President Joe Biden erased $3.9 billion from student loan records on Tuesday.
More than 200,000 former students who still owe federal student loans from their time at ITT Technical Institute will see their loans cleared, whether or not they applied for forgiveness.
ITT Education Services closed its campuses in 2016 after years of questioning and scrutiny of its accreditation standards and recruitment processes. At that time, the institution had about 45,000 students on 130 campuses.
Some of the former students were already eligible for federal student loan forgiveness, but the move applies to all borrowers who took on debt attending the school between 2005 and September 2016, when the school closed.
That brings the total amount of loans under Biden to nearly $32 billion and has many wondering what more could be forgiven, or at least whether payments will be paused.
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The pause is useful for millions
After mortgages, Student loans account for the largest share of household debt at more than $1.5 trillion, according to the Brookings Institution.
At the start of the pandemic, the government froze student loan repayments for most borrowers. In April, the White House extended the moratorium for the sixth time until August 31.
“This pause will help 41 million people maintain their monthly bills and meet their basic needs,” Vice President Kamala Harris said in a statement. “This will give borrowers urgently needed time to prepare for a return to repayment.”
A letter addressed to Biden and Education Secretary Miguel Cardona and signed by more than 100 lawmakers highlighted these positive effects of the freeze.
“For the first time, many borrowers had the opportunity to pay off debt, open a savings account, buy a home and save for retirement — none of which would have been possible without the payment break.”
As the letter points out, many have used the break to save up to buy homes, paying off credit cards or catching up on other accounts.
“Resuming student loan payments would force millions of borrowers to choose between paying off their federal student loans or putting a roof over their head, food on the table, or paying for child care and health care,” the lawmakers wrote.
Path to forgiveness
Mark Kantrowitz, a student loan expert who has written five books on scholarships and financial aid, says there are three potential paths to forgiveness: regulation, legislation or executive action.
If the president uses executive action to cancel student debt, he will face legal challenges that Kantrowitz doesn’t expect to go Biden’s way. And Congress has yet to enact legislation for broad loan forgiveness, nor does it appear poised to do so.
Regulation may be the president’s best bet, says Kantrowitz, whose books include How to apply for more financial aid.
The federal government offers four income-based repayment plans that set loan payments in amounts that are designed to be affordable for borrowers based on their income and family size.
Most people forget that these are also loan forgiveness plans, Kantrowitz says. After making qualifying payments for 20 or 25 years, depending on the plan, borrowers can eliminate their remaining debt. Those who work in public service can only be eligible for forgiveness after 10 years of payments.
One of the four plans — the Means-Tested Repayment Plan — gives the U.S. Department of Education broad regulatory authority so it can be remade into a means-tested loan forgiveness program, Kantrowitz says.
Means testing, a method of determining eligibility for government assistance, is a way to address the concern about helping people who may not need it.
Biden “doesn’t believe that — that millionaires and billionaires should obviously benefit, or even the highest earners,” former White House press secretary Jen Psaki said after Biden’s remarks in the spring. “So that’s certainly something he’ll be looking at.”
Will you or won’t you?
One possible reason why Biden has not followed through on his campaign proposal is economic and geopolitical implications of the pandemic and the war in Ukraine, says Siri Teresen, professor of management and associate dean at Florida Atlantic University.
“With annualized inflation approaching 10%, policymakers mindful of basic economic principles will want to limit additional stimulus to bring inflation back under control,” she said in an email. “A large student loan forgiveness program would increase inflation even faster.”
As of early 2020, Biden has billions of dollars worth of student debt forgiven through other programs. These include plans for borrowers who have been deluded by their schoolsdisabled people and others who work in the public service.
The push for more continues.
A majority of Americans support canceling student debt, Massachusetts Sen. Elizabeth Warren argued during a Senate committee hearing this spring.
“There’s hardly a working person in America who doesn’t have a friend, family member or co-worker burdened with student loan debt,” said Warren, who supports $50,000 in forgiveness per borrower.
Canceling that amount would cost $904 billion and wipe out the full balances of about 30 million — or 79 percent — borrowers, according to a report by economists at the New York Federal Reserve.
Forgiving $10,000 per borrower would cost $321 billion and eliminate the entire balance for 11.8 million borrowers, or about 31%.
Adding an income cap to forgiveness offers “significantly lowers the cost of student loan forgiveness and increases the share of benefit for borrowers who are more likely to struggle to repay their debts,” the report said.
Potential problems with broad student debt forgiveness
Proponents of broad forgiveness argue that student loans contribute to racial and socioeconomic disparities in wealth. But there are better ways to reduce the racial wealth gap, says Adam Looney, a senior fellow at the Brookings Institution.
Looney argues that student loan forgiveness is regressive and only targeted debt relief policies can work to address the injustices caused by federal student loan programs.
“Measured appropriately, student debt is concentrated among high-wealth households and loan forgiveness is regressive, whether measured by income, educational attainment or wealth,” he write. “Blank forgiveness is therefore a costly and ineffective way to reduce economic disparities by race or socioeconomic status.”
Next steps
Kantrowitz expects Biden to push for another extension of the payment break and interest waiver that will last until the upcoming midterm elections.
While the White House is keeping its cards close to its chest, Kantrowitz believes loan forgiveness is likely to happen. “And if that happens, it will likely be limited in amount and eligibility,” he says.
Biden has already ruled out canceling $50,000 worth of debt, but forgiving $10,000 is still on the table.
Meanwhile, the issue continues to shine a light on the rising cost of attending college.
College tuition and fees were about 170 percent more expensive in 2021 than they were in 2001, Tejersen cited in a new A book to reduce bureaucracy in higher education.
“The silver lining in the student debt fiasco,” she says, “is that more Americans are recognizing the need to identify affordable college options.”
— With files by Nancy Sarnoff
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