LSU uses COVID money to clear student debt: "What a good boy am I!"

 Louisiana State University announced this week that it will use $7 million in COVID relief money to clear debts that students owe the university. About 4,000 students will benefit.

That's wonderful!

But before we stand up and cheer, let's recognize that LSU is not spending $7 million to help students pay off their federal student loans. LSU is using COVID relief money to clear debts that students owe LSU--including outstanding balances on tuition, fees, and debt owed LSU for housing, meal plans, and parking.

Much of that debt is probably uncollectible. Students who dropped out of LSU in mid-semester may have left owing unpaid balances on meal plans, dorm rent, and parking tickets. But how can the university collect on that debt unless it sues the former student in court?

Do you think a student who dropped out of LSU in April 2020 and went back to his home in Dry Prong, Louisiana, is going to pay the university the 200 bucks he owes for parking violations? I would guess not.

By clearing that debt with federal money, LSU is simply paying itself.  All that is well and good, but should LSU and the other universities that adopt this strategy pat themselves on the back?  

LSU describes its actions as student-centered, but it is really acting in its own self-interest. Students who leave LSU owing unpaid bills can't get their transcripts and can be barred from registering for more classes. By paying off student debts with federal money, LSU enables former students to re-enroll.

I would be more impressed with universities following LSU's path if even one elite college president would speak out about the student loan crisis.  Approximately 45 million Americans owe $1.7 trillion in federal loans, and a high percentage can't pay those loans back.

I haven't heard a single college president call for bankruptcy reform to allow distressed college borrowers to shed their oppressive student loans in bankruptcy. I haven't heard one college CEO speak out about abuses in the for-profit college sector. And no college leader will admit that tuition costs are too high. 

No, universities are taking their cue from Little Jack Horner. They use fed money to pay themselves and say, "What a good boy am I!"

Student-loan payment relief during COVID crisis ends soon: Will student debtors start making payments again?

 About 40 million student borrowers got some relief last year when the Department of Education allowed student debtors to temporarily skip their loan payments due to the COVID crisis.

Even better, DOE did not charge interest on student loans during the forbearance period. 

But DOE's relief program ends on September 30, and the feds expect all borrowers to resume their loan payments in October. Will borrowers begin writing those monthly checks?

Maybe not. Navient reported in April of last year that 40 percent of federal student-loan borrowers requesting COVID repayment relief held loans that previously had been delinquent or in forbearance.  In other words, millions of student debtors were not making payments on their loans even before the COVID crisis.

Student loans are kind of like overdue library books. They are easy to forget about.

The Department of Education's website lists a host of options for borrowers as the COVID-forbearance plan winds down. If you are a distressed student debtor, you should take a look at that site.

But here's my advice. If you are financially unable to repay your student loans under DOE's standard 10-year repayment program, sign up for the most generous income-based repayment plan  (IBRP) you can find. IBRPs are a terrible option because your loan payments will not be large enough to cover accruing interest. Thus, your loan balance will keep growing in the years to come, even if you make regular monthly payments.  

But your monthly loan payments will be lower under an IBRP and allow you to tread water until some sort of comprehensive relief program is put in place.

As I have said a thousand times, Congress needs to revise the Bankruptcy Code to allow overburdened college borrowers to discharge their student loans in a bankruptcy court. But that may never happen.

Some politicians are calling for wholesale student-loan relief. Just wipe out $1.7 trillion in student debt, they say. But that may never happen either. 

The student-loan catastrophe is enormous and getting bigger with each passing day. If you haven't taken out federal student loans yet, choose a college program that will lead to a job and do everything you can to avoid taking on onerous levels of student debt.  

If you already have a mountain of student-loan debt, get into an IBRP and wait for Congress to clean up the mess. But don't hold your breath.

And one more piece of advice. Don't ask your parents to take out a Parent PLUS loan, and don't take out loans from a private lender.