Government To Cancel $6 Billion In Student Loans For Defrauded Borrowers
Around 200,000 who sought relief after attending schools that the Education Department said showed signs of substantial misconduct will have their federal student loans wiped out.
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By Stacy Cowley
Around 200,000 former students who attended schools that they said had defrauded them will have $6 billion in federal loans canceled under a sweeping settlement announced on Wednesday, the latest move by the Biden administration to address the student loan crisis by eliminating some debts.
Those who applied for relief some as long as seven years ago will have their loans wiped out if they attended one of more than 150 schools named in the class-action settlement, nearly all of which are for-profit colleges and vocational programs. The deal reverses 128,000 denial notices which a federal judge called disturbingly Kafkaesque that were sent to relief applicants during the Trump administration.
Education Secretary Miguel Cardona called the deal fair and equitable for all parties.
The deal, which requires approval by a federal judge, was greeted with cheers and relief by borrowers. This is probably the sexiest thing Ive seen in a long time! one . My school listed as a bad actor and my debt will be wiped out.
What Is Student Loan Forgiveness
Student loan forgiveness means you are no longer required to make payments on the loans you used to pay for college. Its an incentive program for those who took out more money than they can afford to repay.
Piling up student debt isnt exactly a sin. If it were, 45 million people should head to the nearest confession booth. They have a combined $1.7 trillion in sins, er, debt.
It cant be confessed away, but it can be forgiven. Sort of.
Forgiveness means all or part of your student loan is wiped away. Poof! But the federal government doesnt just wave a magic wand over everyones debt. You must qualify for forgiveness, and thats a challenge because, in most cases, one of the requirements is 10 years of steady, on-time payments.
Private student loan forgiveness is even more difficult. The only way that happens is if you sustain total and permanent disability, or you die.
Could Trudeau Follow Suit
As for Canada, there hasnt been as much talk about student debt relief has there has been in the states. Since the repayment moratorium passed, the topic hasnt been coming up. In part, this may be because Canadian students have less student debt than their American counterparts. According to StatCan, the average Canadian student owes $14,900 at graduation, while their U.S. counterpart owes $32,000. Anecdotally, these stories of staggering $250,000 student debts seem far less common in Canada. So, perhaps Trudeau doesnt feel the need to act on whats not the countrys biggest financial problem right now. Nevertheless, the NDP and others remain committed to student debt relief.
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Bidens Plan Could Alleviate Debt For The Majority Of Borrowers
Student loan debt continues to grow in the United States the most recent statistics from MeasureOne report a total of almost $1.6 trillion in outstanding student loans, 92 percent of which are federally owned.
From free or reduced college tuition to revised income-driven repayment plans, Bidens potential policies could radically change student loan borrowers financial picture.
In addition to these more systemic changes, Biden has also suggested more immediate relief. One measure proposed in Bidens Emergency Action Plan would grant all federal student loan borrowers $10,000 or more in student loan forgiveness in order to promote economic recovery. Unlike the long-term forgiveness indicated in his other proposals, this student loan cancellation wouldnt be conditional on service.
For some borrowers, $10,000 in forgiveness may seem like a small fraction. However, a recent report by the Department of Education found that about 15 million borrowers have federal student loan debt of $10,000 or less meaning around a third of federal student loan borrowers would see all of their federal debt erased.
Whats more, a Bankrate survey found that 73 percent of millennials have delayed major life milestones due to their student loan debt. With $10,000 alleviated, those goals could be more attainable. To put it into perspective, $10,000 could pay for a car or serve as a down payment on a home.
The $1000000000000 Question: Will Joe Biden Wipe Out Student Loans
In order to take some of the pressure off of those people who are saddled with heavy student loan burdens during the pandemic, the government has on three separate occasions decided to implement or extend a freeze on student loan repayments.
Here’s What You Need to Remember: A new report by the Roosevelt Institute, however, has called into question the idea of student loan regressivity, arguing instead that loan forgiveness would see those people in middle income brackets benefiting more than those in the top ten percent of earners.
Student loan debt remains a major issue for many Americans. It is estimated that Americans collectively hold $1.7 trillion in student loan debt, and many people were struggling to meet their loan repayment obligations even before the pandemic hit.
In order to take some of the pressure off of those people who are saddled with heavy student loan burdens during the pandemic, the government has on three separate occasions decided to implement or extend a freeze on student loan repayments. The most recent extension came in the form of an executive order signed by President Biden shortly after he took office that saw the freeze extended through September 2021. It remains to be seen whether or not the Biden administration will choose to once again extend the freeze on loan repayments.
Eli Fuhrman is a contributing writer for The National Interest. This article first appeared earlier this year.
Image: Reuters.
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He Didnt Include Canceling Student Loan Debt In His Annual Budget
After all the talk about canceling student loans , President Biden did notwe repeat . . . did notend up including student loan forgiveness in his annual White House budget.8 In line with several statements hes made since taking office in January 2021, the president says hes hoping for Congress to get some form of forgiveness done through legislation. And even though a lot of big-name Democratic leaders in Congress have publicly pushed Biden to use an executive order to forgive a chunk of debt for borrowers nationwide, its still not clear if the president even has the legal authority to do anything widespread like that.9
What Has Biden Said About Student Loan Forgiveness
Like we said earlier, Biden has mentioned forgiving $10,000 per borrower.18 And when running for President, Biden said that canceling student loan debt was a part of his plan. But he didnt give details about exactly how he would like to get the loan forgiveness doneeither by executive action or through an act of Congress. And in case youve forgotten, an act of Congress is sometimes slang for impossible.
Well say it again, because it can never be repeated too often: Dont look to the government to solve your financial issues.
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What Should You Do About Your Student Loans Today
Wouldnt it be nice if you could cancel all the bad things in your life? Sure! If we had a delete button available for all of lifes aches and pains, wed be pressing it all day long. Here in reality, though, there are no magic wands. And most solutions to lifes problems cost you money or effortand sometimes both!
So, how realistic is it to hope for some relief through student loan forgiveness in one big, sweeping move?
Well, its not impossible. But its also pretty unlikelyaka dont count on it. A controversial move like canceling student loans takes a lot more to pull off than just PR and trending tweets.
Look, it doesnt matter whos in the White House. The responsibility for taking control of your money is always in your hands. Instead of waiting on somebody in Washington, D.C., to pay your student loans off for you, remember the Baby Steps:
And if you want to really speed up your progress with those student loans, take a look at refinancingbut only if it makes sense for you. You just might lock in a better fixed interest rate and a shorter term to pay the loan off. The goal is always to leave debt behind forever! To find out if refinancing is a good option for you, check out the only refi partner we trust.
About the author
Kristina Ellis
Kristina Ellis is a best-selling author who believes no student should be burdened by loans. Drawing from her experience of earning over $500k in college scholarships, Kristina helps thousands of students graduate debt-free.
Likely Future Student Loan Forgiveness Developments
The next event will occur when the U.S. Department of Education and Justice Department issue reports concerning the executive branchs legal authority to implement broad loan forgiveness without Congress.
These reports will likely conclude that the President does not have the legal authority to implement broad student loan forgiveness through executive action. This will force Congress to act. Congress might consider legislation to forgive student loans in the fall, as part of a budget reconciliation bill. The Biden Administration has repeatedly reiterated that the President would sign a bill offering $10,000 in federal student loan forgiveness to all borrowers.
The timing of loan forgiveness will also depend on which loans are eligible.
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Student Loan Forgiveness: Us Cancels Another $2b In Debt But What About Relief For All Borrowers
Under President Joe Biden, the government has wiped out over $11.5 billion in student loans for select groups of borrowers.
Now the Education Department says a new round of relief is coming, with notices going out in the coming weeks for about $2 billion in federal loan forgiveness. Education Secretary Miguel Cardona tells borrowers to check their email inboxes.
You might not have realized you qualify for one of the debt cancellations granted to about 600,000 borrowers, who now have more ability to increase savings, invest money and deal with other debts.
But what happened to the idea that Biden supported to cut debt for every borrower? Lawmakers and activists who support erasing loan balances question whats taking Biden so long to decide.
Loan Forgiveness For Military
Each branch of the military has programs that help qualified members pay off their student loans, but the loan amounts forgiven and the requirements that must be met vary dramatically.
Visit the Complete Guide to Military Student Loan Forgiveness and Repayment and find the program that best suits your situation and branch of the military.
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What Democrats In The Us Are Proposing
Various democratic groups in the U.S. are proposing different amounts of student debt forgiveness. Some of the proposals floated include
- $10,000 in debt cancelled per borrower. Biden himself signaled support for this amount
- $50,000 per borrower. This is pushed by Senate democrats like Chuck Schumer and Elizabeth Warren and
- $200,000 per borrower. This was hinted at in a Wall Street Journalarticle.
Some of these debt-relief programs would be quite aggressive if implemented. So far, though, none of them have been.
Other Repayment Plans For Student Loan Debt
Other types of repayment plans include a standard repayment plan, a graduated repayment plan, and an extended repayment plan.
What Happens if I Default on My Student Loans?
Defaulting on your federal student loans can lead to serious consequences, like tax refund offsets and federal benefits intercepts, wage garnishment, and the loss of eligibility for deferment, repayment plans, and probably forbearance.
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Government Fix To Wipe Away Some Student Loan Debt
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Is There More Student Loan Forgiveness Coming
Part of President Joe Bidens campaign pitch was that he was going to offer some sort of forgiveness to student loan borrowers, but as of April 2021, Biden hasnt sorted that question out.
He told a February CNN Town Hall meeting that Im prepared to write off a $10,000 debt, but not $50,000, but has not followed up on that with any legislative proposal.
Instead, a month later, he asked Education Secretary Miguel Cardon to prepare a report that details a presidents authority to cancel $50,000 in student loan debt without approval from Congress.
According to student loan expert Mark Kantrowitz, the $10,000 cancellation would wipe out all student loan debt for about 14.5 million borrowers. The $50,000 cancellation would erase debt for about 36 million borrowers.
One thing to be aware of is that currently, whatever amount of loan is forgiven is counted as taxable income. That may change as new legislation comes out and possibly changes loan forgiveness programs.
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Where Is The Money Coming From
Bidens plans to help alleviate the rising student loan debt may come with a big price tag. Fundamentally, you have to get the money from somewhere, says Kantrowitz. So its either going to be taxing individuals, taxing businesses or increasing the deficit. Those are the three main sources.
Ultimately, the question is whether the burden of at least a portion of the existing debt will be placed on the backs of taxpayers, says Mark Hamrick, Washington Bureau Chief and senior economic analyst for Bankrate. That is a tricky question, and one which Biden and others will need to navigate if the matter is addressed.
Tens Of Millions Still Want Loan Forgiveness
Let’s be real: The administration’s debt forgiveness to date is puny compared to the total $1.7 trillion in student loan debt carried by 45 million Americans.
During his presidential campaign, Biden said he would like to cancel $10,000 in federal student loan debt for every borrower.
High-profile Democrats in Congress, including Senate Majority Leader Chuck Schumer, have urged him to go bigger and wipe out $50,000 per person.
Schumer says Congress is too divided to pass the idea in legislation and frequently argues that Biden has the executive power to enact broad forgiveness with the flick of a pen. House Speaker Nancy Pelosi has disagreed that the president has that power.
Bidens administration said in April it would review whether he could take executive action but has said nothing about the matter since. Activists and some lawmakers are demanding that Biden hurry up.
They say reducing student debt loads would benefit the U.S. economy by freeing cash that people can put toward major expenses, such as homes and cars, new business ventures, and other big investments in their futures.
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Student Debt Owned By Schools
Institutional student debt, or debt owed by students to schools, can take the form of overdue tuition bills and various fines accrued during school, and colleges can hold students’ transcripts as collateral for the debt and prevent enrollment in classes until the debt is paid off.
Ithaka S+R, a nonprofit that researches education, estimated last year there could be as much as $15 billion in unpaid balances to colleges and universities.
Delaware State University was the first school to announce it would be using Biden’s stimulus to cancel $730,655 in student debt for recently graduated students who faced financial hardships during the pandemic. Antonio Boyle, Vice President for Strategic Enrollment Management, said in a statement at the time that the debt made it difficult for students to rent an apartment and cover additional costs as they prepare for their post-grad careers.
“While we know our efforts won’t help with all of their obligations, we all felt it was essential to do our part,” Boyle said.
Since then, many schools – particularly Historically Black Colleges and Universities – have been using stimulus funds to relieve students of institutional debt, but the $1.7 trillion student debt crisis still persists.
Policy Proposals In The Works
Bidens 2022 budget proposes raising the Pell Grant maximum by $400 along with a $1,475 increase in the American Families Plan. The request, if approved, also would enable Deferred Action for Childhood Arrivals, or DACA, recipients to receive Pell Grants.
Under this campaign proposal from Biden, college would become more affordable for students at private and public historically Black colleges and universities, tribal colleges and universities, and additional minority-serving institutions, or MSIs. Biden also called for free tuition and fees toward a degree or certificate for two years at a community college, but that proposal is no longer included in the spending plan approved by the House in November and that now awaits a Senate vote.
While campaigning, Biden proposed limiting IDR plans to just undergraduate loans, capping payments at 5% of income, not taxing the forgiven loan amount and automatically enrolling every federal student loan borrower in an IDR plan.
Biden campaigned on a plan for a new student loan forgiveness program for borrowers who provide a public service. Under this proposal, up to $50,000 could be forgiven $10,000 of your debt would be automatically canceled for each year you perform eligible service, for up to five years total. It would not replace PSLF.
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