What’s next for student debt after forgiveness?
As President Biden moves closer to canceling at least some student debt in the near future, many higher education advocates and members of Congress fear that cancellation without broader reforms to the federal system lending as a whole simply provides a temporary solution to a much larger problem. .
“The problems with our system are that there are a lot of players involved. States have been divesting for decades, colleges are raising tuition, Pell grants are stable, and it all ends up in the student loan program, where we see more and more people borrowing and borrowing larger amounts,” said James Kvaal, undersecretary of education. “You have a student loan program that really isn’t working for a lot of people. really rethink how we fund higher education in this country.
Proponents say the problem is the system that created the debt crisis in the first place. Biden’s plan to forgive at least $10,000 in student debt for borrowers with incomes below $150,000, White House officials say, will provide relief to some borrowers struggling to repay debt. However, many argue that the relief that will be felt from debt cancellation will soon fade.
“If we want to move forward with widespread debt forgiveness, what are the political solutions we are focusing on to ensure that we are not in the same position in one year, five years or 10 years?” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.
Relief with Reform
So far, the Biden administration has canceled $25 billion in student debt through a series of targeted debt relief initiatives. These include the simplification of the Public Service Loan Cancellation (PSLF) and Total and Permanent Disability (TPD) programs to make them more accessible to borrowers and the measures taken by the administration to pay the student debt of students who attended predatory, for-profit colleges.
According to Draeger, “with each of the targeted debt relief [efforts] offered by the department thus far, the administration has made or recommended policy changes to address the underlying challenges that necessitated this pardon.
During a panel organized by the Bipartisan Policy Center on the future of student debt on Monday, Draeger gave the example of the TPD program. “When we talk about $9 billion for total and permanent disability, the department just finished negotiating new rules that will make it easier for borrowers who are having difficulty to access this benefit,” Draeger said.
So far, the Biden administration has not offered a targeted set of reforms to complement the administration’s debt relief plan. Many higher education leaders have pointed to possible areas of reform, some of which raise questions about whether it is up to the Biden administration to act — or that of Congress.
Problems with the current system
An expected 15 million Americans could benefit of Biden’s campaign promise to forgive $10,000 in student loan debt. According to federal data, 52% of Americans with student debt owe less than $20,000, so the rest of the borrowers are those with high debt levels and, largely, income.
Soaring tuition fees coupled with a complex borrowing system puts some of the most vulnerable borrowers, typically low-income, low-wealth borrowers, in positions where they take on more debt and also struggle to repay those debts, especially if they do. do not complete their studies or are employed with insufficient income to meet their repayment requirements.
Experts have suggested that creating more safety nets to prevent borrowers from taking on unmanageable debt or defaulting on their loans during repayment could be a step in the direction of helping these borrowers.
“We have a vestige of a bank loan program, although we have had a direct government student loan program for over a decade. So things like interest rates, negative amortization, capitalization, even the concept of default,” Draeger said. “These made perfect sense in a bank lending system. That’s not what we have today. So that forces us to re-examine the whole structure of federal student loans.
Additionally, advocates have argued that these safety net programs need to be simplified to limit the bureaucratic hurdles that prevent many borrowers from taking advantage of them. According to Kat Welback, director of advocacy and civil rights at the Student Borrowers Protection Center, when the Education Department removes administrative barriers, “we create systems that minimize the administrative burden for borrowers and we realize those who need it the most and are actually able to get the relief that these programs intended when they were first created.
Advocates for higher education are also calling for increased accountability between key players in federal student loan issuance: borrowers, the Department of Education, loan providers, and higher education institutions.
They hope to see increased communication between loan providers and borrowers about repayment plans and payments. Additionally, they would like to see increased limits on who can borrow and how much. They argued that there should be borrowing limits in Parent PLUS loans for families who will struggle to repay such debt. Because parents do not reap the economic benefits of their children’s graduation, a recent Century Foundation study found that Parent PLUS loans disproportionately hurt low-income and low-wealth families.
“We really need to make sure that when people borrow, they get a worthwhile education,” Kvaal said.
Congress and reform
With the policy debate over higher education focused on debt relief, Congress has not focused on reforming the student loan system as a whole. However, while Democrats and Republicans disagree on debt cancellation, they do agree that the debt system must be reformed.
“Both sides of the aisle were talking about reforming safety nets, Conservatives and Liberals alike. I think both agree that income-based reimbursement needs to work better. But when you’re fighting for widespread loan forgiveness, it kind of doesn’t work,” said Beth Akers, senior fellow at the center-right think tank American Enterprise Institute.
Congressional Republicans, who argue that Biden lacks the legal power to provide student debt relief through the executive branch, say a public policy process to resolve the debt crisis through Congress could have put at the forefront of reforms to the student loan system, according to a senior aide to the Senate Committee on Health, Education, Labor and Pensions.
On the other hand, Democrats like Sen. Elizabeth Warren of Massachusetts want Biden to continue using executive authority to push for greater oversight of for-profit colleges, provide more aid through the grant Pell and other federal financial aid programs, and move to a tuition-free public college system.
Movements on major higher education reforms over the past decade have stalled, with the last reauthorization of the Higher Education Act 1965 in 2008 bringing about the latest round of major changes in the student loan system. Any attempt to revise the legislation since has been blocked by political manoeuvring, which is unlikely to subside in the near future.
Many argue that increasing federal funds for grant programs could be a viable solution to moving higher education away from a debt-funded system. However, proposals such as increasing the Pell Grant require congressional action.
“We have to pay for the higher education system we want,” Kvaal said. “If we’re hoping to put the money behind this, we need Congress.”
Without many explicit moves from Congress to address the debt system, Draeger said he hopes the Biden administration will use executive power to push reforms to the student loan system.
“If the president can cancel student loan debt for borrowers on direct loans, why can’t the president remove negative amortization in the future for all borrowers?” There was a time when I would say it required congressional approval. I’m not so sure that’s the case anymore,” Draeger said.
It remains unclear what the Biden administration plans to offer with its debt relief plan, if any, reform.