Federal repayment plans adjust monthly payments based on income and family size and extend repayment periods. Debts are eligible for cancellation after 10, 20 or 25 years of repayment. About 30 percent of all borrowers with federal loans are in such a program, and more borrowers could benefit from participating in a program.
But the refund programs have a poor track record. Not long ago, 98 percent of people who applied for debt forgiveness had their claims rejected. A report from the Government Accountability Office in March found that millions of dollars in student debt could have been forgiven if the programs had been properly managed. Richard Cordray, the chief operating officer at Federal Student Aid, an agency of the Department of Education, called the failure “truly unforgivable.”
The Department of Education has been working to resolve these programs by retroactively giving qualified borrowers more credit for time spent in public service and clearing a backlog of paperwork, but it could do more. Additional changes to income-based repayment programs — such as lowering interest payments, lowering eligibility standards and exempting student loan debt from tax — can have major impacts over time, according to a report by Pew. Congress and the Department of Education should look at such changes as part of a more sustainable solution to the debt problem.
Lawmakers should also consider making it easier to pay off student loans through bankruptcy, a measure of relief available for credit card and mortgage debt. Amendments to the bankruptcy law in 2005 have also made that protection less accessible.
The Ministry of Education has launched a long-awaited crackdown on predatory schools, another major source of student defaults. The Obama administration has tightened rules for for-profit schools, but the Trump administration’s Department of Education, under Betsy DeVos, relaxed those rules and allowed refund and forgiveness programs to languish. Last month, the department paid off $238 million in debt from 28,000 people attending the Marinello Schools of Beauty, which closed in 2016. The school engaged in “comprehensive and widespread misconduct,” a department investigation found.
Since 2021, the Biden administration has approved more than $18.5 billion in loan waivers for more than 750,000 borrowers, including $6.8 billion for 113,000 people in the Public Service Loan Forgiveness Program and $8.5 billion for more than 400,000 borrowers with total and permanent disabilities. The government is also pushing for doubling the maximum Pell Grant and reinstating a rule that would hold schools accountable for their graduates’ paid work — a move targeting for-profit colleges.
Those steps are all good and are tackling the student debt crisis with policies that are both compassionate and fair.
