Solving the Student Loan Mess


To come to the student loan debate without any background is to think it’s pretty much a big giveaway for millions of borrowers. The reality is more complicated.

An important part of this reality is this: under the rules, many borrowers already have the right to obtain the cancellation or substantial reduction of their loans, but they have not done so because of the bureaucratic failures of the US Department of Education and private loan servicing companies that have been lasting for years. This is entirely separate from President Joe Biden’s possible plan to cancel student loans at all levels.

The US Department of Education says it intends to right at least some of those wrongs. This is good news for a host of reasons, not the least of which is the prospect of taking this problem away from politicians who have framed student loan reforms as a favor to profiteers while many others have paid their debts. academics – pitting hardworking Americans against working Americans to score political points.

Consider these examples of how the system failed:


The Department for Education acknowledges that millions of borrowers have been forced into forbearance, whereby people who are struggling to make their payments may see them reduced or suspended for a time. During this period, however, the interest continues to accrue and they end up owing even more. They also get no credit for canceling the loan. But many low-income people qualify for better options like income-contingent repayment, whereby monthly payments can be reduced – even to zero – while still progressing towards loan forgiveness, which is supposed to come in 20 to 25 years.

The income-based reimbursement scheme has had its own problems, with the Department of Education failing to ensure people’s accounts are accurately tracked. This led to at least 3,000 borrowers paying off even after their remaining debt should have been wiped out, according to the Government Accountability Office. A 2021 study by the nonprofit National Consumer Law Center found that only 32 people had had their loans canceled under the program in its 25-year history.

People entering the civil service – teachers, nurses, police officers, etc. – can see their loan canceled after 10 years. But the Ministry of Education found that 99% of loan cancellation requests were denied, even for those who met all the conditions. The ministry failed to monitor private loan servicers who intentionally did not tell borrowers they were eligible for the program or forced them out for technical reasons.

To its credit, the Biden administration says it intends to turn the situation around, giving the right credits for public service to those who deserve it, fixing the problems with the income-tested reimbursement program and adjusting the accounts of 3.6 million borrowers to credit them. between one and three years of loan forgiveness forbearance.

It’s good to hear, but none of this is really new to the government. The problems with the civil service loan cancellation program, for example, have been known since 2017, and the mess is still not completely cleaned up. Like borrowers who have faithfully held to their end of the bargain all this time, the administration must follow through once and for all.


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