The Journal Gazette
Monday, May 18, 2020 1:00 am

Student loan relief looms as election issue

Virus guarantees it, official says

BRIAN FRANCISCO | The Journal Gazette

Remember when Democratic presidential candidates clamored for free college and the forgiveness of student debt?

Vermont Sen. Bernie Sanders and Massachusetts Sen. Elizabeth Warren wanted to eliminate tuition and fees at all public colleges, universities, community colleges and trade schools. Warren would cancel student debt for up to $50,000 a person, while Sanders would eliminate debt altogether – $1.6 trillion as of late last year.

Former South Bend Mayor Pete Buttigieg sought to offer a free college education to any student whose family earned less than $100,000 and to cut tuition for those families earning up to $150,000.

Minnesota Sen. Amy Klobuchar proposed slashing interest rates for federal student loans and doubling the amount of Pell Grant awards.

And former Vice President Joe Biden has called for doubling Pell Grant awards, making community college free, halting student loan payments and interest for people earning less than $25,000 a year and capping payments for those earning more than $25,000 at 5% of their discretionary income.

But the field thinned, and the debate faded, as 30 states conducted their primary elections. Sanders' April 8 departure after the global coronavirus pandemic upended the remaining political calendar – and every other aspect of life – left Biden as the presumptive Democratic challenger to Republican President Donald Trump in the November general election.

Yet the virus's effects on colleges and universities – notably, a temporary shift from classroom instruction to online learning as states issued self-isolation guidance to slow the spread of COVID-19 – have “really put a spotlight” on student debt, said Megan Coval, vice president of policy and federal relations for the National Association of Student Financial Aid Administrators.

“To the extent the issue is talked about, it will be much more on helping borrowers who are currently in repayment or those who are about to enter repayment – those who are getting ready to graduate or will be in the next year or so,” Coval said in a telephone interview.

Addressing the student debt burden as part of the economic recovery from the pandemic “will keep the issue top-of-mind for voters no matter who the candidate is,” Yasmin Farahi, senior policy counsel for the Center for Responsible Lending, said in an email response to questions. 

“We have been excited to see debt cancellation featured so prominently in the national conversation.” Farahi said. “We must be sure that any plan encompasses cancellation for those borrowers who need it most, including for-profit college borrowers and those who attended small private colleges without the resources to provide borrower relief.”

The federal Coronavirus Aid, Relief, and Economic Security Act is providing nearly $3 trillion in assistance to businesses, individuals, health care providers and local and state governments – and college borrowers. It suspended federal student loan repayments from March 13 through Sept. 30, requires payments to students participating in the Federal Work-Study Program even if they are unable to work and protects Pell Grant funding for students who cannot complete any semester because of COVID-19.

But the CARES Act “did not go far enough in helping student loan borrowers,” Farahi said. “Not all federal loans were covered under the CARES Act, and private and state loans were not covered.”

Additional federal relief should include at least $20,000 in debt cancellation for every federal loan “to ensure the benefits of cancellation reach the lowest income and most vulnerable borrowers,” she said. Farahi also called for the Department of Education to place all federal student loan borrowers in an income-driven-repayment plan and provide relief to students defrauded by failed for-profit colleges.

As for any danger that student debt relief will be overwhelmed by other interests seeking federal coronavirus aid, Farahi said, “All of these entities – businesses, the health care industry, state and local governments – will benefit from a revived economy, so their interests and those of student borrowers are not competing interests.”

Student debt forgiveness, she said, “is paramount if we want to provide borrowers with relief during this pandemic and jump-start the economy once the crisis is over.”

LendEDU, an online marketplace for financial products including student loans, commissioned a survey in April of 1,000 adults who are repaying federal student loans. The poll found that 68% of borrowers were unsure whether they could make loan payments before the CARES Act was implemented – including high percentages of respondents who said they had been laid off or furloughed from their jobs or were working reduced hours because of the pandemic. To view LandEDU survey, click here

Coval said student debt will continue to be an issue as the presidential campaigns of Biden and Trump ramp up.

“It may look a little different than some of the original proposals, things like free college or free tuition and fees at public institutions,” she said. “I think there certainly is going to be more focus on cash-flow issues for borrowers – how do we help borrowers who just can't make that monthly payment, what do we do for them to protect them from going into delinquency and default and ruining their credit?”

Trump's proposed fiscal 2021 budget would offer federal student loan forgiveness to undergraduates after 15 years, eliminate subsidies for federal student loans, eliminate public service loan forgiveness, impose lifetime limits on loans for graduate students and expand eligibility for Pell Grants. 

Biden's plan would provide federal student loan forgiveness after 20 years. In early April, he announced he wants to forgive all undergraduate tuition-related student debt from public colleges and universities, private Historically Black Colleges and Universities and private, underfunded Minority-Serving Institutions for borrowers earning up to $125,000 a year.

Coval said she expects Sanders and Warren to continue to press for student debt relief as members of the Senate Health, Education, Labor and Pensions Committee.

Student debt has been “really important to them and to their platform and position as members of Congress, as senators. ... I do imagine that will stay very central to their positions and what they are advocating for,” she said.

Warren and other Democratic senators have pressed private student loan companies not covered by the CARES Act to assist their borrowers. She and four other Democratic legislators also have introduced legislation that would discharge from loan obligations those students defrauded by for-profit colleges.


Financial aid group backs Braun bill

The National Association of Student Financial Aid Advisers says its mission includes advocating for public policies “that increase student access and success.” It has supported or opposed numerous pieces of federal legislation, including a bill introduced a year ago by Sen. Mike Braun, R-Ind.

The association endorsed Braun's Student Loan Tax Origination Act, which would eliminate student loan origination fees charged by lenders. The organization said the average undergraduate borrower will pay an estimated $294 in origination fees and associated interest during a 10-year loan repayment plan, while the average graduate student in a two-year program will pay $1,174 in fees and interest over 10 years.

The proposal by Braun, a member of the Senate committee on education, turned up as a provision of the College Affordability Act introduced last fall in the House and approved by the House Education and Labor Committee. At the time, the financial aid advisers association said in a letter to the committee that loan origination fees are “a tax on students by withholding a portion of their loan proceeds. Loan fees mask both the true cost of a loan and the effective interest rate.”

The association said it has not taken positions on student debt bills introduced last year by Sen. Todd Young, R-Ind., and Rep. Jim Banks, R-3rd.

Young authored the ISA Student Protection Act. ISA stands for income share agreements. Under his legislation, a student agrees to pay a percentage of future income over a certain time period in exchange for tuition payments made by nongovernmental sources. The student's payments would stop at the end of the period regardless of whether the initial amount owed is paid back to the funding source.

Purdue University has offered an ISA program since the 2016-17 academic year. Purdue announced in November that the Back a Boiler-ISA Fund had issued 1,200 funding contracts to 760 students worth nearly $14 million.

Banks, a member of the House Education and Labor Committee, introduced the Student Loan Disclosure Modernization Act, which would require the Department of Education to develop a plain-language form for borrowers of federal student loans so they are able to understand loan terms, total loan costs and estimated monthly payments.

– Brian Francisco, The Journal Gazette

About this project

The cost of college has continued to increase, taking those who earn a degree years to pay down the debt. The topic has even been a talking point for those campaigning for U.S. president, so The Journal Gazette staff decided to take an in-depth look at the financial realities of higher education with a three-week series of stories on "Diplomas & Debt."

May 10-11
• Why getting a college degree has become such an expense, including the stories of some graduates with loans to repay.

May 11

• Should parents feel obligated to contribute to their children's college costs, even if it means saving less for their own retirement? Sunday • Financing a college education and a look at one debt-forgiveness program.

• A look at proposals politicians and congressional lawmakers have offered to make higher education more economically reasonable.

May 24

• The debt repayment requirements for loans taken to finance college can affect the options graduates can consider when it's time to buy a home.
• Some students who bypass college and instead opt for trades training can find fulfilling jobs with decent salaries.
• Tuition assistance programs employers offer are popular.

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