The Trump Administration’s Deceitful Ploy to Put More Students in More Debt
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Americans currently owe $1.5 trillion in student loans. More than a million borrowers default every year. Under past administrations, the federal government tried to make student loans easier to access, to both understand and pay off. In 2008, the Higher Education Act was updated to move the loan system to 100 percent direct lending through the Department of Education. The move had several benefits, according to the Center for American Progress:
“This completely federalized system has resulted in many benefits: less on-the-ground industry influence in lending; repayment programs that are unavailable in the private market; and, though it may seem ironic given the current dissatisfaction with the repayment system, stronger consumer protections. Perhaps most importantly, the transition to direct lending saves the federal government roughly $6 billion per year—funds that have resulted in an infusion of $36 billion of mandatory funding into the Pell Grant program over the past 10 years.”
But, even though the federal government does all the lending, it doesn’t do nearly all the servicing. Much of the servicing is outsourced to private businesses that own and manage the accounts. The Department of Education’s Office of Federal Student Aid is charged with oversight of these private loan managers. Too often, these private managers intentionally try to keep borrowers in debt. The most common tactic is to not inform—or even deliberately hide information from—borrowers of all their repayment options, which could substantially reduce their burden.
The FSA is failing at its mission. The Department of Education’s Inspector General released a report last month after examining FSA oversight of nine loan servicers over an 18-month period:
“FSA had not established policies and procedures that provided reasonable assurance that the risk of servicer noncompliance with requirements for servicing federally held student loans was mitigated … FSA management rarely used available contract accountability provisions to hold servicers accountable for instances of noncompliance … FSA did not provide servicers with an incentive to take actions to mitigate the risk of continued servicer noncompliance that could harm students.”
In the face of federal inadequacies, several state governments have been launching initiatives to protect student loan borrowers. Rhode Island is pushing for a “student loan bill of rights” that would establish oversight of loan servicers operating in Rhode Island, reports WPRO News. Other states are trying to do the same. “A Maine lawmaker is currently making a push to create a state system to oversee student loan services operating there. Oregon’s attorney general wants to regulate student loan services and force them to be licensed under the state. Connecticut’s student loan bill of rights has been picked up by other statehouses nationwide.”
The Trump administration has joined the battle—but on the side of the private servicers. The Education Department has stopped sharing student loan information with state governments since the start of Trump’s presidency. On Thursday, 21 state attorneys general sent a letter to Education Secretary Betsy DeVos requesting the agency start sharing that information again. “Student loan information is vital to our efforts to protect consumers from illegal, unfair, abusive or deceptive practices by actors in the higher education industry,” the letter read. This is a follow-up to a July 2018 request that was ignored, the attorneys general say. Maryland Attorney General Brian Frosh told the Washington Post that the “private companies contracted by the Department to service student loans are subject to state consumer protection laws. The established practice of sharing certain student loan information helps states ensure these companies are complying with the law and borrowers are being treated fairly.”
Ironically, DeVos’s agency argues that, since the Department of Education services all the loans – a policy DeVos herself has signaled she wishes to rescind and replace with a decentralized, privately-run loan system—that makes them “federal assets and therefore must be controlled and regulated [exclusively] by the federal government.”
There’s an obvious lesson here: The Trump administration is a government of, for, and by rent-seeking profiteers. But this story contains a challenge to progressive reformers who too often base their hopes and ideas on a stronger, more centralized system. No doubt, student borrowers now wish state governments could wrest more power from the federal government. A powerful, more centralized system has its benefits, but it also creates a rod for an administration like the current one to use on students’ backs.Joshua Alvarez
Why Are Student Loan Borrowers Being Kept Out of the Coronavirus Recovery?
The student debt crisis is about to get a whole lot worse. Republicans are refusing to help.
Gage Skidmore/Flickr
The novel coronavirus outbreak has overwhelmed the country’s health care system, caused widespread unemployment and furloughs, and shut down major parts of the economy, leaving federal and state lawmakers scrambling to support millions of Americans and small businesses.
Even from the outset of the pandemic, it was clear that the ensuing tumult would exacerbate the nation’s pre-existing economic woes and inequities. Low-income workers in the hospitality, retail, and restaurant industries were more likely to lose their jobs. African American and Latino communities have been more susceptible to infection.
Democrats in Congress quickly recognized that this new reality would also impact the millions of student loan borrowers. Already, more than 45 million Americans are still paying off their student loans—accumulating a total of more than $1.6 trillion of outstanding debt. That’s largely due to the rapidly increasing price of higher education. Over the last 20 years, college costs have grown at three times the rate of inflation. The average borrower owes more than $37,000 by the time they graduate.
Meanwhile, there’s been a growing mismatch between the skills employers are looking for and the ones newly minted college graduates have cultivated, making it harder for them to get jobs with which they can pay off their debt.
A global pandemic that has shattered the economy will make that task even more challenging.
That’s why Democrats in March put forward a series of proposals to forgive large portions of student debt as part of the first coronavirus recovery package. House Democrats wanted to forgive $30,000 per borrower (which was never realistic) while Senate Democrats presented a plan to forgive $10,000 across the board. The House plan applied only to public loans, while the Senate proposal authorized the Department of Education to make payments on behalf of borrowers with all loan types.
But the ideas were quickly shot down by Republicans. Instead, the $2.2 billion aid package, known as the CARES Act, suspended interest, payments, and involuntary collection for all federal loan borrowers until September 30. That doesn’t cover every borrower, though; it excludes those with Federal Family Education Loans and Perkins Loans, meaning eight million borrowers still owe monthly payments on their federal student loans.
“I’m sure everybody could use more money,” South Carolina Senator Lindsey Graham said on Fox News, when asked about the student debt forgiveness proposals. “But I don’t want to give money to people who have a paycheck. I want to give money to people who have lost their jobs. What the hell has that got to do with the virus?”
Turns out, quite a bit.
The trillions of dollars in student loan debt has widespread effects on borrowers and the economy in normal circumstances. Those with outstanding debt struggle financially while putting off savings, retirement, and major life decisions, like buying a home.
Senators Bernie Sanders and Elizabeth Warren, who proposed loan forgiveness even before the pandemic, have said that erasing some of the burden will reduce the wealth gap in America and enable young people to start families and purchase houses. Moody’s has further said that such a move would boost household consumption and investment; improve business formation; and increase home ownership in the long run.
“Student debt cancellation would actually be a boost to the economy,” said Cody Hounanian, the policy director for the advocacy group Student Debt Crisis. In effect, it would free up millions of Americans to stop funneling huge chunks of their earnings into paying off their loans and instead spend that money on buying things and starting businesses and families. “We’re hoping that student debt cancellation will help mitigate what looks like could likely be a pandemic induced recession in the very near future,” Hounanian added.
In other words, the COVID-19 crisis is likely to leave millions of Americans struggling to pay off student loan debt even deeper in the hole. A national forbearance on payments and interest doesn’t solve that issue, it only prolongs it.
“If you’re just suspending payments and waiving interest, then you’re not actually doing anything about the core of the problem,” said Ashley Harrington, the federal advocacy director of the Center for Responsibly Lending (CRL). “Even if you’re not making a monthly payment [you still feel] the effects of student debt on your access to credit, on your mental health, or your job prospects. Student loan borrowers are going to come out of this crisis worse off.”
Americans agree. According to a May 12 Chesapeake Beach Consulting poll commissioned by CRL, more than 60 percent of Americans support permanently reducing student loan debt by $20,000 during the coronavirus crisis. Roughly 78 percent of Democrats support such loan relief, as do roughly 49 percent of Republicans.
That may be a positive sign. The coronavirus outbreak has already gotten Republicans to recognize the importance of a number of social programs and liberal ideas, such as free testing, stimulus checks, and other benefits allotted to Americans in need. Increasingly, GOP voters may start to recognize the hindrance student loan debt has been to letting young people start their lives, especially if it begins to affect them personally.
That, in turn, could result in those voters putting more pressure on their elected representatives. In fact, it already has: In late April, Republican Congresswoman Elise Stefanik of New York put forward a bill that would extend CARES Act protections to the borrowers left out of the original bill. Still, the GOP is far from where it needs to be. The party remains adamantly resistant to any form of loan relief.
After two failed pandemic-related attempts to address debt relief in Congress—first in the CARES Act, then in the second stimulus package, the HEROES Act—House Democrats are trying again.
On May 12, they proposed a measure to include $10,000 in student loan relief for borrowers who were “economically distressed” before the pandemic hit, meaning they made less than they owed before President Donald Trump declared a national emergency, and extend the suspension of payments to September 2021. Originally, the lawmakers wanted all borrowers to get the $10,000 debt forgiveness, but they balked after the nonpartisan Congressional Budget Office estimated that would have cost $250-300 billion, more than Democrats initially expected.
Former Vice President Joe Biden, however, recently said he supports $10,000 in loan relief across the board and proposed a $750 billion student loan plan focused on income-driven repayment if he’s elected. He also called for full debt relief for borrowers who graduate from a public college or university and whose family earns less than $125,000 per year.
Even $10,000 in universal relief would make a significant impact. Approximately 40 percent of U.S. borrowers would have all their loans canceled, according to a CRL analysis. Of all the borrowers who are currently delinquent or in default, 78 percent would then have less than $40,000 in debt left.
The bill, which passed the House on May 15 and is now awaiting a Senate vote, is expected to meet sharp resistance from Senate Republicans and the White House. But if Trump and the GOP are serious about wanting to restart the economy, a significant step would be to remove the single biggest barrier keeping millions of Americans from engaging in economic activity.
“Student debt cancellation is connected to an increase in GDP,” Hounanian said. “It’s also connected to an increase in jobs, something that’s so important right now when we see unemployment rates skyrocketing.”
Forgiving student loan debt may be expensive. It will surely cost the government in the short term, but it may also save our economy in the long term. That’s a price worth paying.
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