Breaking Down Biden's Student Loan Forgiveness Plan

 

​​​​​​​​​​​​​​Aired September 15, 2022

The big announcement that the Biden administration is canceling $10,000 in student loan debt for millions of borrowers—and $20,000 for even more—and extending the pause on payments is the main topic of discussion for the kickoff of dotEDU’s fourth season. Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, helps break down what this means for borrowers, institutions, parents, and the higher ed community as a whole. Sarah, Jon, and Mushtaq also talk about what’s been going on in DC as summer winds down.



Here are some of the links and references from this week’s show:

Introduction

Biden Administration Issues Final Rule on Protections for ‘Dreamers’
Roll Call | Aug. 24, 2022

Stopgap Funding Bill Set to Dominate September Agenda
Roll Call | Sept. 6, 2022

U.S. News Dropped Columbia’s Ranking, but Its Own Methods Are Now Questioned
The New York Times (sub. req.) | Sept. 12, 2022

Conversation with Justin Draeger

FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most
The White House | Aug. 24, 2022

Parents and Graduate Students Officially Qualify for Biden’s Student-Loan Forgiveness
Business Insider | Sept. 1, 2022

'I'm Drowning': Those Hit Hardest By Student Loan Debt Never Finished College
NPR | July 18, 2019

The Legal Dilemma on Student Debt Relief
Inside Higher Ed | Sept. 6, 2022

A Fresh Start for Federal Student Loan Borrowers in Default (Operation “Fresh Start”)
Federal Student Aid

Cardona's Vision for Higher Ed
Inside Higher Ed | Aug. 12, 2022

Ed to Focus on Student Debt, Institutional Accountability in Coming Year, Cardona Says
NASFAA | Jan. 28, 2022

Transcript

 Read this episode's transcript

Jon Fansmith: Hello and welcome to the fourth season of dotEDU, the higher education policy podcast from the American Council on Education. We are back from our summer break. We are back with my great, great, great cohosts, Sarah Spreitzer and Mushtaq Gunja. And we are going to be joined in a little bit by the president and CEO of the National Association of Student Financial Aid Administrators, Justin Draeger, a return guest on dotEDU. And Justin is going to break down for us the Biden’s administration’s big announcement around loan cancellation, repayment resumption, all the different things they’re doing that have gotten so much attention in the last few weeks.

But before we do that, it’s mid-September as we record this. It’s our first time back since late July. What’d you guys do with your August breaks?

Sarah Spreitzer: I mean, how is it September already? That’s my question. I guess mentally, I’m still at the beach. How about you, Mushtaq?

Mushtaq Gunja: Every day, I miss talking to the two of you on this podcast. So, I’ve really been preparing basically hourly for this conversation.

Jon Fansmith: I would point out, Mushtaq, you have been able to talk to us anytime you want over the last six weeks. You didn’t have to wait for the podcast, so I’m not sure I buy that.

Mushtaq Gunja: Season 4, that’s pretty cool.

Jon Fansmith: This might be the first time—we’ll have to ask our producers later—this might be the first time we’ve had two consecutive seasons with the same hosts. Because I started with me and Lorelle, then we had a rotating group. So, this might be-

Sarah Spreitzer: Are you trying to get rid of us, Jon? Are you trying to get rid of us? Because we were talking about Season 4 if there would be a cliffhanger or a shakeup. I don’t know. You seemed to be hinting at something.

Jon Fansmith: There are some plans to maybe bump off one of you in a dramatic way for ratings, but we wait for a sweeps week for that. Do they still do sweeps week? Is that a thing?

Mushtaq Gunja: One of us? Wait a minute.

Sarah Spreitzer: Yeah.

Mushtaq Gunja: Why would it be one of us?

Jon Fansmith: I’m the primary host. I do the intro. It’d be too jarring to listeners.

Mushtaq Gunja: As everybody knows, Jon, in Season 4 of The Brady Bunch, Cousin Oliver was introduced.

Sarah Spreitzer: Okay. Now, you’re dating yourself now, Mushtaq. That was nice of you.

Mushtaq Gunja: Hey, it’s been a busy, busy August in higher ed land. And we’ll talk about student loans in just a bit. But I sort of thought maybe with the midterms coming, this would be a quiet time in higher ed land. It seems like not.

Sarah Spreitzer: Well, I don’t remember August ever being quiet. I think that’s always a lie that August is quiet and the administration was incredibly busy this August including issuing a final rule on Deferred Action for Childhood Arrivals, which is one of the issues I follow closely. They had put out a proposed rule late last year and really this was to try to protect and fortify the existing DACA program, which has been under several court challenges.

And when the Obama administration created the DACA program, they actually didn’t go through any rulemaking. And so one of the things the courts have pointed out is that they didn’t follow the Administrative Procedures Act, they didn’t go through formal rulemaking. And so the Biden administration is looking back at the DACA program and saying, “Okay, in order to strengthen it, we will go through the formal rulemaking.” So they did that. They have produced a final rule that enshrines the current DACA program, meaning that they didn’t expand eligibility. It still only applies to those that, I think, entered the US before 2017 under a certain age. And obviously, that population continues to shrink because they didn’t expand the eligibility.

So, since the final rule has been released, we are still waiting to hear from the Fifth Circuit Court of Appeals, which has taken up a test of DACA. Several attorneys general entered a case that said, “We believe that the Obama administration illegally started this program and they didn’t have the executive authority.” And as part of that, the Biden administration has submitted the final rule as—Mushtaq, you probably know the term—as supporting paperwork in their arguments. But the feeling among advocates is that the Fifth Circuit Court is going to come out and say, “Yes, the program was created illegally,” which would then bump it to the Supreme Court. 

But there is a lot of concern that people that are currently in the program could see DACA be struck down and suddenly end or perhaps not be able to renew work authorization, which currently they have to renew it every two years. And so, there just continues to be a lot of uncertainty at a time when Congress really has not taken any action or is unable to get any sort of immigration legislation off the ground. So, that was my August, Jon.

Jon Fansmith: Yeah. And I thought it was interesting too, because you started by saying August hasn’t been quiet, and it definitely was not a quiet August. Part of that though is it’s the administration. Congress did go on recess. They had a few big legislative accomplishments, particularly the reconciliation bill, the Inflation Reduction Act, that passed before they went on recess.

But the administration has been driving the bus here. It’s not just the loan cancellation which is huge. And like I said, we’re going to talk about later, but we filed comments, including yesterday’s comments letter on the proposed Title IX regulations, on two other regulatory packages the Department of Education proposed around targeted forgiveness and around a number of provisions including restoring Pell eligibility to incarcerated individuals, which is something we’ve been working for and looking for for decades at this point. So all positive things, but it’s really the administration that’s been kind of driving the bus.

Now, Congress is back. As of this week, as we record this, they’re back for three weeks before they go full campaign mode for the rest of the fall. A few big things they’ve got to deal with there, the biggest one being funding the government. They aren’t close to coming up with a final bill, so the focus is on what’s called a continuing resolution, which is essentially an extension of the deadline. Federal funding theoretically runs out at the end of this month. October 1st is the start of the new fiscal year. They have to get that done. Again, we’ve seen this before. There are shutdowns if you don’t. Luckily, it doesn’t look like there’s going to be a fight over actually doing the CR. Funding will continue. What it looks like, and more importantly, what else might get attached to it, is sort of the bigger question.

And there’s a few interesting things floating out there. One of the ones that’s getting a lot of attention is statutory authorization, codifying gay marriage as legal. There seems to be a belief that there’s at least 10 Republican votes in the Senate, which would allow such a bill to pass. So, a few interesting things on Congress’ plate, all of it driven by the funding work, what they’re going to do there.

But Mushtaq, Congress is working. The administration is working. What’s going on in the broader world of higher ed?

Mushtaq Gunja: Well, U.S. News & World Report released their best colleges ranking this past Monday. And it’s as absurd as it always is. I mean, we had Colin Diver on, a former president of Reed College, to talk about the U.S. News rankings. But they continue to put these rankings out. They continue to make headlines. I mean, every year there’s a new wrinkle. This year, there’s an allegation by a Columbia University professor that Columbia had misreported some of its data to U.S. News. And it became enough of an issue that U.S. News apparently asked some questions and Columbia took back some of the data that it sent to U.S. News, which caused Columbia’s ranking to plummet, plummet in quotes, from 2 to 19 or something. But that’s caused a little bit of a stir.

You know, it is really interesting. I mean, U.S. News is ranking institutions with incomplete data, which they do sort of all the time actually. Because institutions don’t always provide all the data that they need and U.S. News just works around it somehow. I don’t know. I mean, it’s really, really, really strange.

Jon Fansmith: Yeah.

Mushtaq Gunja: I’ve been thinking about this a lot because as we are thinking about the new Carnegie Classifications systems, one of the things that we know we’re likely to need to do is to rely on universal datasets. So if some university doesn’t have data, I’m not entirely sure what we’re going to do, but that’s why we will rely on the sets that we know are universal that need to get reported to IPEDS or to the accreditors or something.

So, it’s been an interesting time, as I think our families and our institutions focus on, obsess about U.S. News for the week.

Jon Fansmith: Mushtaq, I noticed you did not thank me for bringing up the Rams, would be happy to continue to discuss our respective teams’ football teams. But I will also say the rankings thing, this is one of my annual favorite social media experiences. Which is the day the rankings are released, I get interspersing tweets or messages from everybody in DC who is like, “This is a corrupt system. It relies on incomplete data. It’s such a farce.” And interspersed with that are institutions announcing, “We’ve moved up to number 17,” or “We’re now number 28 in the rankings.” And I always think the juxtaposition of those is a pretty nice summary of where those rankings stand in the higher education policy world at least.

Mushtaq Gunja: In some later podcast, I would love to talk to you two about some of the absurdities about U.S. News. And I don’t think that I understood until ACE took over the Carnegie Classifications how silly some of this stuff is. But, as I think you guys probably know, U.S. News sorts institutions into national universities, regional universities, and then national colleges and regional colleges. They do that based on Carnegie’s classification systems, except that Carnegie doesn’t sort institutions by national and regional colleges and universities. So, they’re taking our system, relabeling some categories, moving some stuff around and then releasing it out to the world, all with a little bit of secret sauce underneath with exceptions here and exceptions there. It’s wild.

I’ll tell you guys all about it or I’ll tell our listeners all about it sometimes soon. Maybe not today because we have so much to talk about student loan-wise. But if you are at all interested.

Hey, I didn’t see what the Philly part of the score was in the Eagles game, but I thought I saw Detroit scoring 31 points or something.

Jon Fansmith: 35.

Mushtaq Gunja: I mean, that’s an absurdly high number. 35 points?

Jon Fansmith: Yeah. They were very fired up, home opener. But the more important thing is the Eagles scored 38. So, unlike the Rams, walked away with the win in the first game of the season.

Mushtaq Gunja: Is Jared Goff still the quarterback of the Detroit Lions?

Jon Fansmith: He is.

Mushtaq Gunja: 35 points, huh?

Jon Fansmith: At one point, he was three for nine for six yards which is the kind of stats you want to see firing up your offense.

Mushtaq Gunja: I remember that.

Jon Fansmith: Sarah, by the way, is looking just disgusted right now.

Sarah Spreitzer: Are we turning into a sports podcast?

Jon Fansmith: Could we?

Sarah Spreitzer: No, no.

Mushtaq Gunja: Season 4, you never know.

Jon Fansmith: I don’t think there’s many podcasts in the sports area, so we could really carve out a niche there. Anyway, yes, that’s a good way to wrap this up. We will not be turning into a sports podcast, certainly not over the break.

We’re coming back with Justin Draeger who’s going to make everything the Biden administration did around loan cancellation and student loan repayment resumption clear to you. It’s a great conversation. Justin’s always great, he has a great way of communicating this thing, so please stay tuned for that. We’ll be back right after the break.

And welcome back. As we mentioned before the break, we are joined today by friend of the pod, Justin Draeger, making his second appearance and joining the illustrious club of second dotEDU podcast guests. Justin, it is an exclusive club. It’s just you and one other person. So, it’s a sign of the esteem we have for you and the fine work they do at NASFAA that you have been brought back.

Justin Draeger: Well, I really feel like you’re smoothing over some political corners there, Jon, because it’s been 12 months. So meanwhile, we’ve had you on our podcast probably 700 times in the last year and I’ve been on twice. So, what gives? That’s-

Jon Fansmith: You know, Justin, we read what our listeners send us and we are responsive to their feedback.

Justin Draeger: I see.

Jon Fansmith: So, I don’t need to go into details. We don’t need to read all caps emails that we received, but we’re happy to have you back regardless.

Justin Draeger: Well, I’m happy to be here. It’s good to be talking to you. I know we’re going to dig into some meaty stuff. I also wanted to ask, I was surprised not to see a statement from ACE on the Queen’s passing. What gives there, Jon?

Jon Fansmith: Well, we walk that fine line of recognizing respect for a revered institution and grave concern about history of colonialization and oppression of peoples across the world. So, we decided in this climate, little hard to put a statement out that fully encapsulates the range of our members’ feelings. But I’m sure, Justin, I appreciate that NASFAA, you guys were the second one out I saw, I think just behind.

Justin Draeger: NASFAA has long supported the monarchy. It’s been that way for 300 years. So, we don’t want to deviate today.

Jon Fansmith: Anyone who’s reading to the bottom of your policy position statements, that weird little work in about, “Also we need a king,” that’s always-

Justin Draeger: Yeah, we put that at the end.

Mushtaq Gunja: This is why we did not invite you back before either, exactly this conversation.

Jon Fansmith: It doesn’t explain why I keep coming back though. I mean, we apply the same criteria.

Justin Draeger: Well, people try to put financial aid in a box, but we opine on everything from the monarchy to the latest fashion trends. So we’re all over the place.

But no, I’m glad to be back here. Although Jon, I do want to point out, and whether you guys keep this for the podcast is up to you. But last week when you reached out, I really felt the love when you were like, “Hey, I know this is last minute but can we just get you on next week?” which made me feel like you had another guest who fell through. And then when I said, “I’ve got a conflict, could we do it earlier?” And you’re like, “I don’t know. We’ll get back to you. Just hang tight.” I mean, it really felt like I was a valued guest.

Jon Fansmith: In my defense, Justin, I was explicit up front, another guest dropped out, which is why we have you on.

Justin Draeger: Okay. So, you said that.

Jon Fansmith: I even named the guest. I’m not going to name them on the podcast.

Sarah Spreitzer: The guest was actually the Queen, to talk about corgis.

Justin Draeger: Well, that would have been far more interesting.

Jon Fansmith: Well, regardless, again, Justin, we are very happy to have you on. We’re especially happy to have you on because what we are talking about today is something in which you and NASFAA really do great policy work. But the biggest thing that’s happening in higher ed policy in Washington, DC right now, which is the Biden administration has finally announced the details of their proposed loan cancellation plan. And they did this a couple weeks ago as we record this. So far, things are in process. But just to tee us up, tell us a little bit about what that announcement was, what the policy looks like.

Justin Draeger: If the administration was looking to make a splash, they did it. And in the month of August, which is normally a quieter month in Washington, DC. Not so quiet in 2022. They announced that they will be forgiving student loan debt across the board. And there’s a couple different criteria we should look at to see who’s eligible. Let me get to that in a second.
But they released some numbers. They said that this would impact roughly 43 million borrowers in the United States. 90% of the people who are receiving debt forgiveness make less than $75,000 a year. And since black borrowers are twice as likely to receive Pell Grants, and Pell Grant recipients will receive a larger debt cancellation benefit, they are considering this a well-targeted program.

And there’s always been two big questions here. First is would they or wouldn’t they? That’s been a question for a couple years. But the second question really was about balancing simplicity of the program against equity or fairness. And whether they got it right or not, people will debate that. We’ve got a lot of hot takes on it. I’ll just say they did try to strike a balance.

The simplest thing would just be if you got loan debt, forgiven, boom. That’s really easy. What they decided to do was put in basically a three-part test. Number one, what type of loans do you have? So, only specific loans right now held by the Department of Education are qualifying for debt cancellation. We have some outstanding questions there we could talk about. Number two is what’s your income. So, if you are a single borrower making less than $125,000 per year in the last two tax years or a married couple or head of household making less than $250,000 a year in the last two tax years, you are going to receive the full benefit. And then the third thing is really the amount of the benefit. And that’s whether you’re a Pell Grant recipient. So, if you received a Pell Grant in the past, you will receive double the benefit, not $10,000, but $20,000.

Jon Fansmith: To be clear, that’s if you received a Pell Grant at any time during your higher education, it’s you had to receive it across a number of years or multiple semesters, right? One Pell Grant, you’re now eligible for the increased benefit.

Justin Draeger: That’s right. So, they’ve created, that’s the three-part test. So they tried to strike this balance between making it really simple but also building in some fairness around this. Whether they struck the right balance, other people will decide. Ultimately voters will decide; I’m sure we’ll talk about that a little bit. But ultimately, that’s been the big question from our side, which is how, operationally, would this work? And at a high level, that’s what we’ve got.

Sarah Spreitzer: So, Justin, talking about how it was structured and the equity issues, there have already been calls for the forgiveness to be expanded, such as to parents who borrowed under the Parent PLUS Loan, graduate students who may not see much relief because this is really targeted towards undergraduate loans. Do you think that there’s any chance that the administration might expand this?

Justin Draeger: Graduate students will benefit, although their debt is a little larger. So proportionately, they won’t see as much relief, but they’re eligible. Parent PLUS borrowers are also eligible for their Parent PLUS loans. And if the parent themselves received a Pell Grant in the past, they’ll also qualify for the extra $10,000. So, it’s based on the borrower, I should just add.
But you’re right, Sarah, that some Senate Democrats just, I think it was yesterday, sent up a letter to the Department of Education and the Biden administration urging them to go further on parent loans. So for example they’re saying, “Forget whether the parent qualified for a Pell Grant, we should really just be looking at their student,” because the student’s eligibility is based on the parent’s income.

Now, whether the Department and the Biden administration....This is a quirk. But if the parent received a Pell Grant 20 years ago, then the parent receives an extra $10,000 in debt forgiveness. If their student received a Pell Grant, they receive $20,000. And so Senate Democrats are pushing them to go a little bit further, but ultimately I think we’ve got the program we’ve got, and the administration is going to have enough challenge getting this all implemented in the next couple months even with what they’ve already outlined. So I don’t know that the program will change significantly.

Mushtaq Gunja: I don’t know if they’ve exactly struck the right equity balance here. But one of the things that I really appreciated about the $10,000 forgiveness was one of the things that we know about the types of borrowers who default on their loans is that they often do not have enormous loan balances. $10,000 is actually a little bit of a magic number here that I think something like more than half of borrowers who default have less than $10,000 worth of debt.
So I don’t feel like the administration actually leaned into that line of argument here, but I feel like there’s a whole set of borrowers who will be able to have their debt wiped clean and then can go on with their lives. I mean, some of it’s about reducing loan debt and some of it’s just about really canceling it for the borrowers who need it the most. Justin, have you heard very much about how that might impact people in the real world?

Justin Draeger: Yeah. Well, you’re absolutely right, Mushtaq, that a lot of people in default, conventional wisdom might be that if you have a lot of debt, you’ll struggle and you’ll be in default. It’s actually the opposite is true. It’s those who went to school for a couple years or a year, took some student loan debt, dropped out, never made a payment, went 270 straight days without making a payment, and then defaulted on a relatively low balance that then rose really quickly in default because of collection costs loan fees. And because defaulted loans do qualify, this act alone will wipe out a significant amount of debt for people who are in default. And default has all sorts of awful consequences associated with it that will impact your life. So, for a lot of these folks, they should be free and clear and be able to put this behind them and move forward.

I should also add, and we might not want to talk a lot about this, but this whole policy is coupled with another program from the Department and the Biden administration called Operation Fresh Start, which is basically taking everybody out of default anyway and making them eligible for Title IV funds going forward, so hopefully they can finish their degrees, finish their programs, and put themselves in a position to escape some of the consequences they’ve been facing because of their loan costs.

Jon Fansmith: And we should come back to Operation Fresh Start, too, because the cancellation was by far the most publicized and received the most attention, but there are other elements of this that the Department’s doing. And we’ll come back to that in a second.

One of the things I wanted to just follow back on, Justin, you talked about implementation, striking that balance of both ease but access and how do you do that administratively for the Department. What does their implementation strategy look like? We know who gets the money. Roughly we know who gets how much, what the qualifications are, but how do borrowers actually access this cancellation? Is it automatic? Is it something you apply for? How does that work?

Justin Draeger: For most borrowers, they’re going to have to do something. So an application will, or according to the department’s timeline, an application should open in early October. That application will ask for some simple information including what their income is in the applicable tax years. And then after they open that application, they expect that borrowers can expect relief, like actual forgiveness, in four to six weeks, which if you know federal timelines, that strikes me as really fast. So fingers crossed that that holds.

And they’re urging borrowers to fill out those applications as soon as it becomes available on the department’s website because borrowers need to have that done before November 15th to have debt forgiven before the entire student loan repayment machine starts back up on January 1, 2023.

Now, I don’t want to minimize that. And the school’s role in this, if I’m a college president, I’m thinking, “What’s my role?” The schools don’t play a direct role in this. They aren’t required to do anything. But all of us, whether you agree with this policy or not, I think we would all agree that we want our students to get the maximum federal benefit they can from a federal benefits program. And so I do think there’s a lot of information distribution and dissemination that schools can do. And that’s sort of the timeline.

So right now, we’re sort in a holding pattern. For the majority of borrowers, the Department will not have their income information. And that may run counterintuitive because you’d say, “Well, there’s income-driven repayment plans.” So, we’ve got that. We’ve got FAFSA data. We have that. There are so many walls around information sharing at the federal level that FAFSA data cannot necessarily be used for this program. That’s set by Congress. Congress protects your tax return data very closely. And very few borrowers are actually in income-driven repayment because all borrowers have had a pause for two years. So, that data is now outdated.

So, most borrowers are going to have to do something. And if the Department has your information, they’ll do something with it. But like I said, they don’t have most borrowers’ information.

Sarah Spreitzer: Justin, how long will borrowers have to apply for this? If the application is live in October and the president made it very clear that this is a one-time forgiveness due to the COVID emergency, can a borrower apply next year? Can they apply up to October 1st next year whenever the application becomes live? And then also, what about new borrowers in the system, what if you’re just graduating next year?

Justin Draeger: Yup. Well, there’s two parts to that, Sarah, that I’ll answer. One is a very interesting quirk that I think schools will be interested in.

So, the first is that yes, people will be able to apply for this up to a year after the COVID emergency ends. When is that ending? I have no idea. So, when that ends, people will have a year. So, at this point, you could have all the way through 2023, I’m guessing, because the repayment machine won’t even start till January 2023. So let’s assume you’ve got a year from then. You have all next year to apply.

I think the issue is because repayments are scheduled to start in January, people are sort of feeling this frenetic rush to get this done. But if I were putting money down, I would say that repayment machine is not going to start in 30 days with a time clock beginning on January 1. Onboarding 40 million borrowers into repayment is not a one-month job. Servicers are not equipped to do it. They don’t have the staffing to do it. This is going to be a long on-ramp. So borrowers will have basically a year.

The second thing you mentioned, Sarah, was students that are currently enrolled. This is an interesting quirk because loans that have first disbursed by July 1, 2022 are eligible for forgiveness. So if I’m a school, and say I have modular programs, some of my borrowers are not on a traditional semester/trimester calendar year. I could have a loan disburse June 30, a second disbursement August 30, a third disbursement September 30, hypothetically. I mean, that loan would qualify. And so, a school could be basically disbursing loans that are immediately grants because they would qualify for forgiveness. So that is an interesting quirk just based on the timing of how they’ve qualified which loans qualify.

Mushtaq Gunja: Justin, historically, what percent of borrowers do we think are going to....Well, it’s not historical. What percent of borrowers do we anticipate filing for forgiveness? And what do we know about takeup of these sorts of programs? I mean, we clearly haven’t had this sort of forgiveness before. But what should we expect? I know that the cost of this program has been a little bit of a moving target. What’s your sense, Justin?

Justin Draeger: Yeah. That’s difficult to quantify, Mushtaq. And folks at the Congressional Budget Office and the GAO can probably do it or OMB can do it a little bit better than I can. But I will say is you would think if you’re giving out $10,000 to $20,000 in free money, the uptake would be universal. It won’t be. It just won’t be. And the fact, right or wrong, that borrowers will have to do something will be an impediment in and of its own.

So, there will be people who just don’t. So I don’t know, Mushtaq. So again, whether you agree with the parameters or agree with the policy or not, it’s here, it’s in place and we want our students and borrowers to qualify for it.

Mushtaq Gunja: I’m pretty nervous. I mean, I’m nervous for a couple reasons. One is I think that borrowers’ experiences with their servicers have not always been stellar. And so getting back into that program can be difficult. And I think the Department has made significant strides with PSLF, but it’s still not easy and there’s still quite a bit to do. And I can easily imagine some borrowers thinking, “Yes, if I jump through 75 hoops, I can get $1,500 or $2,500 of my balance forgiven, if I have that much left,” and just deciding they can’t do it or don’t want do it or are going to be too intimidated.

I mean, the good thing is, to Sarah’s question, if the program has some time to mature, I can imagine that perhaps some of those walls that you talked about at the federal government level might be able to be broken down. I mean, it’s always been, is “insane” the right word? That there isn’t better sharing across the federal government between IRS and the Department of Ed. Maybe this can force some of those walls to be broken down if the takeup isn’t as high as we want. Fingers crossed, at least from my perspective, fingers crossed on that.

Justin Draeger: Yeah, to the extent that we can automate as much of this as possible, more people will qualify. And how you break down those legal barriers, I’m not an attorney, Mushtaq, but there are lots of people who work on this who are and have, Mushtaq. So not to call you out, but it’s complicated and it’s riddled with layers and layers of federal bureaucracy.

What is interesting from a legal perspective about this entire thing, though, is that we all expected, or at least I expected, that the administration would use its authority in the Higher Education Act to forgive debt. I thought along the line that the secretary had the authority to change terms and conditions of loans and they would use that authority to apply this to loan forgiveness, and they didn’t. The legal authority they relied on was from basically the HEROES Act that grants them emergency authority.

And Sarah, to your point earlier, one-time forgiveness tied into the national emergency is very different in terms of legal precedent than saying, “I’ve always had the authority, the authority exists, and it will exist in the future,” because this is not exactly what they said. And again, I’m not an attorney, but for any legal challenges that come up in the future, they will be litigating something that’s very different from what I thought they would be litigating, which is whether the secretary just under regular order has the authority.

Jon Fansmith: And Justin, I think that that’s a nice transition because you talked about legal challenges. One of the reasons we’re talking about legal challenges is the day it was announced, I think it was Ted Cruz, there were some other people who talked about immediately getting a legal challenge to block this from happening. House Republicans have asked for a hearing on the plan. There’s been a range of reactions.

We have tended to focus on the reactions of students and borrowers. But there’s a political dimension. This is Washington, DC. You and I have talked about this. We’ve talked about it on dotEDU before. Part of the reason they’re doing forgiveness is civic-minded public policy; part of it is there’s political implications. Do you want to talk a little bit about what the reaction has been politically here in DC and what that might mean for the program going forward?

Justin Draeger: Well, I know you guys have your fingers on the pulse of what’s happening politically. I’ll say from what we’re watching, I think it’s yet to be seen.

I mean, Republicans have certainly staked out territory that this is unfair. And I think their talking points are effective. If you are a person who didn’t go to college, and if you look at the makeup now of the Democratic and Republican parties, if you’re a person who didn’t go to college but say started a business, and this is Political Ad 101, why don’t you get forgiveness for your business loan while someone who went to college gets forgiveness for their loan? I’m not here to debate that issue; I’m saying I think it’s an effective talking point. And how effective it is we’ll see in November.

On the other hand, I think the administration also knows that there are systemic and racial and class issues that it is trying to resolve, or at least partially resolve or address, through debt forgiveness that has really been a burden on people who didn’t get the educations they thought they would, didn’t have the outcomes they thought they would, and find themselves significantly burdened by loan debts.

Jon Fansmith: And I gotta focus on one thing you just said there, which was the administration recognizes there are systemic issues with the lending problem. As we’ve talked about and Sarah pointed out, this is a one-time tied to a national emergency. This is not a systemic fix, this is not a statutory change, this is not a regulation. This is a one-time policy they’re claiming national emergency authority for. So, what does this do to the system? You just said, the administration recognizes there’s a systemic problem there. What does this do for our system of how we finance higher education?

Justin Draeger: Well, this is where I think from NASFAA’s perspective, from the financial aid perspective, if we do nothing differently, we’ll be back in the same position in five to seven years at current borrowing levels. So this does not systemically fix something.
I will say the administration, mostly overlooked because everything’s been on debt forgiveness, debt forgiveness, debt forgiveness. They did propose changes, regulatory changes. So it needs to go through a process; this cannot be done by the flip of pen. But they did propose significant changes to the income-driven repayment plans that will drastically reduce the amount people have to pay on their loans. But without legislative changes, we will still have things like negative amortization. We’ll still have things where people are paying their loans, but their loan balance just keeps growing.

And so, Jon, to your point, NASFAA’s point has always been what will be will be with debt forgiveness but relief must come with reform. And so far, we’re a little light on the reform side.
Mushtaq Gunja: I mean, the 5% change in IBR could be a huge deal if we really change the way that we approach IBR. I mean, I’ve been hoping for a default IBR for some time. I guess it goes to this wall concept, if we could share income data and then do automatic enrollments into IBR or at least to default, that that could help especially at 5%.

But your amortization and interest points are really, really important because I feel like Republican criticisms of this plan are really about, “People have taken out debt. They should pay their debt back.” But I think it’s mostly about principle. I think that across the spectrum, I think folks are a little bit surprised and shocked at how much interest and costs pile up, so that students end up paying way more back than they took out in the first place.

And I wonder if there’s some common ground here. And maybe this is to Jon and Sarah. I mean, I don’t know. It does feel like the problems of the loan program are not exactly, I don’t know if they’re fully well understood except by the borrowers themselves who understand that, they’re not paying the principal down because they’re just paying their interests and their costs. I don’t know what you guys think.

Sarah Spreitzer: Next year, we’re going to have a brand new Congress and they’re predicting that the Republicans will at least take over the House. And I think the Republicans on the education and labor committee have already proposed a bill that looks at the income-based repayment programs. I think it produces one IBR program, caps borrowing especially for graduate students so that the debt doesn’t spiral out of control, and take, some steps towards that. But whether or not that’s the bill that they introduce next year, I don’t know. But I think that this will be high on the list to say, “How are we going to get this under control for both Dems and Republicans?”

Jon Fansmith: And I just add to that because that bill, which is called the REAL Act, was introduced right around the cancellation proposal and can very clearly be seen as a response. The other thing, though, is a lot of what’s in there are not new proposals. A lot of this was in the PROPSER HEA reauthorization package that the last time Republicans controlled the House was offered.

And to your point, Mushtaq, about common ground, it does include blocking interest capitalization. There’s limitations on how much a borrower will ultimately have to repay. There is, I think, an understanding certainly among policymakers of all of the flaws and the problem that cancellation is really a band-aid to a lot of borrowers who are struggling. It is not a way of reforming system or avoiding that outcome that Justin identified, five to seven years down the road of having the same level of student debt held by the government.

I know we’re getting close to using up all of Justin’s time with us. So before we do, cancellation sucked all the air out of the room in terms of the announcements. But there was a lot more that the Department announced, including what this means for borrowers who won’t have all their loans forgiven in terms of entering repayment. Also, they announced a few things for colleges and universities that get to this idea of, “If we have a systemic problem, how do we not only address that but how do we address maybe the actors who are causing some of these problems?”

So, Justin, do you mind just running down what this means for borrowers and then a little bit what it means for institutions?

Justin Draeger: Great question, Jon. The one thing I do want to point out is, as you said, loan forgiveness is sort of the headline. And under that are several other headlines, one of which received a little bit of coverage but then sort of faded away. And this one will have real repercussions on institutions. It’s called Operation Fresh Start.

The idea is that if you’re a student in default, that your loan would be brought current. Then Department first announced this back in the spring but just didn’t have any operational details. Little did we know that since the spring, some borrowers in default had been receiving letters basically declaring them eligible for federal student aid dollars again.

So we learned more about this in August. The Department finally released an official implementation announcement, and this will require manual work by financial aid offices at institutions. So if your financial aid office is at capacity, I’ve got bad news for you because this is going to be one extra thing that they will have to manually do differently.

Big picture, it means students in default, they can now have their loan brought current in one of two ways. Option one, go back to school. If you go back to school, the financial aid office will manually review your file, make sure that your loans qualified, that you meet all the eligibility criteria. And for all intents and purposes, your default doesn’t matter. You can now receive grants. You can receive work study. You can receive loans. Things you normally can’t do if you default.

Option two, you contact your loan servicer. You tell them that you want to apply for having your loans brought current. And they’ll do the work on the back end to make sure that your loan is no longer in default.

So this could be if I’m an institution and I’m struggling with enrollments right now, as an enrollment plan, I might go back and look at the students who’ve dropped out in recent years who are prevented from coming back because they’ve defaulted. This is data that an institution can get its hands on. And then I might do some special outreach to those students to say, “Come back. Finish your degree. You may be Title IV eligible again.” And that could potentially soften some of the enrollment blows that campuses are experiencing.

Jon Fansmith: And then, so the second aspect of that, Justin, in terms of some other things that were announced that might impact institutions, the Department has said. If you looked at the initial announcement, they not only talked about cancellation, they ran down what they’ve done in targeted forgiveness, actions they’ve taken against accreditors, actions they’ve taken against institutions where they thought there had been bad outcomes. And they proposed a few other things along that line. Can you talk briefly about these accountability provisions Ed announced? Or the administration announced?

Justin Draeger: It bears reminding, and I think I’ve heard Terry Hartle say this, which is the government is not in the habit of leaving bags of money around without any strings attached. And this is a big bag of money for borrowers. But ultimately, there are some pressures that the administration can put on institutions, and some they’ve highlighted, like if we forgive this debt and you turn around and increased tuition and put students now and in the future into the same amount or even greater debt, we will have an issue.

Now, what issues will you have? Well, at the very least, they’ve got the bully pulpit. They could put out lists of schools that, in the face of loan forgiveness, then increased tuition amounts. And I think every school has to do a risk analysis about the realities of their budget situation, which are real, like budgets have to be balanced. Only the federal government can operate with perpetual deficits. And the reality then of being browbeaten potentially in the future for increasing your prices on students.

And I don’t envy CFOs and presidents who are going to have to wrestle with this going forward. But they basically put schools on notice. We’ll be watching your next steps as it relates to college affordability.

Jon Fansmith: And given the secretary’s also recent rhetoric on inclusivity, particularly of highly selective institutions, and the need to elevate institutions that do more to promote social mobility and equity among students, it’s not hard to see that this is a department that’s looking to use that bully pulpit very publicly to prod institutions to make changes in the way they operate.

Before we say goodbye to you, Justin, I wanted to give you the opportunity. Any final thoughts, anything people listening to this podcast who care about this topic should know before we go?

Justin Draeger: Yeah. Let me say one thing about your students and your borrowers and then the second thing about your institutions. So, the first thing I would say is for borrowers and students, I’m sure they have a lot of questions. And one of the places they’ll naturally come to is your institution or your school’s aid office. Maybe they just want to know, “Did I receive a Pell grant? I don’t remember.” So, it probably is worth talking to your aid director and finding out if they’ve got the resources they need to deal with an influx of alumni questions that are probably already coming in the door.

The second thing I would say is as it relates to performance metrics for the institution. Again, I think it probably behooves the president to connect with their aid director and try to come up with maybe a dashboard of borrower success and outcomes data. Like “What is the average indebtedness?”, that’s pretty basic. What about the average indebtedness of the people who drop out and don’t complete? What’s your default rate of that population? What are the salary ranges of people who are graduating relative to high school graduates? These are all metrics that get talked about over and over and over again when it comes to accountability.

And I said two things but, Jon, I’m going to slip in a third, as we are wont to do inside the Beltway, and just say NASFAA, for our part, we’re here to support your aid offices. We have a knowledge base that schools are asking us 20,000 questions a month on average about administering Title IV aid. And we’ve got an entire knowledge base built out on Operation Fresh Start and loan forgiveness, what your aid offices need to know. So please use us as resource just as they use you guys at ACE. And just like you, we’ll be here to try to help them every step of the way.

Jon Fansmith: Well, thank you very much, Justin. Those are excellent points, things for people to check out. We will provide links to them in the show notes. We’ll also provide a link to your other podcast, which for people who care about issues of student aid and loans, the Off the Cuff Podcast NASFAA hosts that I periodically appear on as long as you’ll have me. So, we’ll have links to all of those things. Justin, again, always great to have you. Please block off sometimes mid-September 2023. Love to have you back.

Justin Draeger: When somebody drops out, I’ll be here.

Jon Fansmith: That’s right. Or when somebody drops out, that’s the schedule we have for you.

Justin Draeger: All right. I’ll see you, guys.

Jon Fansmith: Thanks, Justin.

Justin Draeger: All right.

Sarah Spreitzer: Bye.

Justin Draeger: All right. I can go, right?

Jon Fansmith: Yeah, you can go.

Justin Draeger: Okay. All right, that was legit. All right.

Jon Fansmith: Sorry. I know we pushed you right to your line, so.

Sarah Spreitzer: Justin, that was a much better explanation than what Jon’s provided us on debt forgiveness. So thank you. I got a lot out of it, too.

Jon Fansmith: That’s because Justin doesn’t actively dislike you.

Justin Draeger: Yeah. Well, Sarah, you’ve been my favorite at ACE for a long time.

Sarah Spreitzer: Thank you.

Justin Draeger: And you’ve always been very gracious. But we use Jon on the podcast because the price is right, which is free.

Sarah Spreitzer: Oh yeah.

Jon Fansmith: I actually pay to appear on it.

Justin Draeger: Yeah. He pays us. All right, see you guys.

Jon Fansmith: Bye, Justin, thanks.

Sarah Spreitzer: As always, you can check out earlier episodes and subscribe to dotEDU on Apple, Google podcast, Spotify, Stitcher, or wherever you listen to your podcasts. For show notes and links to the resources mentioned in the episode, you can go to our website at acenet.edu/podcast.

While there, please take a short survey to let us know how we’re doing. You can also email us at podcast@acenet.edu to give us suggestions on upcoming shows and guests. And finally, a very big thank you to the producers who help pull this podcast together: Laurie Arnston, Audrey Hamilton, Malcolm Moore, Anthony Truehart, Rebecca Morris, Jack Nicholson, and Fatma Ngom. They do an incredible job making this happen and making Jon, Mushtaq and I sound as good as possible. Finally, thank you so much to all of you for listening.

About the Podcast

​Each episode of dotEDU presents a deep dive into a major public policy issue impacting college campuses and students across the country. Hosts from ACE are joined by guest experts to lead you through thought-provoking conversations on topics such as campus free speech, diversity in admissions, college costs and affordability, and more. Find all episodes of the podcast at the dotEDU page.

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