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

Why student debt will keep rising despite loan-forgiveness programs lawmakers are proposing in Congress

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.

  • US lawmakers are debating student debt-relief proposals, seeking help for people saddled with loans.
  • But the proposals on the table right now are not a comprehensive solution, experts say. 
  • The problem is a cycle of student loan accumulation, and little education about how this debt works.
  • Visit the Business section of Insider for more stories.

It’s a familiar sight each year: a sea of soon-to-be college graduates, seated in their caps and gowns, with families and friends watching proudly as they march, one-by-one, across the stage to receive their hard-earned degrees.

But for many of the 35 million student-loan borrowers in the US, the celebration is short-lived. Months out of college, their debts become due and payable, and for some, it will be a heavy burden.

Since entering office, President Joe Biden has encountered immense pressure to aggressively address the student-loan crisis.

Democratic Sens. Elizabeth Warren and Chuck Schumer in February announced a plan to wipe out up to $50,000 in student loans per borrower. But Biden dismissed it.

“I will not make that happen,” he said. “I’m prepared to write off $10,000 in debt, but not 50,” he said. “I don’t think I have the authority to do it.”

There is support for student debt relief across party lines. According to a national survey conducted by the Harris Poll in December, 55% of Americans favor total student loan forgiveness. And around 64% of respondents said they support writing off a fixed amount, like $10,000.

Education debt has been rising steadily for about a decade, experts told Insider. It’s also been holding people back.

“Students who graduate with debt may put off life milestones such as buying a car, owning a home, getting married, or entering certain low-paying professions like teaching or social work,” a 2006 report from the American Association of State Colleges and Universities says.

The problem persists, and has only gained momentum during the COVID-19 pandemic, which has shuttered businesses across the US and canceled out millions of jobs in the last year.

“Former students have not been able to get rid of their debt,” said Andrew Pentis, a certified student-loan counselor at Student Loan Hero by LendingTree. “So it grows with interest, sometimes multiplying over years, if not decades.”

Poor education about the dangers of debt

Too often, families of first-generation Americans reviewing financial-aid packages from colleges and universities don’t realize the loans they see being offered must be repaid with interest.

Other times, families think of education loans as “good debt.” They view it as “the price to pay for investing in your future, sometimes by getting a degree from a prestigious, but more expensive, school in order to climb the social ladder, Pentis said. 

The government also doesn’t do enough to explain its federal student-loan options. “A large cohort of borrowers leave school without fully understanding the weight of their debt, or their options for repaying it,” Pentis said. “The government needs to take a more direct role in educating students about how to avoid federal student loans, not just offering them without explanation.”

High schools also tend to gloss over the topic, he said.

“The family that’s dead-set on paying six figures to send their child to the prestigious university,” he said, “might not have considered that spending two years at a community college before transferring to that better four-year school could cut their overall costs and borrowing significantly.”

Student debt is on the rise because college education is an industry in the United States, experts told Insider.

“Higher education operates as a free market,” said Chris Mullin, strategy director of data and measurement at the Lumina Foundation, an organization committed to expanding higher-education access.

“As a result,” Mullins said, “the cost a student pays can be set at what the market will bear.”

college student

The cost of tuition depends on a number of factors

College tuition is not regulated federally, and there are distinctions between the way private and public universities set them, which directly affects how much money students and their families will pay. Private university tuition costs are decided by the institutions themselves, student debt experts told Insider.

“Private schools obviously have more leeway when it comes to setting tuition and fees,” Pentis said.

That’s one of the reasons private institutions like New York University set much higher “sticker prices” on their tuitions than public colleges do. The sticker price is the tuition cost a student can expect to pay before grants, loans, and other types of financial aid kick in, which means not everyone pays the full or same amount for higher education.

And because private institutions have more leverage in setting tuition costs, the decision-making process behind it varies from one institution to another. This can lead to differences between the sticker price and the net price of tuition, with the net price being what a student ultimately pays for their education after financial aid has been applied.

Donna Desrochers, principal researcher at the education program run out of the American Institutes for Research, says higher-cost private universities may simply set those prices with the intention to subsidize the cost of tuition for students receiving financial aid.

“It may be that [for] NYU, or any other school, the higher price is taking some of those full-pay dollars from full-pay students, and trying to reallocate to provide aid for other students,” Desrochers said.

Meanwhile, public-university tuition, which is typically more affordable, is set by individual states.

“Perhaps they have a lower sticker price, and maybe they’re not reallocating as much aid to students,” Desrochers said.

Sticker prices are a type of “complex marketing,” according to Desrochers

“It’s kind of like an airline, right? And people compare it to that, sometimes. You’re paying different prices for different seats, depending on when you purchased it. And so, it’s quite similar,” she said. “They’re trying to attract the class that they want.”

Sticker prices also help institutions maintain their costs of operation, Desrochers said. Public colleges benefit from raising sticker prices, especially when states are contributing less money to higher-education budgets.

“That pays for less of the institution’s costs,” Desrochers explained. “It actually ends up shifting those costs onto students.” Because of the recession brought on by the coronavirus, Desrochers expects to see states investing less in higher education, leading to institutions shifting those costs onto students instead of trying to minimize their spending.

“We see it every time after a recession,” she said.

A good chunk of students do not pay the full sticker price for college tuition. According to a study from the National Association of College and University Business Officers, tuition on average was discounted by 46.3% for all undergraduates from 2018 to 2019.

This means, overall, institutions “give substantial grant aid,” said Mullin, the Lumina Foundation strategy director.

Student debt-relief measures are still needed

Collectively, student-loan borrowers in the US owe more than $1.7 trillion. Trillion with a T. So conversations about how to address that debt will continue.

They will go a long way in helping borrowers “who don’t have much of a chance to end their debt on their own,” Pentis said.

But no relief measure will address the source of the problem: brand-new student loans.

If students and family members don’t recognize the dangers of accumulating large amounts of debt at high interest rates, the pattern of rising student debt will continue, experts warn.

While tuition costs are not a federal decision, the government has two levers to pull to encourage colleges to alter tuition rates, Mullin said.

The government can change the amount of money it makes available to a single student or change who is eligible to get financial aid. That way, students will have fewer restrictions like part- or full-time status to receive federal aid. Schools might then give larger aid packages to students, Mullin said.

Additionally, the government can “provide consumer information” with the goal of disclosing data and supplying comparison points intended to help students make informed decisions about their college education.

“It can inform the public by effectively placing a warning on institutions, like the US Surgeon General’s warning on a pack of cigarettes,” Mullin said.

“This kind of ‘warning’ can take the shape of a requirement, for example, that institutions make public the workforce outcomes of their programs,” he said, effectively showing students what kind of return on investment they can expect after graduating college.

Read the original article on Business Insider

A quarter of Americans support forgiving all federal student-loan debt

College debt
Student-loan debt reached a national high of $1.5 trillion in 2019.

  • Democrats have been going back and forth on how much federal student-loan debt to forgive.
  • President Biden supports up to $10,000, while some progressive Dems are calling for $50,000.
  • A new Insider poll found a quarter of Americans support forgiving all federal student loans.
  • Visit the Business section of Insider for more stories.

Recently, Democrats have been clashing over how much federal student-loan debt to forgive.

Sens. Elizabeth Warren and Chuck Schumer called for $50,000 in student loan forgiveness, but President Joe Biden essentially rejected that plan, throwing his support behind $10,000 in forgiveness.

“I will not make that happen,” Biden said of the $50,000 proposal at a CNN town hall. Democrats like Warren, Schumer, and Reps. Ayanna Pressley and Alexandria Ocasio-Cortez doubled down on their support for the higher loan forgiveness.

In Insider’s most recent poll, respondents were asked: “A policy under consideration would forgive an amount of student loan debt held by Americans. Do you support this? And if so, what amount?”

Out of 1,154 respondents:

  • 25% support “forgiving all federal student loans.”
  • 13% support forgiving $50,000 in federal student loans, while 12% support forgiving $25,000.
  • 19% support forgiving $10,000 in federal student loans.
  • 22% of respondents said “I do not support any amount of student loan forgiveness.”
  • 9% of respondents said “I don’t know.”

When it came to party affiliations, respondents varied in how much forgiveness they wanted. Here are some key statistical takeaways:

  • 30% of respondents who said they would probably vote in their state’s Democratic primaries or caucuses in order to support forgiving all federal student loans. 
  • 15% of likely Republican voters also support forgiving all federal student loans.
  • 30% of respondents who would “probably participate in another primary or caucus” said they support forgiving all federal student loans
  • 25% of respondents who don’t vote in primaries also support complete forgiveness.
  • 20% of both likely Republican and Democratic voters support $10,000 in federal student loan forgiveness.
  • 20% of likely Democratic voters support $50,000 in forgiveness, as do 9% of likely Republican voters.
  • Conversely, 40% of likely Republicans don’t support any “amount of student loan forgiveness,” while 10% of likely Democratic voters don’t support any amount of forgiveness.

 There was also some division between different age groups:

  • 33% of respondents between the ages of 30 and 44 support forgiving all federal student loans, the highest percentage among age groups.
  • Conversely, 40% of respondents over 60 do not support any amount of student loan forgiveness, the highest percentage among age groups. Only 11% of respondents ages 18 to 29 don’t support any forgiveness, the lowest percentage among different age groups.

As Insider’s Hillary Hoffower and Madison Hoff previously reported, forgiving student loan debt – even just $10,000, like in Biden’s proposal – could benefit millions of Americans.

Importantly, student loan forgiveness could make a tangible impact in narrowing the racial wealth gap. Black students graduate with more debt than their white peers. Further, around 87% of Black students at four-year colleges take out loans, while 60% of white students take out loans. 

SurveyMonkey Audience polls from a national sample balanced by census data of age and gender. Respondents are incentivized to complete surveys through charitable contributions. Generally speaking, digital polling tends to skew toward people with access to the internet. SurveyMonkey Audience doesn’t try to weight its sample based on race or income. Polling data collected 1,154 respondents February 22, 2021 with a 3 percentage point margin of error.

Read the original article on Business Insider