White House Extends Pause on Student-Loan Payments Until the End of August: Will Biden Go the Full Monty?

The White House is extending the pause on student-loan payments until August 31st--an extraordinary development. By the time this pause ends in September, millions of student borrowers will have been relieved from making payments on their student loans for almost two-and-a-half years.

Indeed, as Ron Kline, President Biden's chief of staff, pointed out:

Joe Biden, right now, is the only president in history where no one's paid on their student loans for the entirety of his presidency.  

 What's next? I predict President Biden will announce significant student-debt relief this fall--in time to impact the 2022 midterm elections. 

After all, it would be political madness for the Biden administration to force student borrowers to begin making payments again only weeks before the nation goes to the polls to elect the next Congress.

Sometime in August or September, I think the President will do one of three things:

• He may reduce each student debtor's loan balance by $10,000, which he promised to do on the campaign trail.

• He might wipe out $50,000 of debt for each college borrower, something Senator Elizabeth Warren, Senator Chuck Schumer, and other progressive Democrats have urged him to do.

• President Biden might go the full monty and cancel all student debt, totaling $1.7 trillion.

In my opinion, the President will take the middle course and give college borrowers $50,000 in debt relief. A $10,000 write-off is not big enough to satisfy his base, and wiping out all $1.7 trillion in student debt is too audacious.

But regardless of what President Biden decides to do regarding student-debt relief, here are things the federal government will probably not do:

Congress will not rein in the for-profit colleges. The for-profits' lobbyists and campaign contributions will continue protecting this sleazy racket.  

Congress will not reform or eliminate the Parent PLUS program. Parent PLUS has brought financial ruin to hundreds of thousands of low-income families, but too many colleges depend on Parent PLUS money for Congress to shut down the program.

Congress will not reform the Bankruptcy Code to allow distressed student borrowers to shed their college loans in bankruptcy. 

As I have said for twenty years, the simplest and most equitable way to address the student-loan crisis would be to allow honest but unfortunate college borrowers to discharge their student loans in the bankruptcy courts. But that reform makes too goddamned much sense for Congress to do it.

In short, what we are likely to see in the coming months is massive student-loan debt relief with no reforms whatsoever for the federal student-loan program--the biggest boondoggle in American history.

Will President Biden wipe out all student loan debt?

The Pandemic Forbearance on Student Loan Payments Will End Soon: Federal Reserve Bank Expects Default Rates to Rise

In March 2020, the U.S. Department of Education allowed 37 million student-loan borrowers to pause their monthly loan payments due to the COVID pandemic.  DOE extended the payment moratorium several times, allowing all these college borrowers to skip making payments for two years without accruing interest or penalties.

This moratorium gave student debtors much-needed relief during the corona crisis. According to the Wall Street Journal,  borrowers saved almost $200 billion due to DOE's debt holiday. 

But that debt-payment moratorium ends in May unless President Biden extends it. Will all borrowers be financially able to begin making payments again?

Probably not.  The Federal Reserve Bank of New York recently analyzed repayment data from three student-loan programs, including two programs that did not allow student borrowers to skip payments during the pandemic.  It concluded that the default rate for FFEL loans (the program that allowed borrowers to miss payments) will go up when all those 37 million borrowers are required to start making monthly loan payments again in May. 

According to some insiders, President Biden is likely to extend the student-loan payment moratorium yet again, perhaps until after the 2022 midterm elections. Would that be a good thing?

In some ways, yes. The two-year break from making monthly loan payments gave millions of Americans much-needed financial relief. Some probably took advantage of the payment holiday to continue paying down their loans while interest wasn't accruing.  

But I think there may be a downside to DOE's pause on collecting student loans. People have gotten used to having extra money in their pockets, and it will be hard for them to begin writing those monthly checks again.

In some ways, the debt moratorium is like that loan from your brother-in-law. If he doesn't set a firm deadline for getting his money back, you are less inclined to repay the debt. Maybe your brother-in-law will forget all about it.

It would be lovely if the federal government forgave all federal student loans, a scenario millions of student debtors devoutly wish for.

But it will be difficult for our government to write off $1.8 trillion in student debt when that debt makes up about a quarter of all federal assets.

It is easier for everyone to treat the federal student loan program like a brother-in-law loan.  Hey, no hurry about paying it back.

Hey, brother-in-law: About that money you loaned me . . . .

Congress & DOE Can't Fix the Student Loan Program: They're Just Making It Up As They Go Along

 Paolo Bacigalupi's apocalyptic novel The Water Knife is a tale about the struggle for water in the desert Southwest. Lucy, one of the novel's lead characters, is an investigative reporter trying to understand the major power players who use the law, violence, and vigilantes to control water for their various constituencies.

At some point, Lucy realizes that none of the big players has a long-range strategy, and she has a revelation: 

They have no idea what they're doing. These are the people who are supposed to be pulling the strings, and they're making it up as they go along.

Suppose you are a college-loan borrower who hopes Congress will reform the federal student-loan program and maybe even forgive all $1.8 trillion in outstanding student debt. In that case, you need to have the same revelation that enlightened Lucy.

All the major players who participate in the massive grift called the federal student loan program are just making it up as they go along. There is no long-range plan. In fact, I don't think Congress or the Department of Education even know for sure how much money has been borrowed.

Reporters Warren Rojas and Camila DeChalus, writing for Business Insider, recently reported that 360 high-ranking congressional staffers owe money on student loans. Almost fifty of those staffers owe more than a quarter-million dollars. More than 250 of them owe up to $100,000. One congressional aide has been paying on student loans for 32 years.

Many of these staffers hope President Biden will cancel all this debt before the November elections, fearing the prospect of a Republican-controlled Congress. They may think the Biden administration has a plan.

But I don't think so. I don't think any of the leading players have a plan.

Four thousand colleges and universities depend on getting regular infusions of federal student-aid money.  They're like drug addicts who live from moment to moment, waiting on their next fix.

The people who run the for-profit colleges are getting rich, and so are their shareholders. The status quo works just fine for them.

The Department of Education bureaucrats are paper shufflers.  Their only goal is to keep shuffling all that paper until they're eligible to retire.

Rojas and DeChalus reported that four dozen student-debt-related bills have been introduced in this session of Congress. But so what? Reform bills have been filed every year for more than a decade, but none of those bills has made it out of committee.

The student-debt strikers hope to put enough pressure on Congress to get significant relief on their massive student loans. I hope they're successful. But I'm not sure the strikers have even gotten Congress's attention.

Let's face it. Congress, DOE, and the universities don't have a long-term plan for solving the student-loan crisis. They're just making it up as they go along. 

Making it up as they go along

Another Day Older and Deeper in Debt: The Student-Loan Crisis is Getting Worser and Worser

"It's a thankless job," Kurt Vonnegut observed in Titans of Siren, "telling people it's a hard, hard Universe they're in."

I know how Kurt feels. I've been writing about the student loan crisis for 25 years. About ten years ago, I started blogging about it.  I've written over 900 essays, and I've gotten a million hits. 

Has anything changed?

The short answer is no. Forty-five million Americans have outstanding federal loans, a total of $1.8 trillion. Americans hold another $150 billion in private student loans, and students' parents owe another $100 billion.

Research confirms that student debt prevents people from getting married, buying homes, and saving for retirement. Indeed, some college graduates would be better off financially had they never gone to college.

Over the years, Congress and the Department of Education have launched various programs to ease the burden of college debt, but everything they do just makes matters worse.

Income-based repayment plans, which set repayment rates based on a borrower's income, have turned nine million student debtors into indentured servants who make monthly payments based on their income, not how much they owe.

The result? Virtually none of those nine million people will ever pay off their student loans because their monthly payments aren't big enough to cover accruing interest. As a practical matter, these college borrowers have defaulted on their loans even though DOE pretends the loans are in good standing.

The Public Service Loan Forgiveness program benefits people who take low-paying service jobs (firefighters, teachers, EMS personnel, etc.). But until recently, only about two percent of the people who thought they were entitled to PSLF debt relief actually got it.

Parent PLUS loans have driven thousands of families into poverty, but Congress refuses to reform the Parent PLUS program. The Wall Street Journal published an essay listing five reasons Congress refuses to act--including the colleges' desire to get Parent PLUS revenue.

When I started writing about the federal student loan program, I viewed it solely as a problem for individual student borrowers--not a boondoggle that could weaken the entire nation.

But it's now clear to me that the program has become so large, corrupt, and mismanaged that it is destroying the integrity of American higher education and undermining the national economy.  Millions of student debtors cannot buy homes, save for retirement, or start families because they are burdened with college debt they can never repay.

Our higher education leaders tell themselves that they are the most sensitive people in America. They constantly prattle about equity, inclusion, and the need to expand opportunities for low-income Americans.

But not a single university president has called for student-loan reform. No college CEO has demanded an overhaul of the Parent PLUS program or legislation to stop the Department of Education from garnishing Social Security checks of elderly student-loan defaulters. 

 Harvard President Lawrence Bacow bent over backward to get a student visa for a single Palestinian, but has this Ivy League prig said anything about a federal program that has injured millions of people, including students at his own university? No, he has not.

University leaders have nothing to say about the federal student loan program because their institutions are addicted to federal money. The status quo suits them just fine.

 After all, if college students graduate with worthless degrees and a mountain of debt, it's not the universities' problem. The colleges get their money upfront.

Harvard University: Ain't we got fun!

Baton Rouge Man Convicted of Massive Student Loan Fraud: Baton Rouge Community College Becomes Crime Scene

 A few days ago, Elliott Sterling of Baton Rouge was convicted of massive student-loan fraud. As reported in the Baton Rouge Advocate, Sterling stole $1.4 million in student loan money by pretending to be a Baton Rouge Community College student 180 times.

Prosecutors also presented evidence that the Sterling falsified student-loan applications for 168 people. In furtherance of his scheme, he bought 42 fake high school transcripts, paid people to represent themselves as students, and filed false information on student-aid applications.

Sterling's criminal scheme went on for two years. FBI agents seized $422,000 in fraud proceeds, but Sterling blew a great deal of money at gambling casinos.

Apparently, numerous people helped Sterling bilk the federal government. He collected hundreds of thousands of dollars in student-loan money intended for other people and kept two-thirds of the proceeds. He even enlisted the help of a couple of people in prison.

Sterling's convictions raise several questions. First, did any of the bogus students at BRCC attend classes?  Did they receive grades? How long did it take BRCC to realize that someone was using the college to scam the federal student-loan program?

Of course, all the people who took out student loans as part of Sterling's scheme are indebted to the Department of Education and required to pay back the money they were awarded. How many of these "students" will pay back their loans?  My guess is that none of them will.

College leaders and the U.S. Department of Education would like Americans to believe that the federal student loan program is competently administered and that federal loan money helps students get a valuable college education.

In fact, the student loan program is riddled with fraud and mismanagement. Several for-profit colleges have been accused of misrepresenting their programs; some individuals take out loans just to capture the income with no intention of studying for a college degree. Hundreds of colleges have rolled out dodgy graduate programs to enhance their revenues, leaving students with worthless MBAs and professional diplomas.

Today, 45 million Americans collectively owe $1.8 trillion in student debt. Parents have impoverished themselves by taking out Parent PLUS loans to help their offspring pay their college bills. Private lenders have loaned another $150 billion to students at high-interest rates.

It is time for Americans to admit that higher education in this country is a racket. Congress doesn't have the courage to legislate reforms. But surely, our federal legislators can summon the political will to amend the Bankruptcy Code to allow the victims of this massive fraud scheme to discharge their student loans through bankruptcy.

Baton Rouge Community College: A crime scene

How Screwed Up is the Federal Student Loan Program? We Can Tell You, But Then We'd Have to Kill You!

 Betsy DeVos, the Wicked Witch of the Midwest, was perhaps the most despised member of President Trump's cabinet. As Trump's Education Secretary, she coddled the for-profit college industry and (in my opinion) bungled the Public Service Loan Forgiveness (PSLF) program.

Nevertheless, in a speech delivered in November 2018, DeVos revealed to the nation just how totally screwed up the federal student loan program really is. She deserves some credit for that.

Here's what DeVos said:

• The federal government holds $1.5 trillion in outstanding student loans, one-third of all national assets.

• Only one in four federal student-loan borrowers were paying down the principal and interest on their debt.

• Twenty percent of all federal student loans were delinquent or in default, which was seven times the delinquency rate on credit card debt.

• The debt level of individual borrowers had ballooned between 2010 and 2018 because students were borrowing substantially more money.

• The federal government's portfolio of outstanding student loans constituted 10 percent of our nation's total national debt.

Soon after giving this speech, DeVos engaged a private firm to determine just how bad the student loan crisis was. Jeff Courtney, a former JP Morgan executive, headed up this investigation, and here is what he found:

Although DOE calculated that it would eventually receive 96 cents of every student-loan dollar in default, in fact, it would only recover between 51 and 63 percent.

Courtney also found that DOE allows student-loan defaulters to sign up for new loans, which are used to pay off the defaulted loans. When that happens, the defaulted loans are categorized as paid in full when, in fact, they aren't paid off at all.

DeVos acknowledged that private businesses could not legally operate in this way. In fact, she said, if a private actor engaged in DOE's accounting practices, that person would "probably be behind bars." 

Of course, we know that Courtney's findings aren't the only evidence of DOE's financial skulduggery.  DOE has been putting distressed debtors into income-based repayment plans (IBRP) and counting the loans in these plans as performing loans.

But that is not correct. Approximately 9 million student borrowers are in IBRPs, and their monthly payments are not large enough to pay accruing interest. Thus, IBRP participants see their loan balances grow with each passing month, even when they make regular monthly loan payments. 

In fact, all 9 million IBRP participants are in default--if default means never paying off the debt.

In recent months,  Congressional members have been asking DOE to disclose the actual cost of the federal student loan portfolio, but Education Secretary Miguel Cardona hasn't been forthcoming.

Here is the essence of the matter. DOE knows the federal student loan portfolio is a trainwreck, but it hopes to keep the catastrophe a secret for as long as possible.  

It's like that old joke about the  CIA and classified information: We can tell you the truth about the student-loan program, but then we'd have to kill you.

Sources

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018. [The DOE link to this speech  was either taken down or obscured.]

Betsy revealed just how screwed up the federal student loan program really is.

Like Prisoners on Death Row: 25 million student debtors may get another reprieve from making their student-loan payments

Around 2,500 prisoners sit on Death Row in American prisons. Nearly 700 condemned men await death in the Golden State of California. A couple hundred are housed on Death Row in Texas, the Lone Star State. And Florida--the Sunshine State-- has 330 prisoners who've been sentenced to die.

How long do condemned prisoners sit in prison before being executed? On average, 19 years. Most men on death row can postpone their execution date by filing multiple appeals in the courts.

Of course, Americans living in freedom cannot compare their situation to the men on Death Row. Nevertheless, student-loan debtors are somewhat like condemned prisoners. They are seeing their lives drain away while the federal government issues multiple stays of execution on their student-loan payments without giving them real relief.

In March 2020, the Department of Education allowed 25 million student debtors to stop making payments on their loans due to the economic disruption of the COVID pandemic.  DOE said it would not penalize borrowers who didn't make their loan payments and wouldn't charge interest on the underlying debt.

That moratorium has been extended four times, and the Biden administration may extend the moratorium yet again.

Are these debt-forgiveness edicts a good thing for the nation's overburdened student-loan borrowers? Yes, of course.

But there are psychological and emotional costs to being burdened by debt that can never be paid back, costs that some federal bankruptcy courts have explicitly recognized. And these costs are not alleviated by giving college borrowers a series of loan holidays.

And allowing 25 million Americans to skip their student-loan payments for two years does nothing to solve the student-loan crisis, which has grown to catastrophic proportions. Together, American college borrowers owe $1.8 trillion in student debt and another $150 billion in private student debt.

Maybe President Biden will forgive $10,000 in personal student debt as he promised during the 2020 presidential campaign. But that will do little or nothing to ease the debt burden of most borrowers.

Perhaps Congress will pass legislation to forgive all federal student-loan debt, or President Biden will do that by executive order. But I think relief of that magnitude is unlikely.

In the meantime, while our legislators and policymakers ponder global solutions,  why doesn't Congres simply amend the Bankruptcy Code to allow insolvent student borrowers to discharge their student loans in bankruptcy?

But Congress probably won't do that. For all the sympathetic rhetoric, Congress is content to allow millions of Americans to sit helplessly in a vast debtor's prison without bars--financially unable to buy homes, save for retirement, or start families.

In the meantime, college borrowers live much like the men on Death Row. Like condemned prisoners, they get numerous reprieves from making payments. They get deferments, they sign up for long-term income-based repayment plans, and they get to skip loan payments during the COVID crisis. 

Condemned prisoners whose sentences are postponed again and again will never be free. Some will eventually be executed, but many of them will die of old age.

Likewise, America's student loan debtors can manage their massive loan debt with various types of reprieves. They can apply for economic-hardship deferments. They can sign up for long-term, income-based repayment plans. They can skip payments during the COVID loan-payment pauses.

But millions of them will never be free of their college debt. They will die before it's repaid. That's a high price to pay for going to college.

 

California's death row