Washington — The Biden administration is coming under much criticism for not following through on the president's pledge to cancel up to $10,000 of student loan borrowers' debt. Inevitably, there is also much criticism from those who oppose any such cancellation whenever the subject is broached.
Complicating the situation is the looming date of May 1, when a repayment pause (due to the pandemic) expires. Polls show a majority of borrowers unable to resume repayment and thousands or even millions more borrowers may go into default. Those who wish the president ill are delighting in his dilemma: extend the pause at taxpayer expense to aid borrowers indiscriminately, regardless of need, or enforce repayment for forty million borrowers in an election year, putting many individuals and families into financial distress.
A solution is possible if it is better understood why so many borrowers are in trouble. They might not be in trouble if they were only paying principal and interest on their loans. Many borrowers are saddled with debt added by their loan servicers, often under dubious circumstances. According to a multitude of audits, reviews, and investigations over the years, servicer misinformation, ineptitude, and outright deception are the sources of significant borrower debt.*
Although servicers have been required in some cases to repay the federal government for their failures, there has been little effort to make borrowers themselves whole, to remediate throughout all federal student loan programs for borrower benefits denied.
The Secretary of Education has the statutory power to modify loans for the good of the federal student loan program, in the nation's interest. He should do so as remediation to borrowers for debts they should not have incurred, had the programs been conducted with statutorily required "sound management and accountability."
He also has the statutory power to provide incentives to repayment, which he should use to help struggling borrowers, especially those whose debts could be reduced back to principal and interest. Cancellation of servicer-added debt plus an interest rate cut could make enormous difference to millions of borrowers.
The following three actions by the Secretary, or something similar, would de-fuse the situation and bring a significant measure of justice to aggrieved borrowers. None requires congressional authorization or appropriation.
1. Modify federal loans by cancelling debt that has been added to principal and interest by loan servicers.
2. As the pandemic repayment pause ends, offer borrowers an incentive to get back into repayment by reducing their interest rates henceforth to the government's cost of money.
3. Give borrowers not in repayment up to one year of administrative forbearance to request a repayment option that they can afford with no loss of earned benefits, with interest set at the government's cost of money from the date of entering repayment.
I've been looking closely at one individual borrower's problems with multiple servicers over the years. ACS did not provide her with required documents; Great Lakes did not exercise due diligence over a consolidation; AES denied her requests for a repayment plan she could afford and gave her misinformation. The complaints, so far, have fallen on deaf ears, despite clear evidence of what went wrong. She would now be close to paying off her loans, had it not been for the servicers' errors of commission and omission.
Recently, CFPB issued a statement warning against servicer "deception," which is exactly the right word. The Bureau is right to do so, but warnings can only go so far. Borrowers need and deserve remediation when they have been deceived. This should not be done on a borrower-by-borrower or state-by-state basis, but across the board by the Secretary, because it is a widespread problem.
Now is the time to do it, while the nation awaits a decision on what the Biden administration is going to do about the student loan crisis. Targeted remediation, already authorized by law, will do much to move the discussion from repayment deadlines toward justice for abused borrowers.
_____________________________________
*Recent example from a January 14, 2022, settlement approved by the Department of Justice: "...during the period from January 2006 through
December 2016, CES knowingly submitted, or caused to be submitted, false claims to the
Department of Education resulting from CES’s failure to make required financial
adjustments to borrower accounts or packets of borrower accounts, following a request
by a borrower to enter into a deferment or forbearance, [or] participate in an income-based
repayment plan...."
