Greg Nash/Pool via AP
Education Secretary Miguel Cardona testifies on Capitol Hill, September 30, 2021, in Washington.
After insisting for weeks that Senate Republicans would play no role in raising the debt limit, Minority Leader Mitch McConnell (R-KY) reversed course and offered a deal, which got hammered out Thursday, to add $480 billion to the nation’s borrowing cap. In a completely different context, Microsoft announced Thursday it would affirmatively act to make its products much easier for customers to repair.
These seem like unrelated stories, but they have a common denominator: When politicians and public servants decide to govern, their political and policy opponents get the message and recalibrate.
With the debt limit, McConnell’s obstinance softened right at the moment that Democrats started talking about eliminating the filibuster to increase the debt limit and avoid a catastrophic default. The deal is only short-term, but McConnell blinked rather than give Democrats an opening to make the Senate a majority-vote institution; once you set aside the filibuster once, the pressure to replicate that over and over would be intense.
In the case of Microsoft, while a shareholder resolution did spur the company to better policies, the real catalyst was the Federal Trade Commission adopting a unanimous policy statement to increase enforcement on repair restrictions on electronic and other equipment. Faced with the likelihood of major fines and injunctions, Microsoft recognized it could no longer reap revenue from locking out customers’ right to repair, or planned obsolescence to goose sales. It was governing that caused Microsoft’s shift.
This is also true of the student loan business, where there has been a disconcerting principal-agent problem for years. Congress instituted policy goals to forgive certain classes of student loans: for borrowers who were defrauded by schools, or became disabled after graduation, or entered public service (as a means to entice talented workers into traditionally lower-paying fields). But the private companies that manage the loans, known as student loan servicers, didn’t share those goals. They wanted to keep borrowers in the system to increase their profits, through continued servicing and the imposition of fees.
As of April, over 98 percent of borrowers who applied for loan forgiveness under PSLF have failed to get a discharge, often for minor technical reasons.
This has debilitated all of these programs, throwing millions of borrowers into confusion and despair. “There were all these protections that exist at the edges of the student debt crisis,” said Seth Frotman, the former student loan ombudsman at the Consumer Financial Protection Bureau (CFPB), who is now the executive director of the Student Borrower Protection Center. “Without fail, every single one of these failed to live up to its promise.”
Now, after bipartisan neglect, the Biden Education Department (ED) has embarked on solving the problem. They’re not all the way there yet, but the intent is to design policies that actually work. This resolve led this week to the overhaul of the Public Service Loan Forgiveness (PSLF) program, a 2007 policy that was supposed to cancel student debt after ten years for borrowers who take public-service jobs in schools, nonprofits, or government.
The momentum started, appropriately, with listening. In July, Julie Margetta Morgan, a senior ED official, asked borrowers in a public blog post to tell her stories of navigating the notoriously broken PSLF. As of April, over 98 percent of borrowers who applied for loan forgiveness under PSLF have failed to get a discharge, often for minor technical reasons. This had devastated people who’d planned their working lives around debt relief.
The “Request for Information” yielded a whopping 45,000 responses in about six weeks. Outside groups and unions also identified problems, like thousands of teachers being unexpectedly rejected. This week’s changes reflect these responses.
The biggest problem was that payments didn’t count if they were made outside of very specific circumstances. Choose the wrong payment schedule or loan type, make a late payment or a lump-sum multi-month payment, or even pay a few pennies too little, and it wouldn’t count toward the 120 payments needed to qualify for PSLF. Service members on active duty, who get deferments of their loans, also lost the ability to count that period toward PSLF.
The fact that the Education Department announced an outreach program to go around the servicers makes all too clear the servicers’ lack of value.
So ED has now instituted a one-year waiver eliminating those technical rules. In fact, rather than checking each payment for the correct amount and timing and box-checking, all borrowers in repayment for ten years will be treated as qualifying for forgiveness. The department estimates that the change will immediately get 22,000 borrowers approved for forgiveness, qualify another 27,000 if they certify their employment record, and add the equivalent of 23 months of payment on average to over 550,000 borrowers in total. “I think it will go a long way towards increasing the approval rate,” said Alan White of the City University of New York School of Law.
Importantly, ED made space to fix the problem for those denied what they were promised, rather than just focusing on the future. “They were willing to look backwards and fix problems and rectify injustice,” Frotman said. “Since forever, they have said, ‘Switch your loan and you can start from zero.’ You talk to military borrowers who were told this, they were like, ‘I have been deployed numerous times to Iraq and Afghanistan. I missed countless birthday parties and ballet recitals. You’re telling me I have to start from scratch?’”
The mindset of actually trying to make government work is novel and inspiring. However, many borrowers still have to go through the same old servicers to get their benefit.
Over half of all borrowers who have applied for PSLF have Federal Family Education Loans (FFEL), the privately issued loans administered before the government changed the system to direct issue in 2010. Private student loan companies service these loans, and government reports show how those servicers have misled borrowers throughout the process. “Many borrowers are going to be forced to deal with the same student loan companies that got us into this mess,” Frotman noted.
Now, ED appears to recognize that, without strong monitoring and enforcement, new programs would continue to fall into the netherworld these private companies have created. The PSLF announcement included a full review of denied applications and a commitment to correct errors, putting servicers on notice that negligence in the name of profit will not be tolerated. And even before this, the new head of the Office of Federal Student Aid, former CFPB director Rich Cordray, has made very clear that he will aggressively oversee student loan servicers and punish them for abusing borrowers.
That’s apparently why, over the past three months, two major student loan servicers, FedLoan (which handled all PSLF processing) and more recently Navient, have requested to stop servicing federal loans. Because the Education Department is no longer allowing them to rip off students with impunity, the servicers don’t want to do it anymore. “We have someone at FSA saying I expect companies to follow the law and will hold them accountable, and they drop out,” said Frotman. “Think about what that says about how they’ve been running for a decade.”
The knock-on effects of actual governing reinforce why implementation should be a primary issue rather than an afterthought. Even with the right mindset, however, ED can go further.
For one, there’s the enduring question of why venal student loan servicers working at cross-purposes with ED even need to exist. The IRS is a giant public agency that takes payments; why not have them handle student loan servicing? The fact that ED announced an outreach program to go around the servicers and inform borrowers about PSLF makes all too clear the servicers’ lack of value.
The IRS is a giant public agency that takes payments; why not have them handle student loan servicing?
Second, borrowers still have to go through an employer certification process to show that their job history qualifies for PSLF, even if the government has ascertained that they’ve achieved the ten years needed for forgiveness. This application has been simplified to a one-page form, and the department wants to simplify it further. But certification could be automated.
A matching program using the Social Security Administration to identify people with disabilities unlocked billions in forgiveness for “totally and permanently disabled” borrowers. And the Biden-Sanders unity task force called for automatic PSLF enrollment. But yesterday’s announcement only automated this task for service members and federal employees. That’s insufficient, given the data the federal government already holds.
“They could match Employer Identification Numbers from the IRS with their database of nonprofit and government employers, as a start,” said White, who added that self-certification (with penalties for abuse) could also work. Making the process as seamless as possible for borrowers will resolve unnecessary burdens, which should be the goal of public policy.
The responses from public-interest lawyers, government personnel, and educators to this shift in policy have been overwhelmingly positive. This could foreshadow the response to a step that Biden has been unwilling to take—a broad-based cancellation of student debt—and just maybe, make that step a little more likely. There’s been an endless series of policy and legal reviews of this policy within the administration, which is what Washington does when it wants to kill an idea. But policymakers should learn from how people brighten and opponents cower from a little good governing.
“I hope the president and his team are just looking at the reaction of individual hardworking folks,” said Frotman. “It shows that there is a real desire for people to see change when it comes to the student debt crisis. What the president has the opportunity to do is, with a stroke of a pen, make millions of peoples’ lives better.”
