On the campaign trail, President-Elect Biden made a number of student loan promises that would alter the lives of millions of Americans. In response to the COVID-19 crisis, he promised to provide wide-spread cancellation to all federal student loan borrowers(here at 1:10, here at 16:22, here at page 26, here). As we have written before, broad-based cancellation cannot come soon enough as American families look to the future and wonder how they will repay their federal student loan debt while attempting to recover from the financial fallout of COVID-19. However, as this post describes, President-Elect Biden has made a number of other promises which have received much less attention but would also greatly benefit low-income federal student loan borrowers.
The promise (on page 88): “For the duration of the COVID-19 national emergency, [I will] cancel monthly federal student loan payments and interest accrual, including commercially held Federal Family Education Loans (FFEL) and Perkins Loans held by institutions of higher education.”
The federal student loan payment suspension is scheduled to expire on December 31, 2020. Restarting federal student loan collection is going to have a devastating consequence on many borrowers’ finances, especially borrowers of color who have been disproportionately impacted by both COVID-19 and the student loan crisis. President-Elect Biden’s promise to extend the payment suspension will not only help the 36 million student loan borrowers with Direct Student Loans who are still struggling to weather the impact of the COVID-19 crisis, but will provide long-overdue relief to as much as 9 million borrowers with commercially held FFEL and Perkins loans. That FFEL borrowers were left without relief is especially frustrating. As both consumer advocates and industry organizations have articulated, these loans have essentially the same terms and conditions as the loans that are owned by the federal government. The impact of the recent widespread layoffs and economic disruption does not distinguish between whether the government or a private entity owns a borrower’s federal student loans—it affects these borrowers in the same way.
Unlike other forms of debt, the federal government alone controls whether the financial stress created by federal student loans continues during the crisis or not. By extending the loan suspension, dollars that otherwise would have gone to student loan payments will return to borrowers’ communities to pay the rent and keep food on the table.
The promise (on page 86): “[I will e]nd the garnishment of Social Security Benefits to pay federal student loans.”
In Fiscal Year 2019 alone, nearly $225 million was taken from borrowers’ Social Security benefits. Taking these payments deprives distressed borrowers of money they need for food, housing, medication, and other life necessities, and makes their financial hardship even more extreme. As detailed in this NCLC report, eliminating this cruel offset is critically important. President-Elect Biden’s promise demonstrates a recognition that it is important for borrowers to be able to keep these vital safety net payments.
Of course, Social Security payments are not the only benefits that need to be protected. As NCLC has advocated for years, the seizure of the Earned Income Tax Credit (EITC) and the Child Tax Credit, causes families extreme hardship that can have an intergenerational impact. Taking the EITC in particular is a counterproductive policy as it is one of the most successful anti-poverty programs in the country.
The promise (on page 86): “[I will e]nd federal contracts with loan servicers with a pattern of misleading or mistreating student loan borrowers.”
Servicer misconduct has impacted the ability of millions to access the full benefits promised to federal student loan borrowers. Numerous lawsuits have been filed by federal and state regulators as well as private borrowers, alleging that servicers have provided misinformation to student loan borrowers—steering borrowers in distress away from income-based repayment plans or administrative discharges and instead into forbearance, where their interest can accrue. Servicers have also been accused of providing borrowers with erroneous information regarding whether their repayment plan and employment put them on track for Public Student Loan Forgiveness.
These errors cause borrowers to pay more for longer and cheat borrowers out of the loan cancellation they deserve. Holding these companies accountable will help ensure that the needless confusion and distress servicers have created will not reach future borrowers. In addition to ending contracts with servicers, President-Elect Biden needs to ensure that borrowers who have been harmed by servicer misconduct are provided full restitution.
The promise: “[I will] [e]nd the absurd rules that make it nearly impossible to discharge student loan debt in bankruptcy.” Reiterated here: “[I will] [c]rack down on private lenders profiteering off of students and allow individuals holding private loans to discharge them in bankruptcy. In 2015, the Obama-Biden Administration called for Congress to pass a law permitting the discharge of private student loans in bankruptcy. As president, Biden will enact this legislation.”
Unlike all other forms of consumer credit, federal and private student loan debt is virtually nondischargeable in bankruptcy. Underwater student loan borrowers, unlike all other debtors, do not have a second chance at a financially viable future. This promise will provide critical relief to thousands of borrowers who have no hope of repaying their student loan debt, giving them a shot at a future where they are not stuck in poverty.
The promise: “More than halve payments on undergraduate federal student loans by simplifying and increasing the generosity of today’s income-based repayment program. Under the Biden plan, individuals making $25,000 or less per year will not owe any payments on their undergraduate federal student loans and also won’t accrue any interest on those loans. Everyone else will pay 5% of their discretionary income (income minus taxes and essential spending like housing and food) over $25,000 toward their loans. … Biden will also change the tax code so that debt forgiven through the income-based repayment plan won’t be taxed. Americans shouldn’t have to take out a loan to pay their taxes when they finally are free from their student loans.”
According to the campaign promise, Biden’s new income-driven repayment (IDR) plan will save millions of Americans thousands of dollars a year. As we lay out in our latest report, Road to Relief, the current IDR programs are unaffordable for too many borrowers and leave borrowers in repayment for too long. Our report recommends the creation of an Affordable Budget-Conscious (ABC) repayment plan, that sets monthly payments based on no more than 8% of discretionary income above 250% of the poverty line.
The predatory schools promise: “Stop for-profit education programs from profiteering off of students. Students who started their education at for-profit colleges default on their student loans at a rate three times higher than those who start at non-profit colleges. These for-profit programs are often predatory – devoted to high-pressure and misleading recruiting practices and charging higher costs for lower quality education that leaves graduates with mountains of debt and without good job opportunities. The Biden Administration will require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid. The Biden Administration will also return to the Obama-Biden Borrower’s Defense Rule, forgiving the debt held by individuals who were deceived by the worst for-profit college or career profiteers. Finally, President Biden will enact legislation eliminating the so-called 90/10 loophole that gives for-profit schools an incentive to enroll veterans and servicemembers in programs that aren’t delivering results.”
President-Elect Biden got it right: for-profit schools have a history of failing students and leaving them with mountains of debt. Requiring schools to prove their program value to students and taxpayers through gainful employment rules is the first step in stopping programs from wasting student borrower and taxpayer dollars going forward. However, the Department of Education should go further by providing relief to the student borrowers whose money and time were already wasted by failing programs.
President-Elect Biden is also right to throw out the DeVos Borrower Defense Rule and to commit to cancelling the debt of borrowers who attended predatory schools. To ensure that harmed borrowers get much-needed relief the new administration should both act immediately on the backlog of existing relief applications and revise the rules to ensure that that borrowers’ right to relief cannot again be stymied by a recalcitrant Secretary of Education.
Similarly, the 90/10 loophole has put a target on servicemembers’ backs. Predatory schools frequently focus their misrepresentations on servicemembers and their families to gain access to their GI Bill funds. This loophole should promptly be closed by requiring inclusion of all federal educational aid programs in the calculation, and restoring the original 85% benchmark.
The promise (on pages 26 and 85): “Cancel student loans through executive action:
- Public Servants or Teachers (PSLF/TLFP)[;]
- Borrowers who went to predatory schools: a determination of misrepresentation or fraud made by the Department, State Attorneys General or the courts will trigger automatic loan cancellation[; and,]
- Borrowers with a total or permanent disability.”
This promise of executive action would discharge the debts of hundreds of thousands of Americans who are eligible for administrative relief, but who either don’t know they should apply for that relief or whose relief has been obstructed by the Department of Education. The Department of Education’s overly-complicated borrower defense process and the last administration’s commitment to obstructing all forms of student relief have left hundreds of thousands of students needlessly waiting in a state of limbo for two years or more. It makes no sense to keep borrowers in debt after a government agency–the entity in the best position to smoke out school misconduct–has determined that the school misrepresented itself to students or committed fraud.
Making relief automatic is critical. As the Department of Education has acknowledged, many eligible borrowers remain in repayment despite being eligible for an administrative loan discharge. We know this is because borrowers simply are not aware that they could even apply for relief.
The promises President-Elect Biden has made on student loan reform would make a big difference to low-income student loan borrowers. While there is more that we hope he will do, NCLC is looking to working with the next administration to advance meaningful reforms to the policies and systems that have perpetuated poverty and discrimination for generations.