Introduction: Time for Student Loan Interest Reform

The time is right for reform and a re-examination of the United States student loan programs. The current student loan programs have failed. I hope this website will help to distill the relevant information in an easy-to-understand way.

The student loan programs are not easy to understand. Information is available from many places. Policymakers are spread across many federal government institutions, making it hard for an individual borrower with other obligations to keep track of developments.

Thankfully, there are student borrower groups that monitor developments and respond, such as the Debt Collective, Student Loan Justice, and several others.

Joe Biden, Architect of the Student Loan Crisis

Yet his role is obscured? Large student loan servicer, Navient is based in Biden’s Delaware.

The 46th President of the United States, Joseph R. Biden, is deeply implicated in the student loan crisis. It is correct that the expectation of policy reform arises with his Administration.

In 2005, he championed a bill that prevented most student loan borrowers from being able to discharge student loans in bankruptcy. Despite the current issues with the broken, abusive student loan system, Biden still obstinately defends his legislative actions essentially barring student loans from bankruptcy. Ayelet Sheffey wrote an article on this for the Business Insider.

Critically, President Biden has a conflict of interest, biased in favor of maintaining the financially abusive student loan programs. The largest student loan servicer–formerly a federal loan servicer–Navient, has its headquarters in President Biden´s hometown, Wilmington, Delaware.

Former Navient CEO, Jack Remondi, raked in millions of dollars in compensation. Remondi was not the only one, as other Navient C-level executives also lavish with million-dollar compensation packages based on beleaguered “student loan” borrowers.

In May 2023, Navient appointed another CEO, David Yowan, a former credit card company executive (American Express).

Recent limited loan cancellation program, an example of policy inhumanity?

Note: President Biden’s parsimonious program has been halted because of lawsuits. A student loan servicer that is the fuel for one of the lawsuits, the Missouri Higher Education Loan Authority (MOHELA), has been running for cover in Congress. The Supreme Court canceled the weak proposal that President Biden clearly did not want to do. As a result, MOHELA´s student loan servicing contract should also be canceled. MOHELA’s interest is contrary to that of the borrower.

 

President Biden announced a limited loan cancellation program, through authority of the HEROES Act. The program is notable for the layers of frustrating, low-key humiliating, administrative requirements.

Despite this, the program, due to the lack of universality, still leaves many suffering people out from relief. Professor Richard D. Wolff commented on Biden’s plan as being “crumbs“.

Note: I am concerned with policymakers demanding that assistance only be provided “for those who need it,” that is, those who are severely deprived. The administrative burdens are set in place to exclude as many people as possible from receiving top-line, promised relief (emphasizing policy inhumanity, mercilessness, unfairness, and injustice). Should government policy instead be humane, fair, equitable, and just?

As policymakers warn about the fall of democracy, these policymakers should realize that promising relief that they do not deliver in reality is itself a blow against trust in government and democracy. Policymakers, if they are serious, had better start to create universal, easy-to-deliver policy programs.

Concerns with CBO and “Deficit” Created a Crisis for Borrowers

An article in the publication, The Week (author, Ryan Cooper), states that Congress created the student loan crisis as a result of being obsessed with Congressional Budget Office interpretations of the “deficit”. The result, a dependence on loans, with loan-shark terms and interest policy.

A deficit-reducing CBO score “is a key factor in deciding whether a policy is adopted or not,” Robert Shireman, who worked on several of these laws, told Mitchell. “The fact that it saved money helps enact it.”

I am dismayed with the bipartisan Congressional consensus on student loans, which takes money from (and financially hurts) me and people like me to satisfy some nebulous goal.

A Comment about Blake Zeff’s Loan Wolves

Gallingly, I discovered through a MSNBC documentary Loan Wolves by Blake Zeff, that David Longanecker, an Education Department appointed official during a Democratic Clinton Administration, supported removing student loans from bankruptcy protection as a deficit reduction provision. When asked about it, he obstinately defends the provision despite the gross harms it caused because people **have to pay their loans** (a term that means to continue the flow of cash and “profit” to colleges, universities, federal and state governments, Wall Street, and student loan servicers).

It was a disgusting scene because Longanecker is a stubborn hypocrite and a beneficiary of student loans (he worked as a university administrator before driving a tractor trailer in retirement(????)).

[Mr. Zeff’s documentary allowed Congress, especially his former boss Senator Charles Schumer to escape accountability and any responsibility for the manifest failure of the student loan programs.

As Mr. Zeff was a former Senate staffer, he had to be aware of the process. He has to realize that his trip to Capitol Hill was only a performance. Senator Richard Durbin’s bill will not get any floor time or escape the committee. Senator Schumer evaded questions and rushed out to…go to lunch.

Mr. Zeff was also too soft on Longanecker. But Mr. Zeff was/is part of the system; he cannot challenge it. It is probably the reason the people he interviewed agreed to speak with him. It is shameful that others he interviewed feigned ignorance about how the provision got into the bill.]

Income-Driven Repayment: A Broken-Down Mess

National Public Radio reporter Cory Turner did an investigation on  income-driven repayment (IDR) plans. Mr. Turner discovered decades of poor (or no) record keeping to monitor the number of payments toward eventual cancellation of the loan. The loan system has produced so much injustice that it cannot be repaired for current loan payers.

(The Student Borrower Protection Center, National Consumer Law Center, and Center for Responsible Lending proposed an IDR waiver to the U.S. Secretary of Education, Miguel Cardona (February 9, 2022).

The U.S. Department of Education issued a press release on April 19, 2022, announcing its inadequate plan to address the IDR plan failure.

Upon a close read, the Education Department’s plan is full of loopholes. It helps a small amount of borrowers, but maintains the interest cash flow (which immiserates so-called borrowers).

The Government Accountability Office issued a report on April 20, 2022, that stated that the U.S. Department of Education did not keep track of IDR payments, causing many borrowers not to be able to achieve the promised cancellation. Who benefits from these “policy failures”?

Who Benefits from Student Loans?

There are groups that can afford to focus on and create student loan policy. Four powerful interests are described in an article by James B. Steele and Lance Williams at Reveal News:

• Colleges and universities (public and private)
• Federal and state governments (The federal government took in a profit of $70.3 billion from the student loan programs (2019). Why is this money going to the U.S. Treasury like a tax?)
• Student loan servicers, especially Delaware-based Navient. According to Navient’s proxy statement, its chief executive officer, Jack Remondi, has a compensation package valued at $8.1 million (2020)
• Wall Street.

In addition to these four groups, there are the families that can pay full tuition. To attract these families, colleges and universities add luxury-level amenities. The colleges and universities rely on the student loan programs and other higher education programs (as well as higher tuition and fees) to pay for the amenities wealthy families want.

(Note: See a blog post on news developments related to the four beneficiaries of student loan interest.)

Also, please read a Politico article (author, Michael Stratford) that explains that institutions that profit from the suffering of student loan borrowers. One such company is Social Finance, Inc. (SoFi), which is using its lobbying power and connections to dictate how borrowers are to be treated. The interest of the borrower is again ignored.

Note well that the CEO of SoFi, Anthony Noto has executive compensation valued at $102.9 million (see table).

See also the two documents that SoFi lobbyists distributed on Capitol Hill (2022). Note well that SoFi lobbyists are targeting the Appropriations Committee, not the authorizing committee.

back-to-normal-means-ending-the-student-loan-payment-pause

sofi-fy2023-approps-request45

This issue exposes a power play between lobbyists and the United States Congress. In this case, the trod-upon borrowers are aware of the negative effects of the abusive lender-Congress relationship. (See a video (above) by Breaking Points, which shows how money controls policy. Perhaps it is the reason the student loan system is messed up–for borrowers (by design).)

 

Those with Power and Wealth Create (and Benefit from) Student Loan Interest

All groups above have the resources to lobby politicians and afford expensive litigation. Notice how Al Lord, the former CEO of Sallie Mae was able to work with then Representative John Boehner (Republican from Ohio) to make Sallie Mae private. Al Lord became a millionaire; no benefits flowed to the borrower.

Alternatively, each student loan borrower does not have the resources to match that of the groups that benefit heavily from student loan payments and interest. Congress did not have the interest of borrowers in mind while setting high interest rates and lengthy loan terms.

Peterson Foundation and the Committee for a Responsible Federal Budget

In 2022, just before the student loan pause end date, August 31, 2022, the Committee for a Responsible Federal Budget (CFRB) issued a questionable table.

The table argues that another extension of the student loan pause would undermine a donor-class-favoring law, the so-called Inflation Reduction Act. The group has two persons pressing this argument, Marc Goldwein, its senior vice president and senior policy director and Jason Furman, a multimillionaire, Harvard Ph.D. economist.

Recall that the broken student loan system was already existing for decades.

The CFRB receives funding from the Peter G. Peterson Foundation (tied to Wall Street), a group that advocates to privatize Social Security and Medicare. The group is filled with people tied to the Congressional Budget Office, Wall Street (Erskine Bowles and Alan Simpson), and universities (co-chair Mitch Daniels, president of Purdue University).

The group wants to continue to financially berate borrowers to maintain a separate revenue source derived from student loan payments. These payments are outside the Appropriations process. This result is consistent with the findings of the Reveal article and Josh Mitchell’s book, The Debt Trap.

(The profound silence (quiet approval) of policymakers of these events during this time is well noted.)

Third Way

Please note that this organization proposes policy that Wall Street favors, similar to the CFRB. The board of trustees is filled with Wall Street scions.

Recall, Wall Street is a beneficiary of the broken student loan system.

The Immiseration of Borrowers, Sanctioned by the U.S. Congress and the U.S. Department of Education

The most disappointing issue I have discovered with student loans is the indifference of the supposed representatives of the People of the United States: The U.S. Congress. Congress Members must raise money for their elections. That reality does not mean that Members of Congress have a pass to neglect their responsibilities to the regular person who lives in the United States.

Yet, that is what has happened in student loan policy. Congress favored financial institutions, mutual and hedge funds, colleges and universities, and the federal and state governments at the student loan borrower’s expense. President Biden, while a Senator for Delaware, played a key role in developing the current unfair, illegitimate, abusive, and predatory student loan system.

One method of immiserating the student loan borrower is the increasing principal balance. Because of how payments are assessed and allocated (see policies below), a borrower must make a payment two or more times the required fee. In the case of overpayment, the borrower would have to inform the loan servicer to assign the extra amount to the principal rather than placing the borrower in “paid ahead” status.

In this way, it seems that the programs were intentionally designed to create an endless payment for the beneficiaries of student loan interest. The increasing principal balance is in opposition to the well-founded interest of the borrower—to see that the principal balance is meaningfully reduced with each payment. As the loan program contradicts this expectation, frustration and anger must result.

The money taken from the 45 million borrowers sustains the beneficiaries of student loan interest. Thus, there is a fierce fight against student loan cancellation. So be it. The relief of cancellation finally comes for the borrower in the primary position (alas, after many decades of suffering). Congress and the Department of Education must do the extensive work to remedy the harms they have inflicted on borrowers.

[Videos in this section: Krystal Ball, Breaking Points, “How Clinton Scammed a Generation and Sold Their Futures.” Astra Taylor (artist Molly Crabapple), “Your Debt is Someone Else´s Asset.”]

 

Relevant Student Loan Policies

 

United States Department of Education

 

Student Loan Interest

Current interest rate on student loans

 

Student Loan Interest, Assessed Daily

According the Department of Education, “The amount of interest that accrues (accumulates) on your loan between your monthly payments is determined by a daily interest formula. This formula consists of multiplying your outstanding principal balance by the interest rate factor and multiplying that result by the number of days since you made your last payment.

 

Simple daily interest formula

Interest Amount = (Outstanding Principal Balance × Interest Rate Factor) × Number of Days Since Last Payment”.

This interest accrual often grows to an extent to take the entire payment.

Why does the U.S. government assess student loan interest in this way?

 

Interest Capitalization

Unpaid accrued interest is added to the loan principal.

 

Payment Allocation

All outstanding interest is paid first. The remainder of the payment, if any, goes toward the loan principal.

Sometimes with the income-driven plans, the payment can be less than the outstanding interest (“negative amortization”).

On June 2, 2023, Joe Biden, President of the United States, celebrated the passage of H.R. 3746, the Fiscal Responsibility Act of 2023. Widely proclaimed to be the legislative vehicle to avoid the United States from “running out of money” (its own currency), the bill also had damaging provisions.

One of them was section 271, which restarted the broken student loan program. Payments for student loans and the interest were paused by former President Donald Trump in March 2020.

SEC. 271. Termination of suspension of payments on Federal student loans; resumption of accrual of interest and collections.

(a) In general.—Sixty days after June 30, 2023, the waivers and modifications described in subsection (c) shall cease to be effective.

(b) Prohibition.—Except as expressly authorized by an Act of Congress enacted after the date of enactment of this Act, the Secretary of Education may not use any authority to implement an extension of any executive action or rule specified in subsection (c).

(c) Waivers and modifications described.—The waivers and modifications described in this subsection are the waivers and modifications of statutory and regulatory provisions relating to an extension of the suspension of payments on certain loans and waivers of interest on such loans under section 3513 of the CARES Act (20 U.S.C. 1001 note)—

(1) described by the Department of Education in the Federal Register on October 12, 2022 (87 Fed. Reg. 61513 et seq.); and

(2) most recently extended in the announcement by the Department of Education on November 22, 2022.

Politicians of both parties passed this bill by overwhelming numbers.

House roll call, https://clerk.house.gov/Votes/2023243

Party	Aye	No	Not Voting
Republican	149	71	2
Democratic	165	46	2
Total	314	117	4

 

Senate roll call, https://www.senate.gov/legislative/LIS/roll_call_votes/vote1181/vote_118_1_00146.htm

Aye: 61

No: 36

Not voting: 1

H.J.Res. 45

The Congress also passed a Joint Resolution, H.J. Res. 45,  to signal Congressional opposition to the action of the U.S. Department of Education on October 22, 2022.

Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Education relating to “Waivers and Modifications of Federal Student Loans”.

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Department of Education relating to “Waivers and Modifications of Federal Student Loans” (including the website announcement entitled “One-Time Federal Student Loan Debt Relief” and the Federal Register document entitled “Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program)” 87 Fed. Reg. 61512 (Oct. 12, 2022)), and printed in the Congressional Record on March 22, 2023, on pages S903–S906, along with a letter of opinion from the Government Accountability Office dated March 17, 2023, that the Waivers and Modifications are a rule under the Congressional Review Act, and such rule shall have no force or effect.

Passed the House of Representatives May 24, 2023.

The joint resolution would also have had retroactive action. President Biden vetoed this resolution.

Federal Family Education Loan Program (FFELP)

My loans were part of the former Federal Family Loan Program (FFELP). The Department stopped issuing new FFELP loans in 2010. FFELP loans still are existence (and notably, commercially held FFELP loans (like my former Navient-held loans) were not included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act). I paid on my loans for most of the CARES Act period.

I graduated from university and law school. I wanted to improve myself and serve the People of the United States in the civil service. The desire to attend higher education classes instead ruined my finances with high interest rates and questionable payment policies.

I consolidated my loans in the former FFELP. I did not transfer to the Direct Consolidation Loan with the federal government before 2021, as the move would set the payment count to zero.

Because of the waiver in the Public Service Loan Forgiveness (PSLF) Program in 2021, I transferred my consolidation loans to the Direct Loan Program to sign up for the PSLF waiver. The waiver would count my FFELP payments (while a government employee) as qualifying PSLF payments.

In August 2023, I was notified that my loans qualified for cancellation due to the one-time income-driven repayment adjustment. I am out of the student loan program forever.

 

Loan Principal (approximately) (1999)	$80,000
Interest Rate (fixed, set by the U.S. Congress)	8.25 percent
Loan Term (set by the U.S. Congress)	30 years
Amount I Paid	$120,000+
Loan Balance (approximately) (2021)	$70,000
Loan Balance, March 31, 2023	$0.00
Loan Servicer (up to November 2021)	Sallie Mae/Navient
Loan Servicer (November 2021 to August 2023)	FedLoans, MOHELA
Loans cancelled, March 31, 2023	Department of Education’s one-time income dependent repayment adjustment; PSLF

 

Despite paying about $120,000+ on my student loans (mostly interest and $40,000 more than my loan principal), the U.S. government explains that I still owed approximately $70,000. I immediately question the fairness of the federal student loan program, especially the interest rate and the way payments are allocated.

There is an article in Business Insider (authors, Juliana Kaplan and Ayelet Sheffey), which describes a problem of the PSLF program, payments do not make the principal go down.

 Conclusion

This is the time to re-examine all student loan programs for reasonableness and fairness and to provide equitable relief to immiserated borrowers.

United States Congress

Appropriations Committee

House Subcommittee, Labor, Health and Human Services, Education, and Related Agencies

Senate Subcommittee, Labor, Health and Human Services, Education, and Related Agencies

Authorizing Committees

House Committee, Education and Labor

Senate Committee, Health, Education, Labor and Pensions

 

Internal Revenue Service

Student-Loan-Related Provisions

https://www.irs.gov/individuals/students

 

Student Loan Interest Deduction

26 U.S.C. section 221

Phase-out limits adjusted annually

(2021, Revenue Procedure 2020-45 (.30), 2020-46 Internal Revenue Bulletin 1016.)

Maximum deduction amount: $2,500.

Phase-out zone: $70,000 to $100,000 (adjusted gross income)

 

Federal Reserve

Federal Reserve Bank of New York

Liberty Street Economics blog

 August 9, 2022

Article by Daniel Mangrum, Joelle Scally, and Crystal Wang, “Three Key Facts from the Center for Microeconomic Data’s 2022 Student Loan Update.”  

March 22, 2022

Article by Jacob Goss, Daniel Mangrum, and Joelle Scally, “Student Loan Repayment during the Pandemic Forbearance.” (Analyzing the effect of payments on Federal Family Education Loan borrowers (who did not receive a payment pause.)

The institutions that benefit from student loans have defenders with power (for example, think tanks, newspaper editorial boards, and so on).

While this blog focuses on student loan interest, the issue of student loan cancellation is closely related. The student loan programs are predatory and unjust. The pause in payments for most loans exposed the truth that the system had collapsed.

The editorial columns oppose cancellation. However, these columns do not advance the result of this argument:  Rejection of student loan cancellation or the support of a parsimonious program leaves the broken student loan system in place. This is unacceptable.

Congress (all 535 members, all political parties) created a predatory system and failed to ensure that the student loan program had the best interests of the borrower at the heart of all student loan laws.

If a Member of Congress has not used law-making authority to correct the manifest failures of the student loan programs, they are in favor of the existing system. Claims that the other party is responsible likewise leaves the predatory system in place.

None of them dare to reckon with the book, The Debt Trap by Josh Mitchell, which evaluated the student loan crisis.

 

Reckon with the policy failure, explains Columnist Ron Lieber

Unlike the corporate newspaper editorial columns discussed above, New York Times Columnist Ron Lieber wrote a column that stated that the student loan program is broken and that policymakers, including Biden, owe student loan borrowers an apology.