Thursday, October 13, 2022

Biden's Student-Loan Forgiveness Application Lacks Adequate Fraud Protection: But Does That Really Matter?

Honoring a campaign promise, President Biden will forgive $10,000 in personal student-loan debt owed by about 40 million college borrowers. The only people ineligible for this bonanza will be single persons who make more than $125,000 a year or married people making more than $250,000.

Biden's Department of Education released its loan-forgiveness application a few days ago, which is incredibly simple. Applicants must state their annual income to determine eligibility, and most will not be required to verify their income with tax returns or other supporting documents.

Critics say Biden's distribution plan lacks adequate protections against fraud. People who make $129,000 a year may falsely claim they make less than $125,000 in order to receive $10,000 in debt relief.

Although President Biden's loan forgiveness scheme has plenty of flaws, I'm in favor of it. Millions of Americans took out modest student loans to enroll in college and then dropped out without getting any benefit from their educational experience. Wiping out $10,000 in student-loan debt (or $20,000 for Pell Grant recipients) will free many borrowers from all their student debt. I'm okay with that.

Moreover, I'm not too concerned about fraud. The only student borrowers who might scam the program are single individuals making over $125,000 or married couples making over $250,000. 

These high-income individuals are not likely to fraudulently mispresent their income to get a paltry ten grand in student-loan forgiveness. In any event, the Biden administration promises to ask about 5 million loan-forgiveness applicants to verify their income--targeting people with six-figure salaries.

Let's face it. The feds don't really care if student borrowers pay back their loans. The Department of Education paused student-loan payments for nearly three years.  The suckers who made their monthly student-loan payments anyway are eligible for a refund.

About nine million people are enrolled in income-based repayment plans (IBRPs), allowing them to make modest loan payments so low they don't even cover accruing interest.  Virtually all those people will never pay back their student loans.

And as generous as the present IBRPs are, the Biden administration is working on an even more munificent IBRP program that will require monthly loan payments so low that the Brookings Institution estimates DOE will only get back about 50 percent of the money it loans.

So here's where we are. About 40 million people owe a total of $1.7 trillion in student loans, and many of these borrowers will never pay off their debt. As Steve Rhode wrote in a recent essay, the sensible thing for Congress to do is to revise the Bankruptcy Code so that honest but unfortunate debtors can discharge their student loans in bankruptcy.

But apparently, that suggestion makes too much friggin' sense. 

Thus we see people like Tamara Parvizi, who owes $650,000 in student-loan debt, which she can't pay back and can't discharge in bankruptcy. When she went to bankruptcy court, DOE insisted that she be put in an IBRP. A federal bankruptcy judge agreed.  Under this IBRP, Ms. Parvizi will pay $80 monthly for twenty-five years.

The only relief Ms. Parvizi will get is $10,000 in loan forgiveness on almost two-thirds of a million dollars in student debt.

 In essence, our government behaves like an alcoholic who runs up a tab drinking Jack Daniel's at his neighborhood tavern.  Every so often, the drunk comes in and pays off his tab, but he keeps drinking. 

That's nuts, and everybody knows it.

Just put it on my tab.




 



6 comments:

  1. Great post -- but where do you see this about a refund?
    "The suckers who made their monthly student-loan payments anyway are eligible for a refund."

    ReplyDelete
  2. Here is the link to information about getting a refund for payments made during the payment moratorium: https://studentaid.gov/announcements-events/covid-19/payment-pause-zero-interest#which-loans-eligible

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  3. US Senator Ben Sasse's comment on the Biden plan. Sasse was a college president, so he knows all about this stuff.
    "The President can spin it however he wants with Pell window dressing, but at the end of the day his debt forgiveness scheme forces blue-collar workers to subsidize white-collar graduate students. Instead of demanding accountability from an underperforming higher education sector that pushes so many young Americans into massive debt, the Administration’s unilateral plan baptizes a broken system. This deeply regressive action — which fails even to acknowledge that most debt is held by folks with graduate degrees — will do nothing to jumpstart the reform higher education desperately needs."

    https://www.sasse.senate.gov/public/index.cfm/press-releases?ID=043281BE-8D60-4271-9962-67AB962B970E

    ReplyDelete
  4. Thanks for sending this. Senator Sasse is exactly right. Very cogent observation.

    ReplyDelete
  5. Great analysis by Senator Sasse.

    ReplyDelete
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