Federal repayment plans adjust monthly payments based on income and family size and extend repayment periods. Debts are eligible for forgiveness after 10, 20 or 25 years of payments. Around 30 percent of all borrowers with federal loans are in such a program, and more borrowers could benefit from participating in one.
But the repayment programs have a poor track record. Not long ago, fully 98 percent of people who applied to have their debts waived had their claims rejected. A report from the Government Accountability Office in March found that millions of dollars in student debt could already have been forgiven if the programs had been properly administered. Richard Cordray, the chief operating officer at Federal Student Aid, an Education Department agency, called the failure “really inexcusable.”
The Education Department has been working to fix these programs by retroactively giving qualified borrowers more credit for time spent in public service and hoeing through a backlog of paperwork, but it could do more. Additional changes to income-based repayment programs — such as reducing interest payments, lowering eligibility standards and exempting forgiven student loans from taxation — could have big impacts over time, according to a report from Pew. Congress and the Education Department should look to such changes as part of a more sustainable solution to the debt problem.
Lawmakers should also consider making it easier to discharge student loans through bankruptcy, a measure of relief that is available for credit card and mortgage debt. Changes to bankruptcy law in 2005 have also made those protections less accessible.
The Education Department has started a long overdue crackdown on predatory schools, another significant source of student debt defaults. The Obama administration tightened the rules on for-profit schools, but the Trump administration’s Education Department, under Betsy DeVos, relaxed those rules and let repayment and forgiveness programs atrophy. Last month the department discharged $238 million in debt held by 28,000 people who attended the Marinello Schools of Beauty, which closed in 2016. The school engaged in “pervasive and widespread misconduct,” a department investigation found.
Since 2021 the Biden administration has approved more than $18.5 billion in loan discharges for more than 750,000 borrowers, including $6.8 billion for 113,000 people in the Public Service Loan Forgiveness Program and $8.5 billion for more than 400,000 borrowers with total and permanent disabilities. The administration is also pushing to double the maximum Pell Grant and restore a rule that holds schools accountable for the gainful employment of their graduates — a measure aimed at for-profit colleges.
Those moves are all to the good, addressing the student debt crisis with policies that are both compassionate and fair.