Mass Student Loan Forgiveness Is Already Happening

Biden is using executive authority to write off debts for some borrowers, while a Bush-era law could have even bigger implications.

While progressive Democrats in Congress have yet to pass a universal student loan forgiveness bill, the Department of Education has nevertheless forgiven billions of dollars in federal student loan debt since Joe Biden became president. And even without new statutory authority, the federal government is slated to forgive increasingly more student loan debt in the future, thanks to the Biden administration's expansive interpretation of the Education Department's existing authorities, as well as a law signed by George W. Bush way back in 2007 that mandates loan forgiveness for certain borrowers. 

Let's start with the federal student loan debt forgiveness for low-income and disabled borrowers, which the Department of Education says has erased "$9.5 billion, affecting over 563,000 borrowers," since January 1, 2021. That sum breaks down roughly as follows: 

• $1.1 billion in federal student loan debt forgiveness for 115,000 borrowers under a policy called the "extended closed school discharge." This action benefits former attendees of the now-shuttered for-profit college ITT Technical Institute who "did not complete their degree or credential and left ITT on or after March 31, 2008." 
• $1.5 billion in student loan debt forgiveness for 92,000 borrowers under "borrower defense to repayment," which allows for the discharge of federal loans if borrowers can provide evidence their school "misled" them about their employment prospects or the transferability of college credits, or if it mischaracterized loans as grants, or if the school "engaged in other misconduct in violation of certain state laws."
• $7.1 billion in "total and permanent disability discharges" for borrowers who are classified as disabled by the Social Security Administration. According to the Education Department's website, "this includes $5.8 billion in automatic student loan discharges to 323,000 borrowers and reinstating $1.3 billion in loan discharges for another 41,000 borrowers."

Yes, that looks like $9.7 billion. But there is likely some overlap between the groups.

There is also an interesting wrinkle to the disability discharge announcement. The Education Department press release says that 98 percent of the 41,000 borrowers who are having their loan discharge reinstated initially lost their discharge because they "did not submit the requested documentation, not because their earnings were too high." To prevent their discharges from being revoked in the future, "the Department will indefinitely stop sending automatic requests for earnings information even after the national emergency ends. This continues a practice that the Department announced in March 2021 for the duration of the national emergency. Next, the Department will propose eliminating the [3-year] monitoring period entirely in the upcoming negotiated rulemaking that will begin in October." 

The above actions can be traced to the Biden administration's interpretation of a section of the Higher Education Act of 1965 that authorizes the secretary of education to "enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption." The Education Department under President Donald Trump took a far more limited view of that authority, though it did use the law in an unprecedented way when it suspended payments and interest on federal student loans at the onset of the COVID-19 pandemic. (You can read my analysis of the debate over that authority here.)  

Aside from people with disabilities and former attendees of for-profit colleges, an entirely different class of federal student loan borrowers is also receiving federal student loan forgiveness, thanks to George W. Bush and the College Cost Reduction and Access Act of 2007. 

The College Cost Reduction and Access Act states that anyone with a Federal Direct Loan who makes 120 qualifying payments after October 1, 2007, while employed by a nonpolitical 501(c)3 nonprofit or a government agency, will have the remainder of their direct loan forgiven under a program called Public Service Loan Forgiveness. It doesn't matter how large your loan is. If your employer qualifies, your loan type qualifies, and you make 120 payments in a timely manner, the remainder is forgiven with no taxes on the forgiven amount. 

According to a Department of Education spokesperson, 

From July 2020 through June 2021, the cumulative number of borrowers receiving Public Service Loan Forgiveness (PSLF) has increased from 2,860 to 8,334, and the cumulative total amount forgiven has increased from $201 million to $756 million.

From July 2020 through June 2021, the cumulative number of borrowers receiving Temporary Expanded PSLF (TEPSLF) has increased from 1,943 to 3,724, and the cumulative total amount forgiven has increased from $83 million to $166 million.

While $756 million and $166 million are far less than $9.5 billion, the more important figure, vis a vis the larger debate over student loan forgiveness, is the per-borrower forgiveness amounts. Using the numbers listed above,

• beneficiaries of borrower defense and the closed school discharge have received, on average, $12,560 in federal debt forgiveness per borrower.
• disabled borrowers have received, on average, $19,505 in federal debt forgiveness per borrower 
• TEPSLF beneficiaries have received, on average, $50,702 in federal debt forgiveness per borrower 
• PSLF beneficiaries have received, on average, $90,712 in federal debt forgiveness per borrower. 

Those last two numbers are why I think PSLF (which is a nondiscretionary entitlement program) and, to a lesser extent, TEPSLF (which is constrained by the appropriations process) are more significant to the larger student loan debate, even if for-profit attendees and disabled borrowers have snagged most of the headlines.

Given the high loan default rate among for-profit college borrowers and the truly awful business practices of some for-profit colleges, those low-income borrowers are a sympathetic group. While I have previously argued that making student loan debt dischargeable in bankruptcy would go a long way toward properly aligning incentives and bringing down higher education costs, discharging a poor person's federal student loan in bankruptcy has the same impact on the public fisc as forgiving it. The same argument applies to the permanently disabled. With the federal government all but displacing the private student loan market over the last decade, bankruptcy versus forgiveness is a distinction without a difference. 

PSLF recipients are not nearly as sympathetic. They have good jobs in government and at nonprofits. They are well-educated. While some job types command significantly higher salaries in the for-profit world, many master's and bachelor's degree holders can make more in combined salary and benefits working for the government. Terminal degree holders can make more in the private sector, but they are also the most highly compensated public sector workers. 

The PSLF program, meanwhile, is designed so that all of these borrowers pay as little as possible towards their principal balance by using "income-driven repayment" (IDR) rather than the standard 10-year repayment scheme. This means what you pay each month is a small percentage of your income, rather than determined by the life of your loan. For years, the Education Department has given presentations to financial aid administrators showing that PSLF makes sense only if you use IDR, as there'd be no debt to forgive after 10 years of standard repayment. What's more, PSLF applicants received an added bonus from the Education Department during the pandemic: While all federal student loan payments and interest accumulation have been frozen since March 2020, and will be through at least January 2022, PSLF applicants get to count each month in this period as a qualifying payment even if they didn't actually make a payment. 

And while there are currently not many PSLF beneficiaries, there soon will be. When the first cohort of borrowers reached eligibility on October 1, 2017, student loan watchers expected a flood of forgiveness. In July 2021, the Education Department published a request for comment in the Federal Register stating that "to date, nearly 98 percent of student loan borrowers who have applied for PSLF did not receive forgiveness at the time of their application."

But the Education Department is working, with the support of Democrats in Congress, to change that. From October 1, 2017, to April 1, 2021, $452.7 million in student loan forgiveness went to 5,467 approved PSLF applicants. That comes to $82,804 per borrower. We are now up to 8,334 people, $756 million, and $90,712 in forgiveness per borrower. 

Those first two numbers are virtually certain to increase. PSLF applicants are encouraged to submit a form to the Education Department once a year, so that the department can tell borrowers whether their employer qualifies for PSLF and how many payments they have made toward forgiveness. The Education Department received 391,333 of these forms from November 2020 to April 2021. Of that number, 168,197 forms met the criteria for PSLF. 

So while student loan forgiveness to the worst-off borrowers may be commanding the headlines, America's white-collar government and nonprofit workers are quietly getting a massive reprieve from a debt they took on to advance their careers. And more is likely on the way.

It's likely only a matter of time until millions of private-sector workers begin to wonder why you have to be poor or work for the government or a nonprofit in order to get your loans forgiven. And we can partially thank George W. Bush for helping to heighten that contradiction.