Millions of government emails have gone out since the start of August offering help to many student borrowers. As always there are likely to be legal challenges, but if the latest relief plan goes through it could reduce monthly payments and loan balances for large numbers of student borrowers.
Efforts by the Administration to help student borrowers have so far aided 4.8 million people and reduced student debt by $168 billion. These are big numbers, but the federal student debt program is enormous. As of the second quarter, the federal student debt portfolio involved 42.8 million people and loans worth $1.62 trillion.
The August effort, according to the Department, is likely to reach 25 million borrowers. That’s not everyone, but combined with the 4.8 million borrowers already helped, it would mean that if the program is not blocked by the courts about 30 million borrowers will benefit from student debt relief, a massive number.
The August emails have a very odd purpose. They allow student borrowers to drop out of the relief program if they notify the government by August 30th.
It will be interesting to see how many student borrowers tell Uncle Sam, “I’m offended by this program, please don’t reduce my monthly payments or cut the amount I owe.”
If rejecting federal help seems unlikely, remember that opponents went to the Supreme Court claiming they had been denied the opportunity to drop out the relief effort and therefore the entire program should be stopped. The Supreme Court — in a 6-3 vote — did not buy the argument. In Department of Education v. Brown, the Court said the plaintiffs had no right to sue because they suffered no injuries.
For those who would welcome help, they must fall within at least one of four categories. The Department of Education describes them this way:
Borrowers who owe more now than they did at the start of repayment. Borrowers would be eligible for relief if they have a current balance on certain types of Federal student loans that is greater than the balance of that loan when it entered repayment due to runaway interest.
The Department estimates that this debt relief would impact nearly 23 million borrowers, the majority of whom are Pell Grant recipients.
Borrowers who have been in repayment for decades. If a borrower with only undergraduate loans has been in repayment for more than 20 years (entered repayment on or before July 1, 2005), they would be eligible for this relief.
Borrowers with at least one graduate loan who have been in repayment for more than 25 years (entered repayment on or before July 1, 2000) would also be eligible.
Borrowers who are otherwise eligible for loan forgiveness but have not yet applied. If a borrower hasn’t successfully enrolled in an income-driven repayment (IDR) plan but would be eligible for immediate forgiveness, they would be eligible for relief.
Borrowers who would be eligible for closed school discharge or other types of forgiveness opportunities but haven’t successfully applied would also be eligible for this relief.
Borrowers who enrolled in low-financial value programs. If a borrower attended an institution that failed to provide sufficient financial value, or that failed one of the Department’s accountability standards for institutions, those borrowers would also be eligible for debt relief.
The Objections
The student relief efforts have raised several objections. It has been claimed that they disproportionately bail out rich borrowers, provide no help to those without student debt, and are unfair to borrowers who have repaid their loans.
It’s likely true that households with bigger incomes will get a disproportionate benefit from student relief programs. That’s because they often pay for graduate programs that can produce large financial rewards, such as dentistry or medicine. On the other hand, do we want a society with fewer doctors and dentists?
It is certainly true that student debt relief provides no direct benefit to those without such debt. But, governments by their nature do not distribute benefits equally.
The paved road in front of the Smith house may not benefit Jones, but then Jones may also have a paved road that doesn’t do anything for Smith. Or, as another example, health inspectors who check meat-packing plants are likely not a plus for tax-paying vegetarians, but does anyone want to go back to the health standards of 1905 before such inspections began?
Lastly, isn’t student debt relief unfair to those who have already paid off college loans? The answer in an ideal world is probably yes, but the reality is that societies are filled with unfairness.
For instance, why do individuals aged 65 and above get an extra standard deduction? Is that fair to younger taxpayers? Why is there one tax rate for $100,000 in wages but no tax on a $300,000 profit from the sale of a prime residence that has been occupied by married sellers for two of the past five years? Is that fair to renters? Or workers who get paychecks every two weeks?
Be on the lookout for student debt notices from the Department of Education. If you have not gotten a notice and think you should, contact your student loan provider for details.
Program notifications are automatic, you don’t have to apply, and there’s no charge for participation. And, if as a matter of principle you object to student debt relief, if you don’t want the money, no problem. The government gleefully accepts donations at Pay.gov.