Reform Needed Now: Federal Student Loan Policy
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, Navient, has its headquarters in President Biden´s hometown, Wilmington, Delaware.
Navient CEO, Jack Remondi, rakes in millions of dollars in compensation. Remondi is not the only one, as other Navient C-level executives also lavish with million-dollar compensation packages based on beleaguered “student loan” borrowers.
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. If the program is canceled by the Supreme Court, 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.)
In September 2022, six state attorneys general filed a lawsuit against a parsimonious Biden Administration student loan cancellation proposal. One of the litigants is a state-incorporated, federal student loan servicer, the Higher Education Loan Authority of the State of Missouri (MOHELA). The lawsuit puts an exclamation point on their demand for their slice of FFEL-borrower financial pain and suffering.
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.
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 in existence 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 in order 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.)
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.
Student Loan Financial Industry
Title and Firm
CEO, Social Finance, Inc.
$102,998,110 (2021, proxy PDF page 67)
$53,533,739 (2020, proxy PDF page 342)
CEO, Navient Corp.
$7,883,966 (2021, proxy page 70
$8,101,707 (2020, proxy page 64)
Federal Student Loan Policy Immiserates Borrowers
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?
Unpaid accrued interest is added to the loan principal.
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”).
New – Biden completely rejects Schumer/Warren proposal to cancel $50K of student loan debt per borrower:
“I will not make that happen."
Says he doesn't want to forgive debts of borrowers from elite schools — and money would be better spent on early childhood education. pic.twitter.com/oDwvCJveOm
— Michael Stratford (@mstratford) February 17, 2021
During his first month as President, at a CNN town hall in Milwaukee, Biden was asked how much debt he planned to cancel. He spoke for several minutes, mentioning that one of his sons [Hunter Biden] had graduated from Georgetown and Yale Law School “a hundred and forty-two thousand dollars in debt” but that he had paid it off, in part, by working for “a parking service down in Washington.” (The same son, of course, also earned astronomical sums of money while working for a hedge fund, lobbying for various companies, and serving on the board of a Ukrainian natural-gas company, but Biden happened to omit those details.)
What Biden Can’t Do on Student Debt—and What He Won’t Do. Author: Andrew Marantz, New Yorker.
The Student Loan Interest Rate is Abusive
The rate at the time I wrote this article is 0.25 (2022). The interest rate on my federal student loans is 8.25 percent. Congress unfairly refuses to adjust the interest rates to a fair and equitable level.
According to the Federal Reserve Bank of New York, the effective federal funds rate is “The federal funds market consists of domestic unsecured borrowings in U.S. dollars by depository institutions from other depository institutions and certain other entities, primarily government-sponsored enterprises.”
My Student Loans
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.
|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 Servicer (up to November 2021)||Sallie Mae/Navient|
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 owe 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.
This is the time to re-examine all student loan programs for reasonableness and fairness and to provide equitable relief to immiserated borrowers.
JUST IN: In a remarkable reversal that will affect the fortunes of millions of student loan borrowers, the U.S. Department of Education quietly changed its rules on who is eligible for President Biden's comprehensive student debt relief program. https://t.co/Hsg5CSkBII
— NPR (@NPR) September 29, 2022
WH keeps using a version of this line, but it's never been totally accurate. And today's version ("not a single person") is the most untrue one yet.
Literally millions of people–incl. millions of federal student loan borrowers–have had to make payments during Biden admin. https://t.co/AfBGWNpnXU
— Michael Stratford (@mstratford) April 8, 2022
Debt-Related YouTube Videos
Student Loan Summary, October 2021
Federal Government Policymakers
United States Congress
House Subcommittee, Labor, Health and Human Services, Education, and Related Agencies
Senate Subcommittee, Labor, Health and Human Services, Education, and Related Agencies
House Committee, Education and Labor
Senate Committee, Health, Education, Labor and Pensions
Internal Revenue Service
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 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.)
On Student Loan Cancellation
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.
The Washington Post
The New York Times
The Debt Collective wrote a post to comment on the New York Times editorial.
Of note, the former Chair of the Board of Governors of the Federal Reserve System, Benjamin (Ben) Bernanke, made a comment about student loans in a New York Times article (reporter, Andrew Ross Sorkin).
Asked whether he believes student debt should be forgiven, his trademark pause has disappeared: “It would be very unfair to eliminate. Many of the people who have large amounts of student debt are professionals who are going to go on and make lots of money in their lifetime. So why would we be favoring them over somebody who didn’t go to college, for example?”
Dr. Bernanke failed to discuss the effect of splashing money on Wall Street. No matter. Reader, examine the Frontline documentary, “The Power of the Fed.”
Student Loan Articles
The New York Times
- Review, , “The Debt Trap: How Student Loans Became a National Catastrophe,” by Josh Mitchell.
- I’ve Spent $60,000 to Pay Back Student Loans and Owe More Than Before I Began. Author: Molly Webster
- Opinion, “Student Loan Borrowers Don’t Deserve ‘Forgiveness.’ They Deserve an Apology.” Author: Ron Lieber.
- Opinion, “Why Aren’t Student Loans Simple? Because This Is America.” Author: Ron Lieber.
- Opinion, “The Student Loan Borrowers Who Keep Missing Out on Relief.” Author: Ron Lieber. [Column discusses how commercially held FFEL borrowers were abruptly removed from receiving student loan relief.]
Alabama Takes From the Poor and Gives to the Rich. Author: . [Note: This column is on the financially abusive policies of the state of Alabama. I think that many states and the federal government have also used legally sanctioned financial cruelty against those who are not rich (donor class). An example is the student loan policy discussed in this blog.]
- The Debt Trap, book (2021). Publisher, Simon and Schuster.
- Student Loan Horror Stories: Borrowed: $79,000. Paid: $190,000. Now Owes? $236,000.
- Forgiving Student Debt Alone Won’t Fix the Crisis. Rolling Stone Magazine.
- The Great College Loan Swindle. Rolling Stone Magazine.
The Washington Post
- The Faces of Student Loans. Authors: Danielle Douglas-Gabriel, John D. Harden.
- Fix This Graduate-Loan Fiasco. Opinion column by Charles Lane.
- Student loan borrowers anxious as decision lingers on debt cancellation. Author: Danielle Douglas-Gabriel.
- Biden to limit ways that interest can inflate student loan costs. Author: Danielle Douglas-Gabriel. (One of the first Post articles to mention the daily interest assessment (with a link!). However, the article did not go into why the government assesses the interest in this counterproductive matter. I also note, with chagrin, that a so-called expert quoted in the article, Betsy Mayotte, is tied to the interests of student loan servicers, not borrowers. Her statement in the article ignores reality–the beneficiaries of student loan payments, as noted in the Reveal News article, benefit from borrower immiseration. “Mayotte said some may feel scammed when they learn none of their payments are going to the principal.” Some indeed. In these articles, more borrowers need to be quoted directly, not just student-loan-servicer shills.
- He took out a student loan in ’77. Today, he’s barely cracked the principal. Author: Danielle Douglas-Gabriel. This article is excellent because it starts to challenge the federal student loan system to demonstrate that its program is fair to a borrower.
However, some of the sources of the article, presumably section 501(c)(3) organizations arguing for the interest of borrowers, tacitly defend the maintenance of the system when there is clear evidence of cruel, wicked policy implementation. These groups will state that parts of the law should have covered it, but will not demand that those responsible actually do the needed things to deliver right action in reality.
The Student Borrower Protection Center has a number of staff who are former Capitol Hill staffers like Blake Zeff. They are part of the system; they cannot demand changes lest they lose their connections/career opportunities.
The National Consumer Law Center, Abby Shafroth, holder of Harvard University degrees and a former law clerk, states that the situation is “sort of a monumental failure” because the scattered programs are there but the implementation confuses borrowers, the Department of Education, and loan servicers. The latter two cannot be defended, as it is their job to advocate for clarity in their operations. The use of “sort of” diminishes the damaging impact of a deliberate policy choice.
Crucially, this reality also bolsters the unjust federal student loan system.
- ‘I feel stuck’: Inside the growing US student debt crisis. Author: Radmilla Suleymanova.
Congressional Research Service
- Proposals to Extend CARES Act Provisions to Federal Student Loans Not Held by the Department of Education: Frequently Asked Questions
- Federal Student Loan Debt Relief in the Context of COVID-19 (This report merely glossed over the lack of relief for commercially held FFEL loans.)
- The Biden Administration’s One-Time Student Loan Debt Relief Policy
Debt Diaries: 19 stories of the student-debt ‘hamster wheel’ that borrowers of all ages and incomes can’t escape. Author: Ayelet Sheffey.
Biden made it harder for student-loan borrowers to get rid of debt when they go bankrupt. Author: Ayelet Sheffey.
- Student-loan companies have spent millions fighting efforts like Biden’s $10,000 debt-cancellation pledge, and so far they’re winning (Feb. 2022). Authors: Oma Seddiq and Ayelet Sheffey
- More and more older student-loan borrowers will never be debt-free. Author: Ayelet Sheffey.
- A student-loan worker who enrolled people in the first income-based debt-repayment plans says it was ‘a bad program from the very beginning. Author: Ayelet Sheffey.
- Meet a man with $47,000 in student debt who’s been trapped in a student-loan repayment ‘bureaucracy nightmare’ for nearly 3 decades without the debt cancellation he was promised. Author: Ayelet Sheffey.
- Three reasons some highly paid professionals like doctors and lawyers still have 7 figures in student debt they can’t pay off. Authors: Ayelet Sheffey and Jason Lalljee.
Questions and Comments
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