Most Student Debtors Can’t Make Their Payments. It’s Time for Debt Cancelation.

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Truthout 03 July, 2021 - 09:47am 17 views

When will student loans be forgiven?

The $1.9 trillion coronavirus relief package signed by Biden on March 11 includes a provision that makes any student loan debt forgiveness tax free from December 2020 through Dec. 31, 2025. nerdwallet.comBiden's Student Loan Forgiveness Could Wipe Out Debt for 15 Million Borrowers

As student debt remains in place, it is causing significant and unequal harm to marginalized borrowers, which can only be reduced and remedied by cancelation. For instance, as shown by a recent report from the Student Borrower Protection Center, students of color disproportionately struggle to pay their student debt at a higher rate than white students — creating a vicious cycle of economic inequality along racial lines. The authors note, “America’s student debt crisis is a civil rights crisis.” Additionally, on average, Black graduates owe $7,400 more than white graduates. Thirty-two percent of Black borrowers and 15 percent of Latinx borrowers are in “default” with their payments. In New York, the six communities with the greatest levels of student loan default are largely non-white and centred in the Bronx, even though they have relatively smaller average loan balances.

Rajko Kolundzic (pronounced rai • ko) is an American postgraduate student at King’s College London. His work has been featured in venues like Truthout, Salon and Electronic Intifada. Follow him on Twitter @rajkokol. Email: [email protected].

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Biden May Extend Student Loan Relief Beyond September 30, But There’s One Major Dilemma

Forbes 04 July, 2021 - 09:37am

Biden may extend student loan relief beyond September 30, but there’s one major dilemma.

Here’s what you need to know.

There are two parallel paths for your student loans happening right now. The first — student loan cancellation — is about the possibility of wide-scale student loan cancellation happening for at least some student loan borrowers. However, the hope of wide-scale student loan cancellation doesn’t seem to be near-term. With a focus on the infrastructure plan and no news from the Biden administration on potential timing, student loan cancellation appears to be in limbo. The second — and more immediate option — is the possibility of extending student loan relief beyond September 30, 2021 when the following is set to expire:

Absent any extension of this student loan relief, federal student loan payments will be due starting October 1, 2021.

The argument to extend student loan relief is clear and goes something like this: student loan borrowers are still struggling financially from the Covid-19 pandemic and it’s too soon for them to pay student loans. There are other reasons to delay student loan payments too, but this is a core reason. According to a new survey, 90% of student loan borrowers are not ready to pay student loans again starting October 1. That said, the word “ready” could refer to “financially ready” or “psychologically ready,” or both. Opponents of extending student loan relief say student loan borrowers will have had 18 months of no federal student loan payments. They argue that this has amounted to $5 billion per month of student loan cancellation — per the U.S. Department of Education. In total, student loan borrowers will get more than $90 billion of student loan cancellation during the Covid-19 pandemic. This student loan forgiveness is in addition to the $3 billion that Biden has cancelled since becoming president. Oppponents say there’s a direct cost to extending student loan relief, even if the Covid-19 pandemic has been traumatic on multiple fronts, economic and otherwise.

Despite arguments on both sides, there’s an even bigger dilemma that Biden faces with respect to extending student loan relief beyond September 30. Biden is well aware of the arguments on both side of extending relief. On the one hand, extending student loan relief would help student loan borrowers facing the weight of crushing student loan debt coming out of an unprecedented pandemic. On the other, there’s a cost to student loan relief — and as noted by the Education Department — it’s been more than $5 billion per month during the Covid-19 pandemic. The bigger issue for the president — however — is what extending student loan forgiveness symbolizes. Biden is leading an economic recovery. It’s tough politically to say that the economy is recovering, employment numbers are strong, and jobs are being created. Then, at the same time, say that the economy is struggling so much that student loan borrowers shouldn’t have to pay student loans after getting 18 months of student loan relief. The messages are conflicting. That said, not every decision in Washington is based on political calculus, and supporters of extending student loan relief will say to put people ahead of politics. However, it will be tough for the president to argue that the economy is rebounding, but at the same time also say it’s not for student loan borrowers. This doesn’t mean that Biden won’t extend student loan relief beyond September 30 because that’s a possibility, but it’s something that must be weighing on the Biden administration as it considers next steps on student loans.

Even if student loan relief is extended, remember that it’s only temporary. You will still owe your student loan balance once payments resume, and your interest rate will be instated. That’s why it’s critical to get in front of your student loans now. Get a student loan game plan. Here are some smart options:

Student Loan Borrower Gets $178,000 Of Student Loan Cancellation Against Navient

Forbes 03 July, 2021 - 07:30am

This student loan borrower got $178,000 of student loan cancellation against Navient.

Here’s what you need to know — and what it means for your student loans.

A 68-year-old student loan borrower got $178,000 of student loan debt discharged in U.S. Bankruptcy Court in Maryland. Terry Randall owed more than $500,000 of student loans, including $190,000 to Navient, one of the nation’s largest student loan servicers. Despite having several degrees, Randall has been working for the past several years in a job that pays $13 an hour. According to Randall, after paying her living expenses and even working overtime, she doesn’t have enough money to pay student loans. Navient, the defendant, disagrees, and says Randall is capable of working and paying back at least some of her student loans. Randall argued to the Court that paying student loans created an undue financial hardship. So, Randall, a Chpater 7 debtor, filed an adversary proceeding (a lawsuit in bankruptcy court) to discharge her student loans under Section 523(a)(8) of the U.S. Bankruptcy Code. The Court ruled in Randall’s favor. Why?

There is a general presumption that student loans cannot be discharged in bankruptcy. The U.S. Bankruptcy Code treats student loans differently than other consumer debt such as credit cards or mortgages. However, it’s possible for a student loan borrower to overcome this presumption. When a court considers the possibility of discharging student loans, the court must examine all the evidence presented. For example, it’s insufficient simply to say that you can’t pay your student loans. In this case, the U.S. Bankruptcy Court applied a legal standard known as the Brunner test, which is the legal test in all circuit courts, except the 8th circuit and 1st circuit. Therefore, most student loan borrowers who seek student loan cancellation in bankruptcy must meet the Brunner test. The Court found that Randall satisfied all three prongs of the the Brunner test:

The Court found that it would be unreasonable to force Randall to work more than her current hours and overtime. Why? The Court found that even with additional hours, Randall owns no major assets, has been diligently trying to work, and doesn’t have excessive expenses. Interestingly, the Court did not grant Randall total student loan cancellation. Rather, the Court recognized that Randall could afford to pay back at least some of her student loans — namely $12,000 — which means that the Court granted partial student loan cancellation.

This win for student loan cancellation comes at a critical time. Why? The U.S. Supreme Court recently declined to take a case involving student loans, bankruptcy and student loan cancellation. As a result, a ruling in a case in the U.S. Court of Appeals for the Second Circuit may make it harder for student loan borrowers to get student loan cancellation in bankruptcy. In Tingling, the Second Circuit — which is the same court that created the Brunner standard — affirmed the reasonability of the Brunner test and that there is a high burden to discharge student loans in bankruptcy. This has important legal implications because it signals to student loan borrowers that student loan cancellation is not easy to get. This is potentially bad news for student loan borrowers who hoped that the Second Circuit might relax its application of the Brunner test so that more student loan borrowers could get student loans discharged in bankruptcy.

Will your student loans get cancelled? Some student loan borrowers feel like student loan cancellation got cancelled and all hope has faded. Others say that student loan cancellation is alive and well, especially since President Joe Biden has now cancelled $3 billion of student loans since becoming president. The reality is it still possible to get student loans discharged in bankruptcy. In addition to Randall, a Navy veteran had $220,000 of his student loans discharged and a doctor got $430,000 of student loan cancellation. Still, this is different than the student loan cancellation most student loan borrowers are seeking: wide-scale student loan cancellation. Senate Majority Leader Chuck Schumer (D-NY) renewed his call this week for Biden to cancel $50,000 of student loans. However, new research shows that wide-scale student loan cancellation could disportionately benefit wealthier student loan borrowers. While there is no guarantee that there will be wide-scale student loan cancellation, student loan borrowers will get more than $90 billion of student loan cancellation when student loan relief ends on September 30, 2021. While it’s possible Biden could extend this student loan relief beyond September 30 — and provide more student loan cancellation of approximately $5 billion per month — Biden hasn’t made any announcement.

If you have student loans, make sure you understand all your options to pay off student loans. Before pursuing bankruptcy, consider these popular options first:

Student-Loan Holders Get Piecemeal Relief From Biden Administration

The Wall Street Journal 03 July, 2021 - 04:30am

Five months into his term, President Biden has resisted calls from fellow Democrats and activists to cancel most of America’s $1.6 trillion in federal student-loan debt in one swoop through an executive action. Congress also appears unlikely to make it happen because Democrats lack the Republican support they would need to pass such a measure.

Yet many Americans effectively are seeing their debt bills reduced through policy changes that started under the Trump administration, which froze student-loan payments when the pandemic began unfolding in March 2020. The move, which the Biden administration extended through September, has in effect forgiven tens of billions of dollars in student debt that families otherwise would have paid, mostly by waiving interest charges.

Mr. Biden’s education secretary, Miguel Cardona, told a congressional panel last month that the administration is considering extending the payment freeze beyond September. Asked for comment on that possibility, an administration official said Mr. Biden “continues to look into what debt-relief actions can be taken administratively.” The official restated Mr. Biden’s desire for Congress to pass a law to forgive $10,000 in student debt for every federal borrower. Administration lawyers are studying whether the president has the authority to cancel debt through executive action, the official said.

Last month, the Education Department canceled $500 million in student debt owed by thousands of former students of the defunct ITT Technical Institute, which federal regulators have accused of financial mismanagement and deceptive recruiting tactics. The department has said it would move later this year to tweak federal rules to allow more aggrieved borrowers who attended other for-profit schools to have their debt forgiven.

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3 ways student debt impacts the economy

CNBC 02 July, 2021 - 11:41am

During the height of the pandemic, workers with college degrees were spared some of the harshest consequences. The Bureau of Labor Statistics reports that workers with a bachelor's degree are less likely to be unemployed and earn 67% more than those with just a high school degree. Plus, college graduates live longer than those without a college degree.

While student loans can be crucial in helping Americans access these benefits, economists say that student debt is holding the economy back.

Approximately 45 million Americans collectively owe $1.7 trillion in student debt. And even though federal student loan payments have been paused since March 27, 2020, the student loan crisis is still looming. The moratorium is set to expire Oct. 1, 2021 and politicians and experts warn that millions of borrowers may be thrown into "extraordinary financial hardship" when payments resume. 

CNBC Make It spoke with Nela Richardson, chief economist of human resource management firm ADP, about three of the biggest ways student debt impacts the economy. 

Richardson stresses that student debt is a concern because of the way it disproportionately impacts young people today more than in previous generations

Decades of cuts to education funding means that students pay much higher college costs than previous generations did. Over the past 10 years, college costs increased by more than 16% and student debt totals increased by 99%. Today, not only do roughly 70% of college students take out loans to pay for their education, but they take out larger volumes.

Plus, recent college graduates have entered the workforce during one of the most hostile labor markets in history for young workers. According to an analysis of BLS data by Pew Research Center, 2020 college graduates saw a bigger decrease in labor force participation than those who graduated during the Great Recession. 

"Student debt falls heavily on the shoulders of young people. They have the lowest incomes and are most likely to have recently finished college," says Richardson. "We know from our data that young people were disproportionately impacted by the pandemic. They were more likely to report a job loss, a reduction in job responsibilities or a pay cut. When you add that to student debt, that creates quite a sizable hurdle."

The result is growing generational inequality that will have significant long-term consequences, she warns: "It's about macro growth. We should care [about student debt] because it does affect the future of GDP growth when there's a lack of investment among young people."

Federal Reserve data indicates that millennials control just 5% of U.S. wealth while baby boomers control over 52%. In 1989, when baby boomers were around the same age as millennials are today, they controlled 21% of the country's wealth.

Student debt impacts borrowers over time by raising debt burdens, lowering credit scores and ultimately, limiting the purchasing power of those with student debt. Because young people are disproportionately burdened by student debt, they will be less able to participate in — and help grow — the economy in the long run. 

"What you want is widespread opportunity for investment over time. That's what's good for the economy. That's what's good for Wall Street," says Richardson. "If you don't have that, then you're looking at slower growth from the prime-aged working population — and that's problematic."

The Federal Reserve estimates that student debt shaves roughly 0.05% off GDP per year. While the current impact may appear relatively small, as borrowers struggle to buy homes, save for retirement and invest in the stock market, the impact may become more significant.

"All those assets that the boomers have been accumulating to feed the economy, who's going to buy those assets? Who's going to take over to make sure that the stock and asset markets keep going up?" asks Richardson. "Maybe boomers can leave those through inheritance to their children, but that just concentrates wealth, which gets back to the issue of inequality."

Finally, there is the concern that many borrowers are expected to default on their student loans.

Currently, about $158.5 billion worth of federally managed student loans are considered in default — and this total may increase once the pause on federal student loan payments expires. Brookings estimates that by 2023, nearly 40% of borrowers are expected to default on their student loans.

"If you have delinquencies, that lowers credit scores, and that's problematic in terms of doing anything in the economy from getting a credit card to getting a mortgage," says Richardson, citing ADP data that suggests student loans account for 35% of severely derogatory loan balances, more than three times the delinquency rate of mortgages.

Richardson fears that because of student loan difficulties, borrowers will be held back from generating wealth through means such as buying a home or starting a business. "When you think about how the middle class builds wealth over time, there's two ways in the U.S.: homeownership and entrepreneurship," she says.

While consumer spending appears to be stable for now, Richardson stresses that the student debt crisis should be addressed in order to maintain economic growth. 

"If you're very focused on the here and now and the present economic recovery, you can shrug off consumer debt," she says. "But if you care about the future, and you think about what leads to feature growth and investment, then student debt is one thing that can block that."

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There are more ways to cancel your student debt than you might think. Here are your options

Business Insider 02 July, 2021 - 12:00am

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To start, due to Covid-19, the federal government – which owns the vast majority of the $1.7 trillion of student debt outstanding – put in place emergency relief measures for student loan borrowers. It temporarily suspended payments, stopped collections on defaulted loans, and cut interest rates down to zero on its $1.59 trillion portfolio of student debt. The remaining $140 billion or so of privately-issued student loans weren't impacted by these pandemic relief measures, which are set to last at least through Sept. 30

The pause has prompted student borrower advocates to urge the Biden administration to extend the relief until it fixes problems plaguing the patchwork of various student loan forgiveness and repayment programs that Congress has created since the mid-19 60s. Some advocates are even calling for outright cancellation of student debt.

"Before resuming payments on student loans, the Department of Education must undertake significant structural reforms, provide real, immediate relief, and cancel a significant amount of federal student debt," said one recent letter to President Joe Biden signed by more than 125 groups.

It's not yet clear if those efforts will succeed and whether borrowers will be given any permanent relief in the post-pandemic world. To help you navigate the options that are available now, here's a quick guide to what you can do to manage your student loan debt, along with some common pitfalls that frustrate borrowers.

The most drastic measure is also one that borrowers often shy away from: bankruptcy.

The process is confusing and, even in bankruptcy, many borrowers wrongly assume that student debt is impossible to get rid of. A recent study by Jason Iuliano, a law professor at Villanova University who specializes in bankruptcy and student loan issues, found that some 99.8% of student loan borrowers who filed for bankruptcy didn't seek to have their educational loans discharged. But of those that did, around 60% succeeded in winning some relief, either by cutting deals with lenders or obtaining discharge orders in court.

"When you look at the people who bring these cases, they're by and large very successful," Iuliano told Insider in May.

Underscoring how confusing this process can be, until recently, a presentation on the website of one of the nation's most prominent bankruptcy courts said that student loans are not dischargeable in bankruptcy – except that one of the court's judges canceled about $220,000 of one borrower's student debt in a 2020 ruling. 

The U.S. Bankruptcy Court for the Southern District of New York updated the presentation after Insider inquired about the language. It now says that there are exceptions to the general prohibition on the cancellation of student debt in bankruptcy, which is a hot topic these days as millions of borrowers struggle financially due to the economic toll of the COVID-19 pandemic.

Unlike with credit cards and other consumer loans, seeking a discharge of student debt in bankruptcy requires an extra step – a lawsuit petitioning a judge to discharge the loans. And as Insider recently reported, few borrowers are willing to take that chance thanks to a widely-held belief that student debt is categorically exempt from discharge.

It's not. There are exceptions. Here's what the law says:

Borrowers of any educational debt – whether federally-backed or private – can have their student loans canceled in bankruptcy if they can show that paying them off would impose an "undue hardship." Typically, that requires a borrower to demonstrate that they cannot maintain a minimal living standard, that their circumstances are unlikely to change, and that they've made good-faith efforts to repay their loans. Proving undue hardship is the only way for bankruptcy filers to get rid of any student loans owned or backed by the federal government.

Proving "undue hardship" has traditionally been difficult for borrowers, but bankruptcy judges are beginning to take a fresh look at this standard and how to apply it to borrowers in dire financial straits. Kevin Rosenberg, a Navy veteran, got a discharge for around $220,000 of his loans from a judge in the Southern District of New York when he successfully argued that repaying the debt would cause him undue hardship. His lender is appealing, but the case made headlines when the judge ruled that she would not perpetuate the "myths" that student loans are not dischargeable in bankruptcy. 

Borrowers who owe privately-issued loans have even more exceptions they can rely on. That's because "private" student debt isn't defined anywhere in the U.S. bankruptcy code. Instead, the law refers to "qualified education loans" – those made for direct education expenses like tuition, books, room and board at accredited colleges and universities. Private student loans meeting that definition can't be erased in bankruptcy, absent a showing of "undue hardship." 

But that still leaves borrowers of private student loans with a few different avenues for arguing that their loans can be discharged in bankruptcy.

One involves looking at whether a student loan was made to attend a school that's covered by the "qualified educational loan" definition. Accredited four-year colleges and universities and graduate schools that participate in the federal government's student loan programs fall under that definition. But many for-profit colleges and vocational schools – such as beauty or barber school or training to get a pilot's license – do not. If you aren't sure if your private loans qualify, check whether your college also offers federal student loans; if it doesn't, then your private loans are probably not "qualified educational loans" (and check the IRS website for more guidance). 

Another argument involves looking at whether the private student loans were incurred to cover only direct education expenses. A private student loan for $20,000 that's used solely to pay tuition at a four-year state university can't be cancelled in bankruptcy, absent a showing of "undue hardship." But if a student took out $40,000 and the extra $20,000 didn't cover any direct costs of attendance, that could enable the borrower to argue that the loan is not exempt from discharge in bankruptcy, according to student loan attorney Austin Smith.

Lawyers like Smith are finding increasing success making such arguments in front of bankruptcy judges. But many borrowers still find it hard to get legal help or have trouble affording a lawyer who can help them navigate these complex rules. And going through bankruptcy is not easy: It can ruin your credit for years and make it difficult to obtain new loans.

Over the years, Congress has set up several avenues for borrowers to have their loans forgiven if they meet certain eligibility criteria. These programs don't require filing for bankruptcy and they only apply only to borrowers of federal student loans. Here are some of the big ones:

In the early 1990s, Congress enacted a new pathway to student loan cancellation when it created the first of what's come to be known as income-driven repayment plans, or IDRs.

These plans vary in design but they all have one thing in common: They're meant to ease the burden of student debt by scaling student loan payments to a percentage of borrowers' discretionary income – between 10% to 20% – and extending repayment periods up to 25 years, after which any remaining balances are forgiven if borrowers stay current. Later revisions of the IDR program shortened that 20 years for some borrowers.

These plans generally apply to students who borrow directly from the Department of Education. But according to the National Consumer Law Center, which advocates for borrowers' rights, many borrowers who qualify for IDR plans don't participate in the program.

Some loan servicers have been accused of steering borrowers away from IDR plans, while those borrowers who do attempt to access IDR also face difficulties enrolling and staying on the plans due to insufficient guidance on program requirements, lost paperwork, processing delays and inaccurate denials, according to the NCLC and a report from a federal watchdog.

Few borrowers manage to successfully overcome those obstacles, NCLC says. The group said in a March report that just 32 individuals have received the loan cancellation promised by IDR programs.

"There are just so many opportunities to fall short," said Persis Yu, who heads the NCLC's Student Loan Borrower Assistance Project. "We can't rely on tens of millions of borrowers being hypervigilant for multiple decades to make the program work."

This program, created in 2007, allows borrowers of direct loans from the Education Department to apply for forgiveness of their remaining balance after making 120 monthly payments while working full time in public-sector fields such as military service, law enforcement or public education. 

Known as Public Service Loan Forgiveness, or PSLF, the program meant to encourage borrowers to seek out these vital but often low-paying careers. But since the first public service workers became eligible for debt cancellation in 2017, about 98% have had their forgiveness applications rejected, according to figures published by the Department of Education. 

Student borrower advocates pin the low figure on government mismanagement and abusive industry practices which make it difficult for borrowers to successfully navigate the program requirements. They've asked the Department of Education to review the program and establish a new, streamlined path to cancel debt for all eligible borrowers who have served for a decade or more.

Secretary of Education Miguel Cardona recently acknowledged the program's failings and committed to improving it.

"Ninety-eight percent of those who applied for Public Service Loan Forgiveness were rejected. Ninety-eight percent. We need to do better. We need to do better," Cardona said during a virtual town hall with the National Education Association in April.

Cardona added the agency has the authority to review the program and pledged to do so: "That's a priority for me," he said.

The oldest student loan relief program enacted by Congress involves borrowers who develop severe and lasting disabilities after taking out federal student loans. The system, known as Total and Permanent Disability discharge, was created in 1965 to spare these borrowers a lifetime of struggling to repay loans they can't afford to repay due to being unable to work as a result of their disabilities. 

A 2011 investigation by ProPublica and the Stabile Center for Investigative Journalism found that the program was plagued by a litany of problems, including having "no written medical standards for determining disability," "no formal appeals process" for denials, and placing "undue burden and costs" on borrowers, according to an internal Department of Education document.

The investigation prompted the department to overhaul its regulations governing the program. In 2016, the department began sending out loan forgiveness letters to borrowers identified as eligible for TPD discharge by the Social Security Administration. The goal was to use the administration's proven process for determining disability to offer eligible borrowers a simplified process to have their debt forgiven.

But five years later, the forgiveness process remains far from complete. Data obtained under a Freedom of Information Act request by the National Student Legal Defense Network showed that, as of Nov. 2019, the department had sent out some 571,000 offer letters to borrowers who had qualified for TPD discharge. But only around 218,000 had been approved for discharge, leaving more than 350,000 still waiting to successfully navigate the process. 

A recent report by advocates for disabled borrowers concluded that bureaucratic hurdles and overly restrictive and narrow implementation of the discharge rules prohibits many borrowers from getting TPD relief even when they're found to qualify for it.

"That's a failure of the system," Bethany Lilly, one of the authors of the report, said during a December virtual event about the report's findings.

In March, the Department of Education announced a temporary easing of some rules related to the TPD discharge program during Covid-19. The agency said it would not require borrowers who have received a TPD discharge to submit earnings documentation, as required by the program rules, for the duration of the pandemic.

You can find a full list here  of additional avenues for borrowers to seek forgiveness of their loans.

But there's one big caveat: They can be very difficult to take advantage of in practice. 

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