Stacy Cowley
Appearances
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Rocky, the program went through a lot of changes over the years. The banks were making money doing this, and the government was taking on the administrative burden of running the programs and of backstopping them. So they would take on the losses when the loans soured.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And there was certainly criticism that came up from time to time about, hey, why are we letting the banks make all the profit here while we're subsidizing all of the risk?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So the moment when everything changed was in 2010. As part of the Affordable Care Act, weirdly enough. So President Obama wanted to pass the Affordable Care Act, this very massive and expensive change in the health care system. And the government went looking for what it calls pay-fors. It went looking for ways to— Revenue generators. Exactly.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Things that they could put into the budget and say, look, we're now making money, so this is going to balance out. And this was the area they zeroed in on.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Well, that was the calculation. The Congressional Budget Office and other financial analysts came back and said, if you take this in-house, if you start making these loans directly and keeping the profits from them, that's going to generate tens of billions of dollars over the next decade for the government. And for the first few years, that is how it starts to play out.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And then that starts to change. For kind of two reasons. The first is that the amount of money people owe starts to really surge. And that both makes it significantly harder for them to pay it off. You start to see more defaults and more people struggling with this debt. And it also starts incentivizing the government to look at ways to make it more affordable.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Mm-hmm. And they instructed their loan servicers to start reporting delinquencies to the credit bureaus again, which hasn't happened for five years now. So that immediately resulted in four million people found delinquencies reported on their credit reports. And these are serious delinquencies. People saw their credit scores plunge.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So you start to see them introduce more loan forgiveness programs, more repayment options that are more generous and more flexible. Things where it means that the government starts to be subsidizing this program.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
The math on this starts to change and this moves from being an income center to the government to an area of projected losses.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Absolutely. That's been a running conversation for at least 20 plus years. Even before the government pulled this all in house, there was concerns from economists and policy analysts that this was driving the cost of tuition going up. Again, there's no other loans that really work like this. If you're borrowing for your undergraduate degree, you can borrow tens of thousands of dollars.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And if you're borrowing for a graduate degree, you can borrow basically an unlimited amount of money. There's no test of are you likely to be able to make enough to pay this? So that's how you get to a place where when you basically hand students and really hand the schools a blank check, suddenly the price goes up a lot.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
The answer to all of that is it's unclear. There's a lot of different options for how you could change the system if you were going to. You could simply go back to the pre-2010 system and just say this is the banks and we're just here to backstop it. So that's one possibility. As for tuition, I think people think the biggest issue there would be capping the amount that people can borrow.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Banks or the government or someone coming in and putting a limit in place because that would force the schools to respond to that. Right now, a lot of what's driven tuition is that they can do it. And nobody is sort of forcing the price constraint here.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
That can have immediate impacts on your ability to rent an apartment, to get a mortgage, to get a loan for a car. So this can be pretty catastrophic when this happens to you. And we've had 4 million people who are now in that delinquency. The estimates are that we're going to have as many as 9 million by the end of this year and that many of those people could end up in default.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Certainly the fact that we are on track right now for huge numbers of delinquencies, huge numbers of defaults, that creates the conditions in which you would hope people would take a close look at the system and say, what can be done better? How can we fix this?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
That said, part of why we've had this conversation so many times is that's kind of been the shape of the system for much of the last decade across multiple presidential administrations, Democratic and Republican. This has been for a very long time a really broken system.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Yes. And that's what we just don't know. I mean, really, there's a lot of options here, but the administration has not laid out any clear policy plans whatsoever here.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So no one's clear on is this a moment when we're actually going to make critical changes to the system or are we just going to do what we've been doing for a long time now of limping along with this broken system and leaving borrowers to kind of fend for themselves in dealing with it.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
It's obviously really catastrophic for individual people and their households. The effects of delinquencies and defaults really stick with you. For delinquencies, it's going to mess up your credit score. It's going to make it really hard for you to get loans and financing. It's going to make it much more expensive for you to do that.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
That often stops people from being able to afford the things they need for their daily lives from housing to a car to things like that. But it's also bad for the economy writ large. If people are having to really constrain their household spending, you're not going out to dinner, you're not going out with your friends.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. So that's one area of concern. It also sort of does raise the broader question about the entire system, about is this worth it? You do see people, teenagers, people in their early 20s, questioning the concept, saying, do I want to go to college? Do I want to take on tens of thousands or hundreds of thousands of debt that's going to chase me around for decades and decades?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And that does sort of take us back to right where we were in the 60s of deciding how much we as a society want to invest in this and how broadly available higher education really will be.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
That's what happens when you don't pay for at least nine months. And that sets off a whole nother series of very bad financial consequences. And if we do end up with 9 million people defaulting, that would be a record number.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Yes. And even beyond that, the repayment really hasn't gone as planned. Right now, of the roughly 38 million borrowers who have payments due and are supposed to be making payments. Yeah, it's a big number. So of those 38 million, right now only about a third are making payments.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Yeah. So the federal student loan payment system has always been kind of rocky. It has never really worked particularly smoothly for the last decade and a half. But what happened when the pandemic started back in March 2020 was the government immediately called an emergency timeout.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
In response to kind of the economic conditions at the time, they said, all right, we're going to take this burden away from people. You don't have to make these payments.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. There were record unemployment numbers. And one thing about this is not only was the government the one that shut things down, they are also the creditor for all of these student loans. It's a very unusual market in that they don't have to go to banks. They don't have to go to private lenders. Right.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. So it was very easy for them to say, OK, we're just going to turn it off. And that was always intended to be a temporary measure, but it kept getting extended. First by President Trump. So Trump extended it several times. Then President Biden took office and he extended it several times. And it just kept going and going and going.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So it officially stretched for about four years until September 2023. But then President Biden added an additional thing to this. He said for the next year, all right, you're supposed to be making payments. We're going to try to collect, but we're not going to report you to the credit bureaus if you don't.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
There wasn't a lot of negative consequences if you just didn't start paying. So a lot of people didn't. And adding to that was the confusion around what was going to happen to this debt. I mean, President Biden was pursuing the plan of mass debt cancellation up to $20,000 per borrower. The Supreme Court then overturned that.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And all of these people who thought their debts might go away entirely got that disappointment.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And then President Biden moved on to his plan B, which was introducing a new repayment plan called SAVE that was much more generous than any past payment plan.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Well, it was an income-driven payment plan, meaning that your payments would be directly tied to how much you were making. It was deliberately an attempt to keep things affordable. And on past payment plans, that's typically been limited to about 10 percent of your discretionary income. President Biden's plan cut that in half. for people with only undergraduate loans.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So suddenly people whose payments were 10% of, you know, their income were cut down to 5%. That's a huge change.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
There's a real political divide around here. And the reality of the demographics don't always bear it out. A lot of the people who do have debt, it is a lot of people who are working class. And a lot of people have amounts from things like trade schools and professional schools that they haven't been able to pay off.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. But it was definitely clear that Trump had a very different vision for this than President Biden did. And that if he were to come back to office, that a lot of what Biden had built was going to go away.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So even before Trump comes back to power, the plan that Biden introduced, the SAVE plan, got caught up in court. A group of Republican-led states challenged it, said this exceeded the president's authority, and that has been prevailing in court, which left about 8 million borrowers who had signed up for this plan kind of in limbo, waiting to see what was going to happen with these court cases.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So once Trump returns to office, it becomes clear that the plan is doomed.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. Either the courts are going to kill it or the president and his administration are going to kill it. But it's going to go away. Which is pretty whipsawish. Yeah. And those 8 million borrowers are all still just on pause right now. But for all these other tens of millions of borrowers, the message is you need to be paying.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Biden had set it up so that payments were going to resume right after the election, kind of no matter what happened. That meant that Trump gets elected, he's coming into office just as this years of not really having to pay ends and as the government gets serious about collecting on these debts. However...
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
People have been warning for years that getting people to start paying again after years of not paying was going to be really tricky. It was going to require a lot of resources and a lot of attention. And that is not what is happening. The student loan servicers who are supposed to be collecting these debts are pretty hammered and overwhelmed.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And they have been struggling to get guidance from the education department.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Exactly. And one of the things borrowers are now confronting is not only do you have to start paying this bill again, but you also have to navigate what's the best way to pay it. And that's been one of the areas where borrowers have been running into challenges. They have been trying to get themselves back into repayments. And there is currently an enormous backlog at the education department.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
A lot of people have already left, either by being fired or retiring or just deciding to opt out. So that agency is currently very hollowed out. One of the offices that has really been decimated over there is an office that handles student loan borrower complaints.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
One of the people who was fired last month from that office said in court filings that she left behind a backlog of 16,000 complaints that are piled up and unaddressed. The education department also has more than a million borrowers who have applied for income-driven payment and are stuck in limbo. They're waiting for their applications to be processed.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
There's a huge backlog, often stretching for months. So those people are also kind of stuck right now.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Yes. At exactly the moment when you would ideally want to be staffing up and putting more resources into the system to help people navigate this return to repayment, we've instead done the opposite.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
It's a real struggle for a lot of people.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
I spoke to a health care worker down in Florida who's been trying to get enrolled in the income-driven repayment.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
There's a lot of developments along the way.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
To prepare for that student loan payment, but again... She did the math on the government's own calculator and worked out that her payments would be about $490 a month. She said that would be a stretch, but she could make that work. Then I get a bill in January that was for like...
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
However, when she got her first bill, she found that something had gone awry and she was getting a bill for the standard payment amount.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So she's been calling her servicer and spending hours and hours on hold, multiple days for the last few weeks, trying to get this fixed. You know, their systems are all messed up. To know what's actually going on behind the scenes, it's almost like you're guessing what... And it just keeps going awry at every turn. She got a revised bill. This one was for $1,000.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
She really has not been able to figure out what the problem here is. And of course, the interest rate is ridiculous. It's suffocating. And that's a really frequent story. I've talked to dozens of people trying to sort this out. It's an albatross around my neck. I want it off. I literally lose sleep over this. I have nightmares about this.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
People got really used to not having that payment. And now with this payment kind of crashing back into their lives, people are trying to make it happen. They know it's a debt they borrowed and one that they have to repay. And they're running into challenges. So I called the Department of Education and waited on hold for hours.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Trying to figure out how they can reintegrate this payment into their lives. And I'm going, wait a second. I can't make those payments.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
They're very strange loans. There is no other consumer loan that you take out where you don't know when you take it exactly what the payment terms and options are going to be.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And that has really whiplashed people. I mean, most of the borrowers I talk to start the conversation and end the conversation by saying, I want to pay what I owe. I took the loan. I knew it was going to come due. I knew I'm going to have to pay it. But they are really frustrated by both having this hope put in front of them for a more affordable option and then having it snatched away.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And they're also just really frustrated by the logistics right now of trying to figure out what am I supposed to be doing here?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
That's a question that gets asked frequently, and certainly the situation right now is bringing it to light again. And there are people in and around Trump, people in Trump's orbit, who are asking that question and who are raising the issue of, is it time for the government's role in this to change?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Should the government really play a profoundly different kind of role in this system than it does now?
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So we're at a real turning point on this. After this nearly five-year period when most people weren't making payments and weren't required to do so and weren't having any negative consequences if they didn't, the government really dropped the hammer in the last few months. They've said, we are done with timeouts. We're done with pauses. You need to start paying again.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So, for that, we go back to the mid-'60s. Up until then, college education and certainly financing for it was something that was pretty limited. I mean, you really could only get that if you were, you know, a high performing student studying, you know, hard sciences and things like that. In 1965, Congress and the president passed the Higher Education Act.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
And that was a landmark bill that transformed the higher education system. And it was the first time that said, we're going to have a government-sponsored program where pretty much anyone can come get a loan and borrow to go to college. So private banks actually made the loans. But these are really risky loans. A lot of them aren't going to get paid back.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
So the role the government played was it said to the private lenders, OK, we're if this loan goes bad, if it sours and the borrower doesn't pay, we will step in and pay you.
The Daily
Is the Era of Student Loan Forgiveness Officially Over?
Yes, this was very much perceived as something that was good for the United States. Part of it came out of a direct counter to the Soviet Union, the concern that we would fall behind, that there would be an education gap. So the idea was that this was something that was in the taxpayers' interests to make sure that more people could pursue higher education.