Nate DiCamillo
Sat, September 3, 2022
On paper, US President Joe Biden’s student debt cancellation plan looks pretty good.
The government will forgive $10,000 worth of student debt for those making under $125,000. That’s nearly a third of the average amount owed by student debt holders.
According to White House estimates, the policy wipes out the remaining balances for 20 million Americans—nearly half of all borrowers. This is great given that a third of them have student debt but no college degree, according to the Department of Education.
But these overall numbers obscure one key downside of the plan: It will do little to help borrowers who need it the most, those who hold large amounts of debt and have low incomes.
Though they only make up a small share of student loan holders, their plight is a result of everything that’s wrong with higher education. To address this, many loan reduction advocates were pushing the government to take into account racial disparities and offer more generous relief, said Fenaba Addo, an associate professor of public policy at the University of North Carolina at Chapel Hill.
But could the economy handle any more debt forgiveness without increasing consumer demand and pouring fuel on the inflation fire, like some opponents of debt forgiveness opponents argue? Isn’t Biden’s plan like giving a $10,000 check to millions of Americans?
There are millions of Americans who need way more than Biden’s $10k forgiveness
Most of the 43 million student debt holders account for a small amount of the $1.6 trillion pie, with a small share of borrowers who owe more than $100,000—7%— accounting for nearly 40% of overall student debt, according to College Board data. The result: Biden’s policy gives a big number of people with small burdens a big reprieve, while it barely helps a smaller group of students with large balances.
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More than 8 million borrowers who are on income-driven repayment (IDR) plans, which are determined by the borrower’s discretionary income rather than the amount of student debt they hold, will experience little financial impact from the cancellation.
If a borrower has a middle-class income of $60,000 and $40,000 in student debt, subtracting $10,000 from the balance won’t change their situation. They are still not on track to pay off their debt because their income is so low, making payments under an IDR plan means that the principal of the loan will continue to grow.
While another plan from Biden will put 7.5 million student debt borrowers that are in default back in good standing, nearly a third of all student loan holders have experienced default in the past two decades.Within this group many borrowers have defaulted several times. This is a large portion of the $1.6 trillion overall outstanding amount that the government wouldn’t see even if it wasn’t forgiven.
Student loan borrowers aren’t ready to spend
Claims that canceling student loans will only help rich people or increase inflation ignore what caused the student loan crisis in the first place.
“People are defaulting and being delinquent on their debts because they didn’t have the money to pay for it,” Addo said. “If you don’t have income or wealth, discharging $10,000 doesn’t mean you have income to spend.”
No one has been paying interest on their debt since the federal government paused payments at the start of the pandemic, and the current inflationary environment hasn’t been driven by student loan borrowers buying more stuff than the rest of the population.
Meanwhile, student loan debt has a crushing effect on a person’s financial future—creating a ripple effect across the economy. Economists at the New York Federal Reserve Bank found that student loan holders are less likely to move into higher paying jobs, more likely to default on other types of debt, and more likely to have lower credit scores.
When covid-19 hit the US, these borrowers were in the sectors that were hardest hit by the disease. They are well aware of their precarious financial position. According to the survey of consumer expectations, Americans with student debt are much more likely to fret about defaulting on debt than other Americans.
Many economists believe that cancellation encourages long-term economic decisions (i.e. moving) versus short-term decisions (i.e. buying a new TV). Debt forgiveness improves a borrower’s debt-to-income ratio, so they can borrow more for long-term expenditures like a car, a house, or a small business—in turn stimulating the broader economy.
“Anything that would help people answer some job openings, I think, would be good for the economy,” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute.
Pat Brothwell
Sun, September 4, 2022
Pat Brothwell says most politicians are self-absorbed, but few are as blatant about it as Madison Cawthorn.
The notoriously reclusive Marjorie Taylor Greene appeared on NewsMax last week to criticize Biden’s student loan forgiveness initiative as “completely unfair” despite records showing that the construction company she and her husband own had $183,504 worth of Paycheck Protection Program (PPP) loans forgiven in 2020. Additional reporting by Yahoo News shows that the month after receiving a six-figure PPP loan, then congressional candidate Taylor Green donated $450,000 to her own campaign.
I figured conservative hypocrisy was imminent. I didn’t expect the official White House Twitter to showcase it. Per that account, Pennsylvania Rep Mike Kelly and Florida Rep Matt Gaetz, both vocal critics of loan forgiveness, had $987,237 and $482,321, respectively, in PPP loans forgiven.
Kelly especially stepped in it when he tweeted, “Asking plumbers and carpenters to pay off the loans of Wall Street advisors and lawyers isn’t just unfair, it’s bad policy,” which is willfully misleading. Wall Street advisers and lawyers typically make way over the $125,000 yearly-salary threshold for forgiveness eligibility. Despite what Republican politicians tweet, this isn’t for “elites.”
It’s bailing out indebted college-educated working-class Americans; teachers, nurses, physical therapists, customer success reps, graphic designers, realtors, small-business owners, the people you most likely live and work around, your family, friends, and neighbors.
On April 6, our own Chuck Edwards also tweeted about how “unfair” it would be to forgive student loan debt. On April 19, 2021, Charlotte’s WBTV published an article titled “Lawmakers push for PPP change that would give them tax break.”
Per that piece, “Under a law passed last year, the state currently does not tax PPP loans as income but also prevents businesses from deducting the PPP money that was spent as an expense, functionally making the money a wash. Under the proposals to change the law, PPP loans would remain un-taxed and companies could count the PPP money spent as an expense for the purposes of a tax deduction.”
The primary sponsor of the bill that “passed the committee with a unanimous voice vote, without any public disclosure that many of the lawmakers pushing for the bill owned businesses that accepted PPP money.” was good ole Chuck, who’d accepted a $1.1 million PPP government handout, and who stood to make $40,000 to $50,000 if the bill passed. You know what doesn’t seem fair to me? Using your position of power to create legal loopholes that benefit your wallet.
There’s a war of words that conservatives have perfected for years, and “handout” is the star of this semantic manipulation. Why is it a “handout” for student loans to be forgiven, but with large corporations, it’s always a “bailout?” Why is helping young people crushed with debt a “handout,” but a PPP loan isn’t?” Why are Trump’s two bankruptcies savvy business moves and not socialism?
Ohio Representative Jim Jordan, a man whose legacy needs to promptly be Paterno-ed, tweeted, “Why should a machinist in Ohio pay for the student loans of a jobless philosophy major in Los Angeles?” I’d ask why a machinist in Ohio should pay 435 congressional reps $174,000 annually for a large majority of them to spend more time tweeting than legislating?
See, the rich, the elites (who include multi-time congresspersons profiting off their connections) have done a solid job of fooling many Americans into thinking that they are above handouts or assistance, all while rigging the system with loopholes designed to give them the most government support. We squabble about handouts, the rich get richer.
On Aug. 7, our Senator Thom Tillis tweeted, “This is a slap in the face to middle and working-class Americans already struggling with high inflation who will now have to pay off the debt of higher earners.”
Tillis, however, had no problem voting for Trump’s 2017 Tax Cuts and Job Acts. Per ProPublica, that bill ensured the top 1% of Americans “reaped nearly 60% of the billions in tax savings created by the provision.” Michael Bloomberg, then the 20th wealthiest person in the world, slashed his taxes by $68 million. Isn’t that a slap in the face to working-class Americans?
Since most cameos in this piece claim to be Christians, I thought we’d end with a quote by my favorite philosopher, Jesus Christ. Jesus said, “He that is without sin among you, let him cast the first stone.” He also strongly advocated helping anyone less fortunate. Conversely, I scoured the bible, but nowhere found, “Thou shalt provide tax-break handouts to billionaire space enthusiasts.”
Pat Brothwell is a former high school teacher, but current writer and marketing professional living and working in Asheville.
This article originally appeared on Asheville Citizen Times: Why is helping young people with debt a handout but PPP loan isn’t?
Larry Strauss
Sun, September 4, 2022 at 4:05 AM·5 min read
If you believe that forgiving $10,000 or $20,000 of a person's student loan debt isn’t fair to those who through hard work and financial responsibility avoided college loans, I won’t argue with you.
If you think the Biden administration's loan forgiveness should have included checks or tax credits for those who made sacrifices to avoid borrowing, I won’t discount your grievance. Although I will say that it is also not fair that anyone who entered adulthood around 2008 was confronted with a dismal job market, or that kids had to grow up and the elderly had to be isolated from their loved ones during a pandemic, or that my father’s generation came of age at the start of a world war. Timing is everything.
And if you want to complain that this latest executive action is pandering to the electorate, you probably aren’t wrong. Politicians are politicians; they want to get reelected.
Debt relief could make problems worse
But please do not think that wiping out thousands of dollars of student loan debt is more than a compress on a hemorrhage. If we do nothing to address the unreasonable cost of a college education along with the fetishizing of so-called elite universities, then this debt relief could make the problem worse in the long run.
This one is personal for me. I have taught too many students who have worked tirelessly, often in excruciatingly challenging circumstances (in fractured families and perilous neighborhoods, poverty, depression, isolation, homelessness and food insecurity) to better themselves and their families, only to smack their heads against the glass ceiling of college tuition.
If you believe that every smart, hard-working, underprivileged student gets a scholarship to college, you are mistaken. There are too many such students and not enough financial aid, government or private, for all of them to afford college. I’ve seen too many kids staring in stunned silence at their financial aid statement and the gap between what a college charges and how much help they will receive.
For many of them it is a deal breaker. A few thousand dollars a year of debt may seem not insurmountable to most of us, but for someone who has never had more than a few dollars in their pocket, who has seen parents struggle to provide basic necessities and keep from living in a car or a shelter, the gap is a psychological assault and a threat to their future.
I question what I've told my students
Colleagues and I have spent hours trying to work through the anxiety and despair with these students, and it has led to my own despair and a professional crisis. Why am I preparing these kids for a college education that could be out of their reach?
And this is in California, which has one of the best and most affordable college systems anywhere. Community colleges are virtually cost-free in our state, but associate of arts degrees open few doors.
We need to expand free or nearly free college to every young person who needs it. And we should demand an explanation from colleges about the ballooning cost. Perhaps there are sound reasons, but if we continue to believe in the efficacy of these institutions, is it not fair to insist on transparency about the money they collect and where it all goes and why the increases seem to always outpace inflation?
If the accusations are true that increased financial aid, including secured loans, has fueled the hyperinflation of post-secondary education, then there ought to be a reckoning about such opportunism and exploitation.
Beyond that, we need to obliterate the elitism that marginalizes students who must, by circumstance, rely on the most affordable options in higher education. I’m not an expert in public policy, but I don’t see how we can legislate against the inequality of college status.
We cannot outlaw college rankings, which validate institutions that reject the most applicants. But rejecting young people who have overcome so much is nothing to be proud of and ought not be used as a measure of the quality of an education.
The influence of educational institutions ought to be measured by the degree to which they make our world a better place – mostly by the post-graduation accomplishments of their students.
Universities ought to lead the charge to deconstruct their own elite status and promote the worth of every deserving college graduate, regardless of the brand on their degree.
'Elite' schools are oversold
Educators in high schools, too. Starting with me. I’m guilty of encouraging students to apply to so-called elite universities, especially the ones with large enough endowments to meet the financial need of all students, if I think they have a chance to get into one. And I brag about my students who do.
It is difficult not to, although I should not use it as a criterion for bragging because I am proud of all my students who have overcome so much to change the trajectory of their lives and of their family's history.
I'm proud of those who have become social workers and teachers and otherwise committed themselves to helping the generations that follow them. I’m also proud of those who’ve become engineers, entrepreneurs, physicians, attorneys, artists and skilled tradespeople.
I shouldn’t perpetuate the idea that a student who managed to get into and through Harvard or Columbia or Bryn Mawr or Wellesley is more worthy of my thrill or satisfaction.
I am just as proud of those students who attended the elite universities but go out of their way to demythologize the false superiority of the education those places offer – and who give props to their peers who have made the most of their education, wherever they attended.
I am proud of those who managed to get through college debt-free or pay off their loans quickly, but I am also happy for those who will now get help with what they still owe.
Larry Strauss has been a high school English teacher in South Los Angeles since 1992. He is a member of USA TODAY's Board of Contributors and the author of more than a dozen books, including "Students First and Other Lies: Straight Talk From a Veteran Teacher" and his new novel, "Light Man." Follow him on Twitter: @LarryStrauss
Larry Strauss, English teacher at Middle College High School in Los Angeles.
This article originally appeared on USA TODAY: Biden's student loan forgiveness is a bandage on a broken system
Maskot
Alicia Adamczyk
Sun, September 4, 2022
President Biden's student loan forgiveness program was welcome news for millions of Americans saddled with this debt. But there's already a lot of misinformation circling about how to take advantage of the program. And a Google search isn't necessarily going to direct you to the right answer.
Your loans need to be held by the U.S. Department of Education to be eligible for most kinds of loan relief. Loans held by private banks or financial institutions do not qualify for debt cancellation—and this includes if you had federal loans and you consolidated them with a private lender.
But a Google search of "direct loan consolidation" and "student loan consolidation" on Tuesday populated first with ads from private companies including SoFi and Credible, as Bryce McKibben, senior director of policy and advocacy at The Hope Center, which researches student loans, first reported on Twitter. The Federal Student Aid website is the fourth or fifth result.
That can be confusing for borrowers who do not know better. If they were to consolidate with a private lender right now, they would lose their forgiveness eligibility.
https://twitter.com/bmckib/status/1564663763462426624
After McKibben tweeted about the results, the Federal Student Aid site became the first Google search result for "direct loan consolidation" as of Wednesday. Still, other related search terms populate non-government websites first.
Here's what borrowers need to know about consolidating their loans so they don't miss out on any federal forgiveness programs.
Consolidated loans can still be forgiven—if they are federal loans
There are many reasons someone might consolidate their student loans, including to bring all of your loans under one servicer so your monthly payments are streamlined into a single bill.
And some of the Department of Education forgiveness programs require borrowers consolidate their loans to be eligible. One example is cancellation via the limited Public Service Loan Forgiveness (PSLF) waiver.
The waiver allows public servants on the PSLF track to receive credit for partial or late payments they've already made, or for payments made on the wrong repayment plan. To use it, applicants need to first consolidate all of their loans into a Direct Loan.
Borrowers also need to do this to be eligible for income-driven repayment (IDR) plans. These plans can lower a borrower's monthly payment and are eligible for forgiveness after 20 to 25 years.
Additionally, borrowers with loans made under the Federal Family Education Loan (FFEL) program can be eligible for forgiveness if they consolidate into a Direct Loan. Plus, consolidating commercial FFEL and Perkins loans into a Direct Loan makes them eligible for the current pause on federal student loan payments and interest accrual, McKibben told Fortune in an email.
But again, that's only if the loans are held by the Department of Education (and serviced by one of the companies it contracts with)—not by a private lender.
"We know for certain that borrowers who consolidate loans that were disbursed on or before June 30, 2022 will be able get forgiveness," McKibben says. That means many commercial FFEL loans and all Federal Perkins Loans are eligible for the cancellation.
That said, the government is still negotiating with the commercial FFEL industry to see if there is a way for borrowers to receive forgiveness without the need for consolidation, according to McKibben.
"We don’t know what timeline they are on, and some borrowers may want to consolidate now to take advantage of the payment and interest pause," he says.
The government won't charge you to consolidate loans
The Department of Education doesn't charge borrowers any fees to consolidate. Private companies may reach out and offer to consolidate your loans for a price, but they have no affiliation with the government.
Private lenders may be able to offer a lower interest rate, although that is unlikely and based on your credit score. But consolidating your federal loans into a private loan has risks—including that you'd lose the option to have your debt forgiven.
Another thing to consider when consolidating, according to McKibben: whether you have a lot of unpaid interest.
"When a borrower consolidates, their interest is capitalized into the principal balance," he says. "If a borrower doesn’t have much accumulated interest, or if the new balance after capitalization would be less than, or very close to, the $10,000/$20,000 offered by cancellation, it makes financial sense to consolidate."
This story was originally featured on Fortune.com
Carla Mozée
President Joe Biden.AP Photo/Evan Vucci
The Biden Administration is gearing up to deliver $300 billion in student loan forgiveness.
Unlike pandemic stimulus checks, retail investors are unlikely to use debt relief to rush into stocks.
Individual investors now have to contend with hot inflation and a slump in asset prices.
The US government's $300 billion student loan forgiveness plan will provide financial relief to millions of Americans, but don't expect a replay of the "stimmy" boom of retail investors who used pandemic stimulus checks to load up on stocks and cryptocurrencies, market experts told Insider.
"I don't expect it to ignite a new meme-stock rally. These are monthly payments that will lead to some of those assets flowing into the market over time that otherwise would have gone to pay off debt. I don't think there's going to be a big wave of capital rushing into the markets," Richard Smith, CEO of RiskSmith, a risk-assessment tool for retail investors, told Insider.
President Joe Biden recently outlined the program that cancels up to $20,000 for some borrowers of federal student loans. More than 43 million people will be eligible under income requirements.
"While the effects of debt forgiveness may help re-kindle interest in highly speculative assets such as crypto or meme stocks by the younger generations, we believe the impact will be smaller than during the distribution of government stimulus checks," Marco Iachini, senior vice president of research at Vanda Research, said in emailed comments. Vanda tracks US retail investing activity in individual stocks and ETFs.
Debt forgiveness "will probably have a marginally positive impact on middle- and lower-income consumers over the long-run, but it is unlikely to have a meaningful impact on the economy or stock market near-term," said Ross Mayfield, investment strategy analyst at Baird.
"Stimmy" phase
Retail investors stormed the stock market in 2021 as they drove huge gains in meme stocks including GameStop, AMC Entertainment, and Bed Bath & Beyond. Many young people used stimulus- or "stimmy" - money to battle hedge funds shorting such stocks.
Student debt forgiveness applications will start in October and about 8 million people will be processed automatically. During the pandemic, the government sent three rounds of stimulus checks, and individual tax filers received a total of $3,200 between April 2020 and March 2021 via checks or bank deposits.
"Those checks replenished cash accounts as soon as they hit citizens' mailboxes," said Iachini. From an implementation perspective, loan borrowers may not see the impact until the end of 2022 or early in the first quarter of 2023, he said.
The average monthly student loan payment is around $400-$500, including private loans compared with the stimulus impact of $3,200 for each adult, Vanda said.
"It would take therefore about 6-8 months on average to reach the same impact while the eligible share of beneficiaries (% of population) is smaller relative to the wide reach of stimulus checks," Iachini wrote.
An estimated $100 billion of the $800 billion total from stimulus checks made its way to the stock market, according to a working paper co-authored by an economist at Harvard Business School and two finance professors at NYU's Stern School of Business published in March.
The newfound money energized retail investors with millions of them stuck working from home, or out of work, because of COVID. Alongside the meme-stock craze, bitcoin climbed to a record above $68,000 in November 2021.
Inflation bites
But retail investors are in a different place compared to 2021 when the S&P 500 flew up nearly 27%. Stocks have since plunged into a bear market. There's been a resurgence in meme-stock activity led by Bed Bath & Beyond, but Vanda said speculative buying looks set to wane through the rest of 2022.
Inflation will be a major reason why many loan borrowers won't reallocate forgiven debt payments to stocks or cryptocurrencies.
"In the last 12 months, the cost of everything else they buy has gone up – the cost of gasoline, cost of food, mortgage rates. So I suspect that some of that $300 billion will probably be used just to offset some of the cost of living increases," David Sacco, practitioner in residence of finance at the Pompea College of Business at the University of New Haven, told Insider.
"People are more risk-sensitive because they've been burned," said Smith. "Bitcoin went [down] to $19,000. Lots of risk-on bets that were very popular during the pandemic are down and people are underwater on those positions."
Repayments for federal student loans will restart in January 2023. A March survey by Student Loan Hero found that 6% of respondents used paused repayment money to invest in the stock market, well below the 52% who used the money to pay for rent and other household expenses.
"I do believe that whatever [debt-forgiveness] money does go into the investment side of things will probably go into more traditional, safer investments," said Sacco.
Meet a professor who qualifies for Biden's student-loan forgiveness but still has years of repayment to go and feels 'disheartened' the relief wasn't bigger: 'There's this looming sense of hopelessness'
Biden announced up to $20,000 in student-loan forgiveness for some federal borrowers.
Nick Garcia, 42, will qualify, but he's disappointed Biden didn't take the relief further.
Garcia said the student-loan payment pause has been much more impactful for him.
Nick Garcia is one of the millions of Americans getting President Joe Biden's student-loan forgiveness — and while many are celebrating the announcement, it's complicated for him.
A 42-year-old college professor on the East Coast, Garcia has three young children to support with his wife. The student-loan payment pause has been instrumental in helping them save and pay off other forms of debt. Following Biden's announcement that he is canceling up to $10,000 in student debt for federal borrowers making under $125,000 a year, Garcia was certainly glad that his $39,000 balance was decreasing, but with years of repayment still to go, he was disappointed Biden chose to stop there.
"I feel disheartened because it shows that more can be done at the executive level," Garcia told Insider. "Although I'm glad to see action from Biden that will improve the lives of millions, I don't know that it rises to the moment. It just doesn't resolve our debt crisis."
The pause on student-loan payments, Garcia said, has been much more important to him than broad student-loan forgiveness. Biden has extended that pause five times so far while in office. He said that the most recent extension through December 31 will be the "final" one, meaning federal borrowers have to start paying off their debt again in the new year. With over 200 payments to go, the looming $400 monthly payments Garcia will face means he will have to think about cutting back on necessities while supporting his family.
"It has a real impact on stress, on mental health. It's hard not to let that bother you and get you down," Garcia said. "Having $400 a month virtually waived for the last couple of years meant a lot, especially with paying down other debts and planning for the arrival of our baby."
The student-loan payment pause 'meant so much to our family'
Not having to worry about monthly student-loan payments — coupled with the pandemic stimulus checks — allowed Garcia's household "to make great strides to improve our lives," from paying down personal debts to making needed repairs to his home. That will all go away in six months.
"My debt will be reduced, but everything shaping my household budget, the impact on our debt-to-income ratio, our ability to keep up with new expenses, and the mental toll of carrying this debt? None of that will go away," Garcia said.
Biden's administration has frequently touted the financial impact the payment pause has had on federal borrowers, with the Federal Reserve Bank of New York estimating it has saved borrowers $200 billion since the pandemic began. As Biden said during remarks announcing loan forgiveness, though: "I'm extending to December 31st, 2022, and it's going to end at that time. It's time for the payments to resume."
The White House has said that the idea of implementing student-loan relief around the same time as payments resume should have a neutral impact on inflation. That hasn't stopped Republican lawmakers from calling for payments to resume as soon as possible, even introducing legislation in prior months to end the student-loan payment pause.
While Biden is planning to introduce a new income-driven repayment plan intended to make monthly payments more affordable, it's unclear when exactly it will be implemented and Garcia is preparing to face his new financial outlook come January.
"Having hundreds of dollars committed to debt each month has persistently shaped where we can live, whether needed repairs have to be put off, and day-to-day stress," Garcia said. "There is a mental toll of this decades-long debt that is hard to convey, but it is devastating."
'I worry it sends a message that the fight is over'
With Biden framing his student-loan forgiveness as "one-time" relief, Garcia said the students he teach "feel like they're in a losing position" because of the debt they are still facing upon graduation.
"I worry it sends a message that the fight is over," he said.
Amid those concerns, Biden has vowed to continue tackling college affordability in ways aside from debt cancellation, such as cracking down on for-profit schools that cause debt to spiral and strengthening accountability measures over student-loan companies. Some lawmakers, though, have said they will continue fighting for more loan forgiveness.
New York Rep. Alexandria Ocasio-Cortez said the weekend following Biden's announcement that "it is up to us, and to you, to decide if we are going to stop here, or if we are going to keep pushing."
"I am very grateful for this watershed moment of a first step — it is so encouraging, thrilling, and has already changed SO many people's lives," she said. "But I am also thinking about how this still leaves a question mark for those in the highest amounts of debt, who need the most amount of help. So let's celebrate and keep going."
Garcia hopes that Biden can once again be convinced to go further on student debt.
"I hope executive action on the student loan crisis doesn't end here," he said. "It is a decision not to cancel more to help more people. I don't know where this tolerance for lifelong debt comes from, but we should not settle."
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