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President Biden has committed to forgive up to $20,000 in federal student loan debt for tens of millions of Americans. But getting it out the door presents a series of challenges.
The administration has assumed on the record that around 1 in 4 eligible borrowers will not actually get debt forgiveness, based on an estimated take-up rate of 75 percent. The hurdle was a deliberate policy decision—there didn’t need to be a complex income cap.
“If part of the theory of adding an income cap was to make this more progressive, the real-world impact was to make it more regressive. There’s going to be a larger percentage of people who make $124,000 per year, who actually jump through the hoops, than people who make $30,000 a year or who are unemployed,” Thomas Gokey, founder of the Debt Collective, told the Prospect in a recent Twitter Spaces event. Of course, Gokey added, the Biden administration can fix this any day they want, by canceling more debt.
But the White House’s chosen path is complex and means-tested. Kyra Taylor of the National Consumer Law Center and Mike Pierce of the Student Borrower Protection Center, who joined Gokey on the Spaces event, argued that the coming implementation challenges reveal the difficulty that government has in rolling out basic programs. For perspective: The Earned Income Tax Credit has been on the books for 30 years, and participation rates hover around 80 percent.
Even in instances where debt cancellation is absolute, relief is not immediate. The Department of Education relieved all loans for borrowers at Corinthian Colleges, the now-defunct for-profit school found guilty of extensive fraud. The announcement of full cancellation for Corinthian students was made June 1; to date, none have been processed, and Pierce said it is unlikely that they will be completely processed by January 1, when payments restart.
Student loan servicers, which are private contractors hired by the government to manage student loan accounts like Nelnet and MOHELA, all have different systems of record, Pierce said. Not only are they error-prone and clunky, but loan servicers have a terrible record of mishandling paperwork and misleading borrowers. “So, it’s a number on a ledger—but it’s actually a bunch of different ledgers, the number is sometimes different depending on the person, and we’re trusting companies that we shouldn’t trust to be able to connect the dots,” Pierce said.
Republicans have suggested challenging the program in court, but will struggle to establish standing. “It’s hard to imagine who’s actually harmed by this,” Pierce said.
“The thing that’s off about the discourse is that we are completely solid on the legal front,” Gokey said. “When Republicans talk about overturning, what they are trying to do is get the courts to ignore the law. At a certain level, this is about power. Can we organize and build on this victory.”
The Debt Collective is now trying to build on debt cancellation by organizing a student debt strike ahead of January 1, when payments restart. Getting on strike, he said, means getting down to $0 monthly payments—and one of the most effective ways to do that is to get your debt canceled entirely.
Taylor said the debt cancellation announcement “opens the opportunity to rethink the system.” In the immediate term, that means other forms of relief, like enrolling in an income-driven repayment (IDR) plan, or vetting eligibility for other forms of relief like borrower defense to repayment, where students defrauded by their colleges can ask for their loans to be forgiven. Further out, she said, “we should be thinking about free college, and ride the momentum of cancellation.”
Riding that momentum includes claiming the political victory of debt cancellation, Gokey said, which cuts across party lines.
“All these Ivy League politicians surrounded by rich people who think plumbers don’t have student debt” are deeply out of touch, he said. “If Team Biden was smart, they would hand Ted Cruz a microphone and put him on a tour bus.”
You can listen to the entire Twitter Spaces about student debt relief implementation by clicking the link below.
