executive powers to cancel debt.

He told The Washington Post that it is “arguable” the president can use executive powers to cancel student debt, and he would be unlikely to do so. That means the status of the cancelation of a minimum of $10,000 of debt remains in Congress’ hands.

Student-loan forgiveness would be a ‘lifeline’ for millennials

Student-loan relief would benefit millions.

A Department of Education (DOE) analysis obtained by Yahoo Finance found that $50,000 in student-loan forgiveness per person would erase the entire debt for 84% of borrowers in the US with federal loans, while $10,000 in forgiveness would erase the entire debt for 35% of these borrowers.

That includes everyone from Gen Z to those over the age of 50. But millennials, facing one economic conundrum after another, have adopted new social norms to suit the times, hitting milestones like marriage and homeownership later than their parents, if they happen at all. The pandemic has created a whole new slew of crises for them that have exacerbated existing ones, student debt chief among them.

student debt
Student-debt forgiveness would help narrow the generational wealth gap.

Read more: College is more expensive than it’s ever been, and the 5 reasons why suggest it’s only going to get worse

Student-loan forgiveness was a top priority for voters in the election. If Biden doesn’t fulfill his campaign promise to relieve $10,000 in student debt, he’d be leaving the generation, many of whom were banking on him to absolve at least a portion of their biggest burdens, screwed yet again.

“We need some help, and that forgiveness, for a lot of us, would just be a lifeline,” Alexander Cockerham, 38, who took out $42,000 in federal in private loans to attend school, previously told Insider.

But the resumption of student loan payments is drawing near, with little to no action in sight. In early April, Biden’s chief of staff, Ron Klain, told Politico that the White House was “looking into” its legal authority to cancel $50,000 per person. Shortly afterward, the White House press secretary, Jen Psaki, said that option wasn’t being ruled out.

An Education Dept. spokesperson told Insider that the agency remains “committed to delivering” targeted relief to borrowers and helping all of them manage repayment, and continues to closely review data related to return to repayment. It is also working with the Department of Justice and White House “as quickly as possible” to review all student debt cancellation options. (The White House did not respond to a request for comment).

While cancellation doesn’t exactly need to happen before the pause lifts, it would be even more beneficial to borrowers if it did, helping them lower the amount they would pay interest on or even preventing them from ever having to pay again altogether. Education Secretary Miguel Cardona said in May he has not ruled out further extending the pause, but, again, no action has been taken yet to do so.

If Biden fails to cancel student debt, he’s sacrificing opportunities to help narrow the racial wealth gap, assist low-income borrowers, and boost the economy. For millennials, specifically, it would just be the latest way they can’t catch a break.

Read the original article on Business Insider

Trump’s billionaire education secretary is accused of denying student-loan forgiveness to thousands. Now she’ll testify over it.

Betsy DeVos
Betsy DeVos.

  • A judge ruled Betsy DeVos must testify in a case brought on by 160,000 defrauded students.
  • The students claim DeVos mishandled a program to forgive loans for students defrauded by for-profit schools.
  • Under Obama, the program had a 99.2% approval rate, but under DeVos, 99.4% of applicants were denied.
  • See more stories on Insider’s business page.

As Education Secretary under President Donald Trump, Betsy DeVos was tasked with overseeing the loan forgiveness program for students defrauded by for-profit schools. But thousands of those students claim they didn’t get the relief they deserved and have sued DeVos for her mishandling of the program.

A judge just ruled that DeVos has to testify in court about it.

The Biden administration didn’t want this to happen. In February, it joined DeVos in fighting a subpoena to testify in the lawsuit filed by about 160,000 defrauded students, arguing it was an “extraordinary request.” But on Wednesday, Judge William Alsup wrote in a 12-page ruling that her testimony was warranted given the “sparse” documentation of DeVos’ reasoning for rejecting borrowers’ claims.

“Even assuming Secretary DeVos retains some measure of executive prerogative, she must answer an appropriately issued subpoena,” Alsup wrote in the ruling. “Judicial process runs even to unwilling executives.”

Over the past decade, several for-profit schools have shut down over investigations claiming the schools engaged in fraudulent behavior related to federal loans. Corinthian Colleges and ITT Technical Institutes were two of the biggest schools accused of violating federal law by persuading their students to take out loans they could not pay back. They both shut down, as did other for-profit companies, such as Education Corporation of America.

DeVos, an heir to the AmWay fortune and member of one of America’s richest families, per Forbes, oversaw the “borrower defense to repayment” program to forgive debt for eligible defrauded borrowers, but the program massively failed. Compared to a 99.2% approval rate for 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.

Under DeVos, the program began to compare the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs, and the bigger the difference, the more relief the applicant would receive.

The high denial rate alarmed lawmakers, advocates, and borrowers who wanted student debt relief but weren’t getting any, and as Alsup said in his ruling, DeVos did not provide a sufficient explanation as to why so few claims were processed.

In March, Biden’s Education Secretary Miguel Cardona canceled $1 billion in student debt for about 72,000 defrauded borrowers and said in a statement that DeVos’ methodology for giving defrauded students debt relief had been ineffective and needed to be reversed.

“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in a statement. “A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt.”

Critics of DeVos’ appointment had argued that her financial ties were a conflict of interest, as she never sold her multimillion-dollar stake in Neurocore, a “brain training” program for children. She is also a longtime advocate of “school choice,” or vouchers that enable parents to send their children to private schools instead of public ones.

DeVos has separately asked the Georgia-based 11th Circuit Court of Appeals to block the subpoena. Alsup has scheduled a hearing for June 3.

Read the original article on Business Insider

A student-loan forgiveness program for public-service workers has a 98% denial rate. 56 Democrats say it’s time for Biden to fix it.

Sen. Kirsten Gillibrand
Sen. Kirsten Gillibrand (D-NY).

  • 56 Democrats urged Education Sec. Miguel Cardona to fix the Public Service Loan Forgiveness program.
  • The letter cited its high denial rate, with fewer than 2.5% of eligible applicants being approved.
  • Biden campaigned on fixing the program to give public service workers needed relief.
  • See more stories on Insider’s business page.

President Joe Biden campaigned on reforming the Public Service Loan Forgiveness (PSLF) program, which he – along with many lawmakers in past years – said is failing borrowers due to its low approval rate.

His campaign website said: “Biden will see to it that the existing Public Service Loan Forgiveness Program is fixed, simplified, and actually helps teachers.”

On Wednesday, 56 Democratic lawmakers urged Biden to follow through on his promise.

Senate and House Democrats, led by Sens. Tim Kaine of Virginia, Kirsten Gillibrand of New York, and Rep. John Sarbanes of Maryland, wrote a letter to Biden’s Education Secretary Miguel Cardona stressing the need to improve the PSLF program to give public servants the loan forgiveness they deserve.

The PSLF program allows government and nonprofit employees with federally backed student loans to apply for loan forgiveness after proof of 120 monthly payments under a qualifying repayment plan, but 98% of all borrowers from the general public have been rejected from the program.

“After the first round of forgiveness initially became available to PSLF borrowers more than three years ago, approval rates for the program have remained below 2.5%,” the letter said. “The program has been beset by numerous ‘donut holes’ that disqualify certain types of loans, repayment plans and the payments themselves, leading to extraordinary confusion and distrust of the PSLF program and, by extension, the federal government.”

The lawmakers urged Cardona to waive barriers in PSLF, including to:

  • Expand the definition of an “eligible loan” to include all federal student loans;
  • Make all repayment plans eligible for PSLF;
  • Waive the restriction that requires a borrower to be in public service at the time of loan forgiveness;
  • And establish data-sharing agreements with the Dept. of Defense and Office of Personnel management to automatically identify public service workers with outstanding student debt.

The letter also called for extensive communication from the Education Department to borrowers to ensure they are aware of any changes that might impact loan forgiveness.

In past weeks, lawmakers from both parties have introduced legislation to reform the PSLF program. Last week, Sen. Marco Rubio of Florida and Sen. Maggie Hassan of New Hampshire introduced the Recognizing Military Service in Public Service Loan Forgiveness (PSLF) Act, which allows service members who deferred their student loan payments while deployed to count that period of time toward their PSLF progress.

This followed a a Government Accountability Office report that found that 287 Dept. of Defense personnel had received loan forgiveness as of January 2020, while 5,180, or 94% of DOD borrowers, were denied. Sen. Elizabeth Warren released a statement calling the findings, and PSLF, “nothing short of a disaster.”

Education Secretary Betsy DeVos was sued multiple times over the program’s high denial rate.

Sarbanes said on Twitter: “We must ensure that America’s teachers, social workers, public defenders, service members and community health care workers – along with many other public servants – receive the student loan forgiveness they have earned.”

Read the original article on Business Insider

The Elizabeth Warren ally just picked to oversee US student loans could help make her debt-cancelation dream come true

Elizabeth Warren
Sen. Elizabeth Warren (D-MA).

  • Former CFPB head Richard Cordray will lead the Federal Student Aid office, which oversees student debt.
  • Elizabeth Warren helped create the CFPB and was key in nominating Cordray when she couldn’t helm the agency.
  • Warren wants to cancel $50,000 in student debt per person and Cordray has shared her agenda for much of his political career.
  • See more stories on Insider’s business page.

Since she was elected to the Senate almost a decade ago, Elizabeth Warren has been fighting to cancel student debt and hold loan servicers accountable. Now one of her closest allies is in charge of the federal student debt pile, and that could be a big deal.

Richard Cordray, the former head of the Consumer Financial Protection Bureau (CFPB), was selected to head the Education Department’s Office of Federal Student Aid (FSA) on Monday. Few people in Washington DC are better placed to carry out Warren’s vision of mass student-debt relief. That’s because Cordray took the job Democrats wanted Warren to have.

When Warren was a Harvard professor (and occasional blogger), she frequently cited problems within the student-loan system and the need to create something like the CFPB, which would protect consumers financially and ensures they are being treated fairly. That turned into a new federal agency created under President Barack Obama, who wanted Warren to lead it, but in 2011, Senate Republicans blocked her appointment. She ran for Senate instead, becoming a national figure, while Cordray became a close ally as the first head of the CFPB.

During her time in the Senate, Warren worked with Cordray’s bureau to conduct investigations into predatory lending practices. Now as head of the FSA, Cordray will be tasked with overseeing the government’s $1.5 trillion student loan portfolio through disbursing loans and grants, along with monitoring student-loan servicers and implementing relief and repayment programs.

@RichCordray was a fearless @CFPB leader who forced big financial institutions to return $12 billion to people they cheated,” Warren wrote on Twitter on Monday. “I’m very glad he’ll be protecting student borrowers and bringing much-needed accountability to the federal student loan program.”

AP21123748572443
Richard Cordray.

What Cordray could do on student debt

In a statement after his appointment was announced, Cordray said he was looking forward to creating “more pathways for students to graduate and get ahead, not be burdened by insurmountable debt.”

He will be tasked with sorting through claims from thousands of defrauded borrowers who filed for debt relief, along with ensuring the smooth implementation of loan collections once the pause on student loan payments through September is lifted – although Cardona said on Monday that extending the payment pause is “not out of the question.

While Cordray has not yet commented on wiping out $50,000 in student debt for each borrower, which Democrats continue to call for, he told MarketWatch last year that under the Biden administration, he expected the CFPB and the Education Department to work more closely on student-loan issues.

At the CFPB during the Obama years, Cordray made oversight of student loan servicers his priority. The agency has returned more than $75o million to student loan borrowers since 2011 over debt collection complaints, and in early 2017, the bureau sued Navient, the largest student loan servicer in the US, in a lawsuit that is still ongoing, arguing that Navient misled students into taking on loans they cannot pay off.

At a late April hearing, Warren called for the government to fire Navient, and for Navient to fire its chief executive officer, after accusing Navient for over a decade of abusing the student loan system.

In 2019, Cordray wrote a guest essay in The Plain Dealer, an Ohio newspaper, speaking out against for-profit colleges. “I hate how these hollowed-out businesses and subpar colleges are cheating consumers, employees and whole communities,” Cordray wrote.

Education Secretary Miguel Cardona has already canceled some debt for borrowers defrauded by for-profit schools, and Warren has conducted numerous investigations into the failures of the for-profits Corinthian Colleges and ITT Technical Institutes.

The FSA head’s seat has been vacant since March, when Mark Brown, former head of the office appointed by Education Secretary Betsy DeVos in 2019, resigned amid pressure from labor groups and lawmakers. Warren wrote in a tweet that his resignation was “good for student borrowers.”

Cordray told Marketwatch in November that, as CFPB head, his approach with the Education Department had been one of “close cooperation” but “that was all nixed when Betsy DeVos came into office.” Speaking of the outlook for a Biden administration, he said he thought the CFPB and Education Department would likely go back to working closely together.

Read the original article on Business Insider

Freezing student-loan payments saved just $2,000 per borrower, report finds

Average student loan balance
  • Student-loan payments are paused through September, with national savings of $82.7 billion on interest payments.
  • A report by Upgraded Points found this saved each borrower an average of $2,001 in interest.
  • California saved the most interest overall at over $8 billion – 10% of the national total.
  • See more stories on Insider’s business page.

President Joe Biden extended the pause on student loan payments through September 30, and while the inclusion of the 0% interest rate on those payments provided financial relief, it didn’t add up to much for the average individual.

A report released on April 5 by Upgraded Points – a travel research group – found that since student-loan payments were originally paused under the CARES Act in March, the average interest saved per borrower was $2,001, and the national average for principal paused per borrower was $34,971. The state that saved the most interest overall was California at over $8 billion (10% of the national total), with New York slightly behind at $5.2 billion in interest saved.

The report noted that while national averages and total state savings were high, “on an individual borrower level, average borrowers only saved a couple thousand dollars in interest over the 12 months. While those couple thousand dollars could have been imperative in keeping borrowers in the black during pandemic-related hardships, these borrowers are still far from climbing out of the holes they dug in college. “

When the report analyzed the states that saved the most interest per 100,000 people, DC, Georgia, and Maryland were the top three locales, which results from a combination of small populations and high savings. On the other hand, the top three states with the lowest savings per 100,000 people were Wyoming, Utah, and Alaska because although those states have smaller populations, they also generally have lower principal debts and therefore fewer interest savings.

Here are the other main findings of the report:

  • The national total interest savings is about $82.7 billion;
  • Similar to most interest saved per 100,000 people, DC, Georgia, and Maryland saved the most interest per borrower, as well;
  • And North Dakota, Iowa, and Wyoming were the states that saved the least amount of interest per borrower.
UP: National impact of student loan freeze
Via Upgraded Points, the national impact of the student loan freeze.

While the payment pause and interest freeze have been instrumental in helping borrowers financially during the pandemic, the student debt crisis still looms far beyond the pandemic, with 45 million Americans holding $1.7 trillion in student debt.

Biden has already acted on the crisis by canceling debt for borrowers defrauded by for-profit schools and borrowers with disabilities, but lawmakers and advocacy organizations continue to call for the president to cancel $50,000 in student debt per borrower to lift the debt burden.

Sen. Elizabeth Warren of Massachusetts is one of the leading lawmakers calling for student debt cancelation, and she said on Twitter on April 17 that borrowers need relief now.

“The whole student loan debt system is broken, and it’s placing a massive burden on tens of millions of people,” Warren said. “They need immediate relief. And we need big, structural change to make higher education within reach for every family.”

Read the original article on Business Insider

36 civil rights organizations urge Biden to cancel $50,000 in student debt per borrower

Joe Biden
President Joe Biden.

  • In a letter, 36 civil rights organizations called on Biden to cancel $50,000 in student debt per person.
  • The letter said the student debt burden falls disproportionately on women and Black and Latino borrowers.
  • They want Biden to extend debt cancelation to all borrowers, including those with private loans.
  • See more stories on Insider’s business page.

The American student-debt problem encompasses 45 million people with a combined $1.7 trillion of debt, and much of the burden falls on communities of color. Civil-rights organizations want President Joe Biden to change that by canceling $50,000 in student debt per person.

On Monday, 36 civil rights organizations, led by the Leadership Conference on Civil and Human Rights, released civil rights principles for student debt cancelation in an effort to encourage the Biden administration to act on racial, gender, disability, and wealth disparities in the country. They said these disparities have left borrowers “on the brink of financial devastation” simply because they sought a higher education, and the only solution is to cancel $50,000 in student debt per person.

“As we navigate the concurrent crises of systemic racism, a global health pandemic, and the resulting economic recession, it is more important than ever that we take bold action that benefits everyone, especially communities of color,” the organizations said. “Student debt cancellation will help Black and brown borrowers build wealth and enable our economy to move forward as millions of Americans are able to start families, buy homes, and set up small businesses.”

The letter, which was signed by the National Association for the Advancement of Colored People (NAACP) and the American Civil Liberties Union (ACLU), outlined five principles that student debt cancelation should abide by:

  1. Debt cancelation must extend to all borrowers, including those with private loans.
  2. Debt cancelation should extend to all sectors of institutions, including public, private, and for-profit schools.
  3. The debt cancelation process must be easy to navigate – if it’s too difficult, many borrowers will not be able to access relief.
  4. Debt cancelation should not negatively impact borrowers’ credit scores.
  5. Debt cancelation should come with policies to increase access and affordability in the US higher education system.

The letter noted that upon graduation, Black borrowers typically owe 50% more than white borrowers, and four years later, Black borrowers owe 100% more. Canceling $50,000 per borrower would eliminate student debt for 75% of all federal borrowers, including full cancelation for 85% of Black borrowers and 96% of Latino borrowers in the lowest income quintile.

Biden’s Education Department has already taken some steps to cancel student debt for certain groups of borrowers. On March 18, Education Secretary Miguel Cardona canceled $1 billion in student debt for about 72,000 borrowers defrauded by for-profit schools, and on March 29, Cardona canceled student debt for 41,000 borrowers with disabilities.

And to build on Biden’s payment pause on all federal student-loan payments through September, on March 30, Cardona expanded the pause to borrowers with loans under the Federal Family Education Loan (FFEL) Program, helping 1.14 million borrowers with private loans.

Biden has asked the Justice Department and Education Departmentt to review his ability to use executive powers to cancel $50,000 in debt per person. White House Press Secretary Jen Psaki said in early April that Biden has not ruled out canceling that amount, although Biden had said in February that he “will not make that happen.

But Democratic lawmakers like Sen. Elizabeth Warren of Massachusetts remain adamant that Biden can and must use his executive powers to cancel $50,000 in student debt per person.

“I have legislation to do it, but to me, that’s just not a reason to hold off,” Warren said in a press call last month. “The president can do this, and I very much hope that he will.”

Read the original article on Business Insider

Student-loan borrowers are battling for relief even after Biden’s administration canceled $2.3 billion: ‘We were taken advantage of’

college graduation
  • Biden’s Education Department has canceled billions in student debt, but trillions remain outstanding.
  • Even if you qualify for relief, you may not know about it, or you could get a 0% rate of forgiveness.
  • Borrowers told Insider there’s a lack of clarity, and experts say much more needs to be done.
  • See more stories on Insider’s business page.

Nearly 45 million people in the US have outstanding student-loan debt. That adds up to a $1.7 trillion problem.

President Joe Biden, who promised during his campaign to immediately tackle the crisis, has moved to do so via the Department of Education, clearing billions of dollars in debt in just a few months.

Biden’s education secretary, Miguel Cardona, has canceled debt for about 72,000 borrowers defrauded by for-profit schools – about $1 billion worth – and moved to shake up how defrauded students go about loan forgiveness.

Cardona also waived a paperwork requirement to relieve loans for borrowers with disabilities. This affected 230,000 borrowers and canceled debt for 41,000 of them, providing $1.3 billion in student-loan relief.

But Biden hasn’t taken the actions he promised as a presidential candidate, which include canceling $10,000 in student debt per person. And while Cardona’s $2.3 billion in cumulative relief over three months might seem impressive, it comes to less than 0.2% of the outstanding student loans swimming through the system.

Finally, even if you qualify for debt relief, there’s no guarantee you’ll get it. Insider talked to borrowers directly affected by Cardona’s actions, and they’re not out of the woods yet. Experts say the student-debt crisis isn’t close to being seriously tackled.

The Education Department did not respond to Insider’s request for comment.

Defrauded borrowers still can’t get relief

After about five years of waiting, Alexander Cockerham was approved for student-loan forgiveness.

From 2007 to 2009, Cockerham, now 38, attended the for-profit ITT Technical Institute, where he got an associate’s degree. In 2015, the Securities and Exchange Commission sued ITT, accusing it of deceiving investors about late-payment rates and student-loan defaults, and the federal government cut off its access to federal loans and grants. The institution shut down shortly afterward.

Cockerham told Insider that he took out about $42,000 in private and federal loans to attend the school. He’s paid off his private loans but still has about $26,000 in federal loans outstanding.

So he applied for student-loan forgiveness in late 2015 through the Department of Education’s “borrower defense to loan repayment” program. Cockerham got his verdict in 2020.

“I was told I was approved for student-loan forgiveness but at only at a certain rate, because they said they felt that I did receive some benefit from my education there and that I wasn’t completely defrauded,” he said.

His forgiveness rate was 0%. “So absolutely nothing was forgiven at all,” he said.

In September, 48 state attorneys general and the Consumer Financial Protection Bureau secured more than $330 million in private student-loan forgiveness for 35,000 former ITT Tech students.

If the full amount of his federal loans were relieved, Cockerham said, he’d try to finally buy a house. He’s been married for nearly a decade and just had his first child. He said he’d tried looking at homes in the past, “but that student-loan debt just hung heavy over my head.” It turned away financial servicers, who told him he needed to pay down more debt.

Alexander Cockerham
Alexander Cockerham.

How the government can decide on a 0% forgiveness rate

The Trump administration would compare a defrauded borrower’s income level to that of people in similar programs, alongside other factors, to determine how much of the loan to discharge. Betsy Mayotte, the president and founder of the Institute of Student Loan Advisors, said that led to some people being approved for the program but having 0% of their loans discharged, just like what happened to Cockerham.

Mayotte told Insider that the Trump administration “was very much opposed to the whole idea of borrower defense in the first place.” She said she’d worked with people who’ve been waiting three or four years for their applications to even be processed.

“To tell somebody, ‘Yup, we agree, you were defrauded by your school, and you still have to repay all of your debt’ is insane,” she said. “I mean, there’s no other industry where they do that.”

She said the recent action from the Biden administration made her “so happy,” as it would be going back and discharging the full amount of partial discharges. People who are still pending won’t be affected though, Mayotte said.

Cockerham, who might be affected by this latest discharge, said: “I’ve only seen what I’ve heard in the news. I haven’t heard anything from the newest secretary of [education] or the Biden administration.”

‘I wish that they would have someone that would go over this a little more in depth’

Joshua Kronemeyer, 27, still has student debt from spending a semester and a half at the Art Institute of Phoenix at 16 years old.

Just getting relief from those loans – racked up at a now defunct for-profit member of the Art Institutes – would cut his student-loan debt by a fifth, he told Insider.

“Honestly, I wish that they would have someone that would go over this a little more in depth, as far as the hole you’re digging yourself,” Kronemeyer said.

Joshua Kronemeyer
Joshua Kronemeyer.

Kronemeyer may be eligible to get his loans discharged; some former Art Institute students are eligible to get their loans canceled as the result of a lawsuit against the for-profit school and the Education Department. That suit argued that the department had illegally provided loans to Art Institute schools that weren’t accredited at the time, so borrowers shouldn’t have to pay them back.

Kronemeyer said that he was planning to look into debt relief soon but that he anticipated his application would be denied the first time around, since he’d heard of that happening to others in the same position.

Borrowers with disabilities who are eligible for relief struggle to access it

Cardona’s action to relieve the burden for borrowers with disabilities shook up a three-year monitoring program in which borrowers had to submit income information every year to show that they didn’t exceed a certain threshold.

Called the Total and Permanent Disability Discharge program, it would reinstate loans if a borrower’s income rose above that level or if the borrower failed to submit income information.

Laura Speake, 26, might qualify for the program. They told Insider that they had about $30,000 in debt in both federal and private loans. They left college after three years but hope to return and finish a degree. She hopes to someday go to grad school and work in the book industry, perhaps as a small-town librarian.

But she has a concern with getting the loans discharged under the program: It’s a disincentive for continuing education.

Laura staff photo
Laura Speake.

The Federal Student Aid website says that “if you are approved for TPD discharge based on SSA documentation or a physician’s certification, and you request a new Direct Loan, Perkins Loan, or TEACH Grant during your 3-year post-discharge monitoring period, you must resume repayment on the previously discharged loans.”

“I’m not lazy. I’m not looking for an easy way out,” Speake said. “You know, I want to work. I want to learn. I want to make a difference in the world. I want to do my part. I want to pull my weight.”

Experts told Insider that while Cardona’s action on the program was worthwhile, it shouldn’t have been necessary in the first place.

Bethany Lilly, the director of income policy at The Arc, an organization advocating for people with disabilities, told Insider that the Social Security Administration already has information verifying people’s incomes, so there’s no reason the Education Department should have required that information.

The department has “some very confusing and illogical standards that really hurt the beneficiaries,” Lilly said.

To improve the process for forgiving student debt for borrowers with disabilities, Lilly said, the department should make it “as automatic as possible” and work with the SSA to permanently remove the requirement to provide income documentation.

Persis Yu, a staff attorney at the National Consumer Law Center and the director of its Student Loan Borrower Assistance Project, told Insider that Cardona was correcting something that shouldn’t have occurred in the first place.

“I think it’s disappointing that when the suspension period was put in place in the first place that these borrowers weren’t captured,” Yu said, referring to the 41,000 borrowers who had missed their paperwork. “I’m not sure how that happened, but it seems pretty obvious in retrospect, right?”

Yu also said that the design of the program was flawed from the start. “The monitoring period itself is a huge problem and a huge barrier for people with disabilities that qualify for the program actually accessing the program,” she said. “So that is certainly again exacerbated by the pandemic, as so many things have been. But it is in itself just a feature that doesn’t work.”

A ‘massively unimpressive’ amount of canceled debt

Alan Collinge, the founder of Student Loan Justice, told Insider that compared with the scale of the student-debt crisis, canceling debt for defrauded borrowers and borrowers with disabilities is “massively unimpressive.”

“We’re in a pandemic, and we’ve lost tens of millions of jobs,” Collinge said. “The people who are hurt the worst tend to be the people who have student-loan debt.”

Democratic lawmakers have been keeping the pressure on Biden to cancel up to $50,000 in student debt per person. Sen. Elizabeth Warren of Massachusetts, who campaigned on the $50,000 figure, said in a press call last month that executive action was the quickest way to get it done.

In early April, Biden’s chief of staff, Ron Klain, told Politico that the White House was “looking into” its legal authority to cancel $50,000 per person. Shortly afterward, the White House press secretary, Jen Psaki, said that option wasn’t being ruled out. And the Education Department released data requested by Warren showing that $50,000 cancellations would wipe out 84% of the federal student-debt pile.

Insider polling from February asked how much debt respondents would want canceled. The most popular option among the 1,154 respondents wasn’t Biden’s $10,000 proposal (19% supported that amount) or Warren’s $50,000 (13%), or no forgiveness at all (22%) – a quarter of the respondents said they supported forgiving all student loans.

As for Cockerham, he’s working in a job he landed while attending community college to study computer science, a program he turned to after his ITT degree didn’t bring him any job offers. His unpaid loans are still on his portal at Navient, the private entity the government has hired to manage some federally backed loans.

“We’re hard-working Americans, like everyone else. We were taken advantage of. And we feel that what was done to us was just completely unfair,” he said. “We need some help, and that forgiveness, for a lot of us, would just be a lifeline.”

On Tuesday, when Warren, as the chair of the Senate Subcommittee on Economic Policy, held her first hearing on student-debt relief, she invited Navient CEO John Remondi.

Citing a decade of allegations of abusive and misleading practices, she said, “The federal government should absolutely fire Navient, and because this happened under your leadership, Navient should fire you.”

Read the original article on Business Insider

Biden could wipe out 84% of the federal student-debt pile by canceling $50,000 per person

student loans graduate
  • DOE data shows canceling $50,000 in student debt per person would erase debt for 84% of federal borrowers.
  • It shows that canceling $10,000 per person would erase debt for 35% of them, Yahoo Finance reports.
  • The DOE and DOJ are reviewing Biden’s authority to cancel $50,000 in student debt.
  • See more stories on Insider’s business page.

Democratic lawmakers are continuing to push for President Joe Biden to cancel $50,000 in student debt per person, and new data from the Department of Education may have helped them make their case to the president.

A DOE analysis obtained by Yahoo Finance on Monday found that $50,000 in student-loan forgiveness per person would erase the entire debt for 36 million – or 84% – of the roughly 43 million borrowers in the US with federal loans, while $10,000 in forgiveness would erase the entire debt for 15 million – or 35% – of those borrowers.

The data also showed that 9.4 million of the 36 million borrowers who would benefit from a $50,000 loan cancelation are at risk of default, meaning they could fail to repay the loans. Also, 4.4 million borrowers, each holding an average of $48,000 in student debt, have had loans for more than two decades since graduation. Another 10.7 million borrowers have held their loans for over a decade.

Sen. Elizabeth Warren of Massachusetts and Senate Majority Leader Chuck Schumer have led efforts in calling on Biden to cancel $50,000 in student debt per person using executive powers, but the president has argued he does not have the authority to cancel $50,000, and he said he would welcome legislation to cancel $10,000 per person.

In response to Biden’s comments, Warren said in a press call last month: “We have a lot on our plate, including moving to infrastructure and all kinds of other things. I have legislation to do it, but to me, that’s just not a reason to hold off. The president can do this, and I very much hope that he will.”

Biden has since asked the Justice Department and the Education Department to review his authority to use executive action to cancel student debt, and White House press secretary Jen Psaki said in early April that the $50,000 cancelation figure hasn’t been ruled out.

The DOE data comes ahead of Warren’s Senate Banking hearing on Tuesday afternoon to discuss the burden of student debt.

“I graduated from a state school that cost $50 a semester,” Warren said on Twitter on Monday. “That opportunity is simply not out there today. Two out of every three people who go to a state school today have to borrow money to graduate. That is not how we build a future. #CancelStudentDebt.”

Read the original article on Business Insider

19 states have higher student-loan debt than annual budgets, report finds

student loan debt
  • Student Loan Justice found 19 states have more student debt owed than the annual state budget.
  • Georgia, Florida, and Missouri top the list, with debt of at least 140% of the budget in each state.
  • Student Loan Justice Founder Alan Collinge said Biden must use his executive powers to cancel student debt.
  • See more stories on Insider’s business page.

The student-debt problem numbers are massive: 45 million people owe $1.7 trillion. But another big number is 19, as that many states have more outstanding student debt than their annual budgets.

Student Loan Justice – an organization advocating for student-debt cancellation – released a report in March on these 19 states, with Georgia, Florida, and Missouri topping the list at 169%, 148%, and 141% of debt owed relative to their budgets, respectively, and South Carolina and New Hampshire close behind at 135% and 131%.

To put that in perspective, Georgia’s state budget is slightly more than $48 billion, but Georgians’ total student debt comes close to $82 billion.

Alan Collinge, founder of Student Loan Justice, told Insider that the reason those 19 states made the list could be a result of high borrowing alongside state budgets that are smaller than others.

He added that although President Joe Biden’s Department of Education has already taken steps to cancel student debt for borrowers defrauded by for-profit schools and borrowers with disabilities, that isn’t nearly enough to address the scope of the problem.

“I see this as massively unimpressive, and it really skirted around the real issue, which is the widespread catastrophic effects the student lending program is having on the citizens,” Collinge said.

The key question right now is whether Biden will cancel student debt through executive order or wait for Congress to draft legislation, and similar to progressive lawmakers’ arguments, Collinge said Biden does have the authority under the Higher Education Act to cancel up to $50,000 in student debt, which would not only help borrowers, but the economy, as well.

“There is no easier or cheaper way than to simply cancel it by executive order,” Collinge said. “You don’t need to raise one dime in tax, and you don’t add anything to the national debt, so I think to most common-sense thinkers, this is the low-hanging fruit on the economic stimulus tree.”

Democratic lawmakers like Sen. Elizabeth Warren of Massachusetts and Senate Majority Leader Chuck Schumer have long been calling for Biden to use his executive powers to cancel up to $50,000 in student debt per person.

In a press call last month, Warren said executive action would be much quicker than going the legislative route.

“We have a lot on our plate, including moving to infrastructure and all kinds of other things,” she said. “I have legislation to do it, but to me, that’s just not a reason to hold off. The president can do this, and I very much hope that he will.”

Schumer added in the same call that if Biden believes he can cancel $10,000 in student debt per person, which he campaigned on, there’s no reason he can’t cancel up to $50,000.

While Biden has not yet committed to canceling any form of student debt, White House Press Secretary Jen Psaki said in February that the Justice Department will review Biden’s legal authority to cancel up to $50,000 in student debt, and White House Chief of Staff Ron Klain told Politico last week that Biden asked the Education Department to prepare a memo on his legal authority to cancel debt.

At a Monday press briefing, Psaki was asked to clarify these recent statements and said Biden would “happily sign” a bill to cancel $10,000 per person in student debt, and he has not ruled out the option of cancelling up to $50,000 in debt.

“I think that would naturally be the first step before it’s a larger amount beyond there,” she said. Psaki did not clarify whether Biden is in favor of using an executive order to cancel $50,000 per person.

Read the original article on Business Insider