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Education

Biden administration revokes Trump rule on student loan oversight, paves way for investigations


Story by Erik Ortiz

Story   Source

Published on September 15, 2021 12:01 AM
 
 
A group of Democratic lawmakers led by Sens. Elizabeth Warren and Sherrod Brown is pushing for increased oversight of the industry as a result of the revised interpretation of federal policy.

The Biden administration has revoked a Trump-era rule that consumer advocates argued allowed the Education Department to subvert state law enforcement probes of student loan servicers — one of a series of recent overhauls that could pave the way for more robust investigations.

In a new letter obtained by NBC News, a group of Democratic senators are expressing support for Education Secretary Miguel Cardona for the latest reversal that tightens oversight of the student loan servicing industry, but they also believe the department must go further to ensure states have the full backing of the federal government to hold loan companies accountable.

The Trump administration's policy, posted in the Federal Register in March 2018, "interfered with state regulators exercising their authority to protect consumers in their states," the eight lawmakers, led by Sen. Elizabeth Warren, D-Mass., and Sen. Sherrod Brown, D-Ohio, wrote to Cardona.

The revised interpretation, which went into effect last month, "is not only legally sound, but will also have substantial benefits for borrowers," the senators added. "State attorneys general have been at the forefront of oversight of student loan servicers in recent years, uncovering widespread patterns of misleading and abusive conduct and winning significant settlements for borrowers in their states."

A Consumer Financial Protection Bureau report in June reaffirmed that servicers have "engaged in unfair acts or practices related to providing inaccurate monthly payment amounts to consumers after a loan transfer" and "regularly provided inaccurate information about eligibility for [Public Service Loan Forgiveness] or Direct Consolidation Loans, resulting in deceptive acts or practices...

STUDENT LOANS

forbes.com

As the Biden administration continues to evaluate whether it's possible to enact widespread student loan forgiveness using executive authority, lost in the debate is a simple fact: President Biden and former President Trump collectively have already cancelled $90 billion in student loan interest using executive action.

As the COVID-19 pandemic was rapidly accelerating in March of last year, President Trump issued an executive order suspending all interest accrual for government-held federal student loans. Weeks later, Congress codified the interest freeze when it passed the CARES Act, which continued the suspension of interest to September 30, 2020. President Trump then extended the interest freeze twice more using executive action — first to December 31, 2020, and then again to January 31, 2021. And on President Biden's first day in office, he signed an executive order to extend the interest moratorium yet again, this time to September 30, 2021.

In total, assuming there are no further extensions, this amounts to 18 months of suspended interest on government-held federal student loans. The U.S. Department of Education released data earlier this month indicating that this comes out to around $5 billion per month. Over the course of 18 months, that is $90 billion in student loan interest that has been cancelled.

The moral case against canceling
Educational debt is often regarded as an investment in one's future. Millennials with a B.A., for instance, typically earn $25,000 more than those with a high school diploma. College education is also generally correlated with a variety of positive life outcomes, including physical and mental health, family stability and career satisfaction.

Given the benefits of college education, canceling student debt appears to some as a giveaway for those who are already on their way to becoming well-off.

Canceling debt also seems to violate the moral principle of following through on one's promises. Borrowers have a moral duty to fulfill their loan agreements, the philosopher Immanuel Kant argued, because reneging on promises is disrespectful to oneself and others. Once people have promised to do something, he noted, others rely upon that promise and expect them to follow through.

In the case of federal student loans, a borrower signs a promissory note agreeing to pay back the government and, ultimately, the taxpayers. And so student borrowers seem to have a moral duty to pay their debts unless mitigating circumstances like injury or illness arise.

The moral case for canceling Fairness and respect, however, also demand that society addresses the magnitude of student debt today, and especially the burdens it imposes on low-income, first-generation and Black borrowers.

Young people today start their adult lives burdened with much more student debt than previous generations. Almost 70% of college students now borrow to attend college, and the average size of their debt has risen since the mid-90s from less than $13,000 to about $30,000 today.

As a result, total outstanding student debt has jumped to over $1.5 trillion, making it the second largest form of debt in the U.S. after mortgages.

This explosion in student debt raises two significant moral concerns, as my student Justin Lewiston and I argue in an article published last month by The Journal of Value Inquiry.

The first concern is that the distribution of costs and benefits is very unequal. Fairness requires equal opportunity, as the philosopher John Rawls argued. Yet, while borrowing for education is supposed to create opportunities for students from disadvantaged backgrounds, those opportunities often fail to materialize due to educational challenges and wage gaps in the labor market.

https://theconversation.com

The moral case against canceling
Educational debt is often regarded as an investment in one's future. Millennials with a B.A., for instance, typically earn $25,000 more than those with a high school diploma. College education is also generally correlated with a variety of positive life outcomes, including physical and mental health, family stability and career satisfaction.

Given the benefits of college education, canceling student debt appears to some as a giveaway for those who are already on their way to becoming well-off.

Canceling debt also seems to violate the moral principle of following through on one's promises. Borrowers have a moral duty to fulfill their loan agreements, the philosopher Immanuel Kant argued, because reneging on promises is disrespectful to oneself and others. Once people have promised to do something, he noted, others rely upon that promise and expect them to follow through.

In the case of federal student loans, a borrower signs a promissory note agreeing to pay back the government and, ultimately, the taxpayers. And so student borrowers seem to have a moral duty to pay their debts unless mitigating circumstances like injury or illness arise.

The moral case for canceling Fairness and respect, however, also demand that society addresses the magnitude of student debt today, and especially the burdens it imposes on low-income, first-generation and Black borrowers.

Young people today start their adult lives burdened with much more student debt than previous generations. Almost 70% of college students now borrow to attend college, and the average size of their debt has risen since the mid-90s from less than $13,000 to about $30,000 today.

As a result, total outstanding student debt has jumped to over $1.5 trillion, making it the second largest form of debt in the U.S. after mortgages.

This explosion in student debt raises two significant moral concerns, as my student Justin Lewiston and I argue in an article published last month by The Journal of Value Inquiry.

The first concern is that the distribution of costs and benefits is very unequal. Fairness requires equal opportunity, as the philosopher John Rawls argued. Yet, while borrowing for education is supposed to create opportunities for students from disadvantaged backgrounds, those opportunities often fail to materialize due to educational challenges and wage gaps in the labor market.

Wikipedia

Student loans are a form of financial aid used to help students access higher education. Student loan debt in the United States has grown rapidly since 2006. The total debt was $1.73 trillion by July 2021, with almost half of that being graduate school loans; the average Bachelor's degree borrower has about $30,000 of debt upon graduation.:?1? With a number of notable exceptions, student loans must be repaid, in contrast to other forms of financial aid such as scholarships, which never have to be repaid, and grants, which rarely have to be repaid. For example, student loans may be discharged through bankruptcy, by proving 'undue hardship' but the bar for discharge is high.

Research indicates the increased usage of student loans has been a significant factor in college cost increases.

US leaders have acknowledged the rise in student loan debt as a crisis. Former Secretary of Education Betsy DeVos said that Federal Student Aid's portfolio 'is nearly 10 percent of our nation's debt.'

Student loan debt is unevenly distributed, and race and social class are significant factors in the distribution of student loans. Approximately 30 percent of all college students do not incur debt. The schools with the highest amount of student loan debt are University of Phoenix, Walden University, Nova Southeastern University, Capella University, and Strayer University. Except for Nova Southeastern, they are all for-profit universities.

The default rate for borrowers who didn't complete their degree is three times as high as the rate for those who did. :?1? Student loan defaults are disproportionately concentrated in the for-profit college sector. In 2018, the National Center for Education Statistics reported that the 12-year student loan default rate for for-profit colleges was 52 percent. The 12-year student loan default rate for African Americans going to for-profit colleges was reported to be 65.7 percent. A 2018 Brookings Institution study projected that 'nearly 40 percent of students who took out loans in 2004 may default by 2023.'

Compared to most nations, student loans play a significant role in U.S. higher education. Nearly 20 million Americans attend college each year, of whom close to 12 million – or 60% – borrow annually to help cover costs. As of 2021, approximately 45 million Americans held student debt, with an average student loan balance of approximately $30,000.

In Europe, higher education receives much more government funding, so student loans are much less common. In parts of Asia and Latin America government funding for post-secondary education is lower – usually limited to a few flagship universities, like the Mexican UNAM – and there are no special programs under which students can easily and inexpensively borrow money.

In the United States, much of college is funded by students and their families through loans, although public institutions are funded in part through state and local taxes, and both private and public institutions through Pell grants and, especially with older schools, gifts from donors and alumni, and investment earnings. Some believe this substantially increases intergenerational correlations in income , although other factors have been estimated to play a larger combined role.

Historically, higher education in the US was perceived as a good investment for many individuals and for the public, even though differences in the returns of educational investment across schools were often overstated.

Student loans come in several varieties in the United States, but are basically split into federal loans and private student loans. The federal loans, for which the FAFSA is the application, are subdivided into subsidized and unsubsidized. Federal student loans are subsidized at the undergraduate level only. Subsidized loans generally defer payments and interest until some period after the student has graduated. Some states have their own loan programs, as do some colleges. In almost all cases, these student loans have better conditions – sometimes much better – than the heavily advertised and expensive private student loans.

Student loans may be used for any college-related expenses, including tuition, room and board, books, computers, and transportation expenses.

The main types of student loans in the United States are the following:

Federal student loans made to students directly . These loans are made regardless of credit history ; approval is automatic if the student meets program requirements. The student makes no payments while enrolled in at least half-time studies. If a student drops below half time or graduates, there is a six-month grace period. If the student re-enrolls in at least half-time status, the loans are deferred, but when they drop below half time again they no longer have access to a grace period and repayment must begin. All Perkins loans and some undergraduate Stafford loans receive subsidies from the federal government. Amounts of both subsidized and unsubsidized loans are limited.

There are many deferments and a number of forbearances one can get in the Direct Loan program. For those who are disabled, there is also the possibility of 100% loan discharge . Due to changes by the Higher Education Opportunity Act of 2008, it became easier to get one of these discharges after July 1, 2010. There are loan forgiveness provisions for teachers in specific critical subjects or in a school with more than 30% of its students on reduced-price lunch , and qualify for loan forgiveness of all their Stafford, Perkins, and Federal Family Education Loan Program loans totalling up to $77,500. In addition, any person employed full-time by any 501 non-profit, or another qualifying public service organization, or serving in a full-time AmeriCorps or Peace Corps position, qualifies for loan forgiveness after 120 qualifying payments. The 120 qualifying monthly payments do not need to be consecutive; they can be interrupted without penalty if there is a period of employment with a nonqualifying employer. However, loan forgivenesses or discharges are considered taxable income by the Internal Revenue Service under 26 U.S.C. 61. There is currently no provision in 26 U.S.C. 108 to exclude from taxable income amounts from forgiveness of student loans that were not the result of long-term employment in the public service sector. )

Federal student loans made to parents : Much higher limit, but payments start immediately. Credit history is considered; approval is not automatic.

Private student loans, made to students or parents: Higher limits and no payments until after graduation, although interest starts to accrue immediately and the deferred interest is added to the principal, so there is interest on the interest . Interest rates are higher than those of federal loans, which are set by the United States Congress. Private loans are, or should be, a last resort, when federal and other loan programs are exhausted. Any college financial aid officer will recommend you borrow the maximum under federal programs before turning to private loans.

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