Student loans

Biden administration writes off $6 billion in student loan debt

Last week, the Department of Education announced it was writing off $6 billion in student loan debt and reimbursing students at closed for-profit colleges under a regulation in a class action.

The complainants in Theresa Sweet vs. Miguel Cardona filed for debt relief as part of “defense of borrower to loan repayment” program. Created by the Obama administration, Borrower Defense allows the Department of Education to forgive federal student loan debt for students who can prove they were defrauded by the school they attended. Under the Trump administration, the Department of Education’s assessment of borrower defense requests has come to a halt. In response, former students of now-dead Corinthian colleges for follow-up Secretary of Education Betsy DeVos for “Unlawfully withholding or unreasonably delaying action on plaintiffs’ claims.” Miguel Cardona, President Joe Biden’s education secretary, then became the defendant.

Under the terms of the settlement, the Department of Education will forgive about $6 billion in loans for 200,000 students at dozens of for-profit technical schools and colleges. The settlement also requires the Ministry of Education to reimburse borrowers who have already made payments or even repaid their loans in full. It is unclear how many of the borrowers covered by the settlement will receive loan forgiveness for unpaid debt and how many will receive full repayment of debt they have already paid off. When asked to specify the number of borrowers in each category, an Education Department spokesperson said the agency does not comment on ongoing litigation.

Over the past two years, the Biden administration has approved debt forgiveness requests for thousands of former students at for-profit colleges. Earlier this month, the administration announcement over $5.8 billion in loan forgiveness to former students of now-dead Corinthian colleges.

However, the Department of Education’s role as the nation’s largest student loan issuer means it continues to fund colleges and universities that fail to prepare students. Low federal funding standards encourage the establishment of schools whose sole mission is to collect federal loan money. Even the for-profit institutions that serve the majority of their students still burden taxpayers with participants who cannot get the most out of their education. Debt cancellation for all borrowers, including private nonprofit colleges and public institutions, would have the same effect.

If the government wants to prevent vulnerable, low-income people from being cheated by for-profit colleges, the simplest political solution would be to remove the federal government from the student loan business altogether. There is clear evidence that “federal student aid is fueling the infamous ivory tower price inflation, including the roughly doubling, in real terms, of posted prices between school years 1991–92 and 2021–22“, wrote Neal McCluskey, director of the Center for Educational Freedom at the Cato Institute. He continues: “IIt also makes logical sense: if you give a lot of people easy money to pay for something, the price of that thing will go up as people demand more of it, and with more bells and whistles.”

Without readily available and seemingly bottomless federal student loans, schools—private, public, for-profit, and nonprofit—would have to either charge rates that participants can pay out of pocket or prove to private lenders that they offer an education that positions the vast majority of their graduates to pay off their debts.

For now, such a solution seems remote. A limit on the annual amount of federal loans has been survey in 1993, and it seems unlikely that he will return. Meanwhile, calls for federal student loan debt cancellation are mounting. Amid this mess, the Biden administration is focused on the symptoms while the underlying illness is largely ignored.