Biden’s proposal to reduce student loan debt will make matters worse
On Wednesday, the Biden administration announcement it proposed new regulations for student loans owned by the Ministry of Education. The proposed rules provide $85 billion expansion existing federal student loan forgiveness programs. They would expand eligibility for programs created under Presidents George W. Bush and Barack Obama and end interest capitalization on federal student loans in certain circumstances.
President Joe Biden’s new rules would expand eligibility for student debt relief for borrowers who have been defrauded by their institutions, borrowers whose institutions have closed, borrowers who are permanently disabled, and borrowers who accept “public service” jobs after graduation.
The administration also intends to prohibit the capitalization of interest in certain circumstances. Interest capitalization allows the Ministry of Education to add unpaid interest on student loans to the borrower’s loan balance. This increases the size of the debt and future interest payments.
The Obama administration’s “borrower defense” program is a loan forgiveness process that deals with the federal student loan debt of people who were allegedly defrauded by their schools. The current policy would be amended to create a “broader and clearer standard for the types of misconduct that could lead to discharge of the borrower’s defence”. reads a fact sheet of the Ministry of Education. The Biden administration’s rules would create two new categories of academic misconduct that would qualify a student borrower for debt forgiveness: “substantial omissions of facts” by the institution and “aggressive and deceptive recruiting.”
The new language in the borrower defense policy also includes “a presumption that borrowers have reasonably relied on misrepresentations or omissions” and expands the appeals process for student borrowers whose forgiveness applications are denied. It also states that loan forgiveness will not depend on the Ministry of Education collecting student loan disbursements from institutions that defraud students.
The proposed settlement would also cancel the debt of students whose institutions firm while they were registered. According to the Ministry of Education, the new rules “provide automatic releases to any borrower who was enrolled within 180 days prior to the closure and who has not completed their education at the school or through an approved teaching agreement at another school within one year of the closure from their home school.”
Under the Biden administration’s plan, more borrowers would also receive loan forgiveness under the Total and Permanent Disability Discharge (TPD). Borrowers who are totally and permanently disabled would no longer be subject to a three-year income test period, allowing the Department of Education to reinstate loans for borrowers returning to work. The new rules would also be “expand the types of documents and signatures that borrowers can submit to demonstrate they are eligible for relief” and allow more types of disabilities to be subject to TPD waivers.
The Public Service Loan Cancellation Program (PSLF) is the fourth program to receive substantial changes. Signed into law by Bush in 2007, it allows borrowers who make 120 monthly payments while directly employed full-time by a government agency or 501(c)3 nonprofit to have the remaining balance of their loan forgiven. federal loan. The new rules would require the Department of Education to account for payments that are late or above the minimum payment and publish a “time-limited waiver so that student borrowers can count payments from all federal loan programs or repayment plans toward forgiveness,” including “types of loans and payment plans that were not eligible previously”.
These proposed changes come in response to growing demands from progressive activists and members of Congress to forgive federal student loan debt. In May, White House officials seemed ready to announce up to $10,000 in debt forgiveness per borrower for millions of Americans. The proposals announced Wednesday simply expand existing pardon programs.
At first glance, all of these loan forgiveness programs may seem to have merit. But they’re all trying to cover up the problems the federal government has created that will continue to exist after the new rules come into effect. Forgoing billions of dollars in student loans means billions of federal dollars have gone to poorly run schools and students who, in many cases, were unprepared for college. While these students may deserve some sort of debt relief — and very few can receive it through bankruptcy — the Department of Education keep on going providing loans to unprepared students to attend poorly run schools.
The expansion of benefits offered by the PSLF program poses unique challenges for taxpayers and prospective borrowers. He is expected cost more than $13 billion over the next 10 years.
As with the cancellation of the debt of borrowers misled by their schools, the PSLF seems on the face of it to be a good idea. If a student decides to pursue a career in public service – essential but presumably low-paying work – then, after 10 years of payments, that student will be rewarded for their service by being paid a fixed amount of their remaining loan balance. However, those who work in the public sector often have the best job security, the best health care and the best pensions among American middle-class workers.
In addition, many professions considered “civil service” are among the highest paid positions in the entire labor market. Physicians employed by non-profit hospitals, for example, are eligible for the PSLF. However, whether a cardiologist works for a not-for-profit or for-profit hospital, his annual salary likely top of $400,000. Thus, future doctors can incur hundreds of thousands of dollars in medical school debt and pay only a fraction of the amount borrowed, while accumulating millions of dollars in income over the course of their careers.
When university deans can assure students that a heavy debt burden can be discharged by working for a non-profit organization or the government after graduation, they can more easily justify exorbitant tuition fees. After all, why worry about borrowing a huge sum if you won’t have to pay it back? The PSLF’s solution to the heavy indebtedness of public sector workers has only made the problem worse and will continue to do so. Once the government pours funds in the form of debt relief into the market for specific degrees, schools end up using those funds to justify the price hike, thus generating a bigger student debt crisis. In turn, this broader crisis calls for more government funding.
The solution to runaway student debt inflation is for the government to stop subsidizing tuition hikes. While limited debt relief for defrauded or disabled borrowers makes sense, the federal government must begin making policy proposals that will tackle the student debt crisis at its source – the cost of college attendance.
Student loan debt is a real and pressing problem for America’s poorest borrowers, but it’s just an inconvenience for millions more, including many PSLF recipients. Solving the long-term college cost problem requires getting the government out of the lending business.