In another move towards student debt cancellation, the White House announced Tuesday that 40,000 who owe students loans will receive immediate discharge. The “fixes” also edges millions closer to have their student debt completely wiped away.
In yet another example of the federal government saving the U.S. from its own (in)actions and incompetence, the “fixes” are for its own mess. The Department of Education and its contracted loan servicers have not kept track of payments and many times do not even know when some borrowers are qualified for debt relief.
Roughly $1.7 trillion in forgiveness by the federal government is the goal of proponents for discharging student loans. But programs already in place to ease burdens on borrowers have been mismanaged, and coupled with skyrocketing tuition and parents taking out larger loans, it has reached “crisis” status.
As pressure increases for sweeping federal student loan forgiveness, the latest move by the Education Department gives borrowers retroactive credit for “forbearance steering.” This is when loan holders steered customers into high-interest forbearance that is unnecessary and costly for the borrower.
This practice is criticized for not putting those who owe student loans into an income-based repayment plan, which would both save money and move them closer to student loan forgiveness. This becomes possible, depending on the individual plan, after 20 or 25 years.
Income-driven repayment plans tie payments to the borrower’s income and offer the loan forgiveness when the chosen time is over. But this program, according to critics, is fraught with shoddy record-keeping. That means that many lose months or even years which should count towards student loan forgiveness.
The Public Service Loan Forgiveness program, which gives borrowers the opportunity for forgiveness in as little as 10 years if they work full-time in certain public-service sectors, has many similar issues. Studies show the Department of Education and its contracted loan servicers are not keeping track of repayment progress towards loan forgiveness.
Meaning incompetence will potentially cost U.S. taxpayers, including those who worked their way through school and those who faithfully repaid what they borrowed, nearly $2 trillion. But several polls show younger voters much more likely to support Biden in 2024 if student loans are forgiven, so the handwriting is clearly on the wall.