In an effort to provide additional student loan relief, the Biden administration has again taken an incremental step to help financially strapped Americans, this time easing paperwork requirements on disabled borrowers who have had their loans forgiven but must continue to submit proof of medical disabilities in order to keep money in their pockets.
But critics say piecemeal reforms like this one fall short of having a real impact for families struggling amid the coronavirus pandemic.
The latest
The latest change involves the Total and Permanent Disability Discharge program, which cancels loans for hundreds of thousands of Americans with permanent disabilities due to their inability to maintain employment. But these borrowers could easily find themselves in repayment again if they don’t keep up with the government’s ongoing demands for records, which includes reporting income.
Considering the continued weight of the pandemic, the Department of Education on Monday suspended the three-year monitoring period which required disabled borrowers to certify their annual earnings. The government is also extending a reprieve to borrowers who failed to verify earnings after March 13, 2020, and had their student loans reinstated as a result.
Approximately 230,000 student loan borrowers will benefit from the change, including 41,000 borrowers who had their forgiven loans put back in repayment.
Despite the upturn for disabled borrowers, congressional Democrats continue to pressure the White House for additional relief and consumer advocates are steadily criticizing the White House, saying more should be done to eliminate red tape and automate the process.
“Even the Trump administration automated debt relief for veterans determined to be totally and permanently disabled,” said Alex Elson, an attorney and co-founder of the student loan advocacy group, Student Defense, according to Forbes. “There is absolutely no reason the Biden Administration should be refusing to do the same thing. The Department should waive negotiated rulemaking and issue a new regulation that automates discharges for these borrowers.”
More reforms expected
This week, the Biden administration also plans to expand emergency protections for borrowers who are currently in default on non-federal student loans.
On Tuesday, White House press secretary Jen Psaki said the administration plans to pause student loan collections on 1.14 million borrowers who have defaulted on loans that are from private banks but guaranteed by the federal government.
Right now, all federally backed student loans have been in forbearance throughout the pandemic, a pause in payments and interest granted under the 2020 CARES Act, which Biden extended until Oct. 1.
But the grace period was not extended to student loan borrowers who have defaulted federal student loans not held by the government, such as Family Federal Education Loans held by guaranty agencies, and federal Perkins loans held by colleges and universities. Many of these borrowers have been exposed to collections and wage garnishment.
Tax-free debt
Other action on alleviating the weight of student loans is also in the works.
A provision in the $1.9 trillion coronavirus stimulus package signed by President Joe Biden earlier this month also cleared the way for student loan debt to become tax-free through at least 2025 if a loan canceled before the full balance is paid off. Before this, any student loan debt canceled by the government was considered taxable and levied at the borrower’s normal income tax rate.
Proponents of the measure say the legislation — known as The Student Loan Tax Relief Act — creates a new path for Biden to wipe away hundreds of millions of dollars in student loan debt.
“This will pave the way for President Biden to provide real relief to student borrowers without fearing they’ll receive a huge tax bill they cannot afford,” said Ashley Harrington, federal advocacy director at the Center for Responsible Lending.
About one-third of the 45 million student loan borrowers in the United States are enrolled in “income-driven repayment plans,” which cap monthly payments at a portion of discretionary income and which ultimately cancel any remaining unpaid balances after 20 or so years.
To the IRS, the unpaid balance on the loan was considered income, and the agency lets the borrower know by mailing form 1099-C.
Student loan debt forgiveness plans for those who enter public service and for people with serious disabilities are already nontaxable.
Defrauded students
Last week, the Biden administration announced that thousands of students defrauded by for-profit schools will have their federal loans fully erased, reversing a Trump administration policy that had given these borrowers only partial relief.
The change could lead to $1 billion in loans being canceled for 72,000 Americans, all of whom attended for-profit schools, the Education Department said.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” said Secretary of Education Miguel Cardona. “A close review of these claims and the associated evidence showed these borrowers have been harmed, and we will grant them a fresh start from their debt.”
Cardona also issued new guidance allowing colleges to use stimulus funds to cancel institutional student debts in certain situations, Forbes reported.
President Joe Biden under pressure
The changes have been seen as mostly piecemeal, providing only temporary relief to a fraction of the nation’s 40 million student loan borrowers, and Biden remains under pressure from congressional Democrats to implement widespread student loan forgiveness through executive action.
“Abandoning partial relief is a strong start for a narrow subset of borrowers,” said Toby Merrill, director of the Project on Predatory Student Lending, in a statement following the administration’s changes to the Borrower Defense program, according to Forbes. “But what we need from the Education Department is an overhaul of the current borrower defense process.... The Biden-Harris administration must now address these failings or else perpetuate a system that is stacked against the very students they are supposed to protect.”
The president previously said he supports the idea of forgiving $10,000 per borrower but also has expressed reservations about doing it unilaterally through executive action.
The president also said he would support making community college free and for allowing families who earn $125,000 or less to send their children to state schools for free. He also said he supports eliminating interest payments and expanding debt forgiveness programs for Americans who take public service jobs, such as teaching.
$50,000 in forgiveness
Biden, however, has stopped short of saying he would sign an executive order forgiving $50,000 in student loan debt for millions of Americans.
The resolution calling for $50,000 in debt relief was introduced in February by Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer of New York.
Such a move would cost about $800 billion and deliver 36 million Americans out of debt, according to reports.
The Higher Education Act of 1965 authorizes the U.S. secretary of education to cancel student loans, meaning Biden could order the move, according to Warren and Schumer’s provision. However, Biden didn’t have an appetite for such a unilateral move considering the stakes of hundreds of billions of dollars that would need to be wiped off the books all at once for nearly 40 million people.
“Canceling student loan debt is the single most effective executive action President Biden can take to lift the economic prospects of tens of millions of young Americans,” Warren said recently.
Supporters of the loan cancellation plan say it would spark a wide swath of the economy, including new business, consumer spending, retirement savings, homebuying and other sectors. Critics, however, say the move would only bring a modest bump to economic activity in GDP.
Republicans oppose the move.
The White House has continued to signal that Congress should pass legislation to achieve it as student loan matters typically fall under federal spending set by Congress.
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