White House announces federal student loan program reform

NBC News reported on Wednesday that the Biden Administration announced plans to aid student loan borrowers through changes to current federal student loan programs. New additions to the program would curb interest rates for almost 41 million borrowers – the total amount of borrowers in the U.S.

“In a statement, the Department of Education said it was proposing to remove interest capitalization where it isn’t required by law, meaning that unpaid interest would not be added to the balance of the borrower’s total debt.

The proposal seeks to make it easier for students who were defrauded by for-profit colleges to get their debt forgiven, reversing a Trump administration restriction.”

The proposal comes amid calls for Biden to extend the student loan payment pause from over 180 organizations. Though the pause on student loans has been a life vest for millions of Americans throughout the duration of the pandemic, the White House has yet to confirm whether or not they plan to implement another extension. 

Read the full article here.

A federal loan forgiveness program made more accessible: $8.1 billion in loan cancellation approved

The Biden Administration rolled out changes to the Public Service Loan Forgiveness program (PSLF), allowing for 145,000 borrowers to benefit from $8.1 billion in student loan cancellation. The program began in 2007 to help non-profit and government employees pay off their student loans within a ten year period should they meet the qualifications. The approval rate for PSLF, however, has been notoriously low – only 1 in 5 applicants out of 1.3 million seeking debt forgiveness through the federal program were on track to pay off their student loans by 2026. 

Last year, the U.S. Department of Education revealed plans to temporarily waive certain PSLF applicant requirements and grant credit towards complete loan cancellation. The Hill recently detailed what this means for borrowers:

“A recent report from the Student Borrower Protection Center found over nine million public service workers likely qualify for debt cancellation through the PSLF program, but have yet to file the paperwork to start the process. California, Texas, Florida, and New York have the most public service workers with student loan debt, according to SBPC.

Under the current PSLF waiver, eligible borrowers can receive credit for payments made on other loan types, under any payment plan, before consolidation, or after the due date. Those who received Teacher Loan Forgiveness can apply for the period of service that led to their eligibility toward PSLF, if they can certify PSLF employment for that period.

Next, according to SBPC’s walkthrough guide, you’ll want to determine which type of federal student loans you have. Direct Loans are eligible for PSLF while other loans need to be consolidated into a Direct Consolidation Loan. Until the end of October 2022, previous qualifying payments you’ve made on a non-Direct Loan will count for the necessary 120 payments PSLF requires for forgiveness.”

Read the full article here.

In 2020, Credit card lenders charged billions of dollars in late fees

Consumer debt is on the rise as Americans struggle to keep up with loan payments and growing inflation across the U.S. Local news in the state of Washington, King 5, reported this week on the billions of dollars in late fees credit card issuers charged borrowers in 2020 and the burden it’s placed on Americans – especially in the face of inflation rates. 

“The rising inflation rate is only part of the current challenge to Americans. According to a report by the Consumer Financial Protection Bureau (CFPB), credit card issuers charged $12 billion in late fees in 2020.

Credit card late fees and interest add on to consumers’ borrowing debt, but according to Experian - mortgages and auto loans, by far the two largest components of a consumer's budget, experienced the fastest year-over-year growth of any debt category. Experian’s Q3 2021 report revealed Consumer debt balances increased by 5.4% to $15.31 trillion, a $772 billion increase from 2020.”

Read the full article here.

“Buy now, pay later” services could be predatory lending’s latest rebrand

It’s the newest phenomenon as far as spending what you don’t have is concerned – as buy-now-pay-later services grow in popularity, financial experts are growing anxious about how potentially predatory they can be. This week, Tech Story reported on the troubling realities of “surveillance marketing” and how big tech companies like Apple use buy-now-pay-later services to increase frivolous spending and debt accumulation. They spoke with Nadine Chabrier, a senior counsel at the Center for Responsible Lending, for insight into what that could mean for the future of the debt industry. Here’s an excerpt:

“‘Apple has a tremendous amount of data on every person who has an iPhone, and they could leverage that to increase spending through Buy Now, Pay Later. And we found through the research that people aren’t really aware of that, and it can be a really insidious way of increasing spending,’ Chabrier said.

Typically, buy-now-pay-later apps are used for purchases of expensive products such as a new laptop or concert tickets. However, several Americans living paycheque to paycheque use the services for essential expenditures. With its growing popularity, reports indicate how it could make up about 14% of all e-commerce purchases.

Particularly, Gen-Z consumers have been visibly racking up debt through these services which, a SFGATE report suggests, could allow reckless spending above their capacity. Expectantly, buy-now-pay-later startups’ strategies would often copy a Silicon Valley startup’s glossy minimalism.”

Read the full article here.

Student loans are a “disjointed servicing system often confusing for borrowers"

A new report from Insider details harsh truths about the predatory nature of student loan companies and new insights from a top Biden official on how to revamp a broken system. From the article:

“President Joe Biden's top student-loan official recently acknowledged what many borrowers have known for years — the repayment process is burdensome and flawed.

That's why he's planning some fixes to the industry, but many borrowers right now are more focused on broad student-loan relief.

On May 19, Federal Student Aid Chief Operating Officer Richard Cordray published a blog post detailing how he plans to revamp student-loan servicing in the coming year. He explained that currently, over 35 million federal student-loan borrowers are paying off their debt to six different student-loan companies, and given that each company has its own process for repayment, the ‘disjointed servicing system is often confusing for borrowers and, frankly, the quality of work has not always met our standards.’

‘Borrowers are understandably frustrated when they receive inconsistent information about something as important as their student loans,’ Cordray wrote. ‘Too often, borrowers miss out on available repayment options, and millions have defaulted as a result.’”

This highlights one of the many troubling aspects of the loan industry and the ways it often misleads borrowers and leaves them to fend for themselves.

Read the full article here.

Everyone Deserves Student Debt Forgiveness

New York Times columnist Tressie McMillan Cottom recently wrote an opinion that shouldn’t be as controversial as it is. She put it plainly in three simple words: “Cancel the debt.” 

The piece highlights just how short-sighted discussions of who deserves debt forgiveness and who should reap the consequences of it really are:

“The Biden administration is now considering giving more former college students a version of the relief that the Bennett students are experiencing: debt forgiveness. A lot of people worry that debt forgiveness will spur inflation. They tsk-tsk about what it will say to people about personal responsibility. And they worry about the optics of forgiving people who partied for four years and did beer pong in the quad and blew through their parents’ credit card limits on spring break.

Those are worries of an out-of-touch chattering class. No one drank enough beer in college for the last 30 years to deserve a student loan balance that increases even as the debtor attempts to pay down the principal. The message that some people don’t deserve debt relief is a politics of grievance. If you cannot craft a political message that acknowledges that we turned the greatest vehicle of social mobility into a debt machine, then you are not good at messaging.

This is the right message: We messed up. Our bad. Make it right. Cancel the debt.”

Read the full article here. 

Women across the U.S. are “drowning in debt”

Last week, MSNBC reported the jarring burden student loans pose for women, especially women of color, and how that impacts their personal lives:

“Tasha Kaminsky, a director of development at a non-profit organization in St. Louis, would love to have children. In many ways, the timing could not be better. Kaminsky, 33, is happily married, has a stable job and owns a home. Standing in the way, however, is one major obstacle: her student loan debt.

It's been 10 years since Kaminsky took out a $75,000 federal loan for graduate school, and she has never missed a payment. Before the pandemic-era pause on federal loan repayments took effect in March 2020, between $250 to $500 of her salary went towards paying off her debt every month. After a decade of payments, Tasha still owes $107,411.

‘I genuinely think I will just die in debt,’ Kaminsky told Know Your Value.”

This report comes at a time when a woman’s right to their own bodily autonomy is being put on the line, courtesy of the U.S. Supreme Court draft that was leaked earlier this month. In a climate wherein reproductive rights are being impeded on, a woman’s right to financial freedom and choice are more crucial than ever. One of the biggest dilemmas women are dealing with in the face of student debt is the decision between paying off loans and starting a family. With the Supreme Court draft in mind, student loans will likely become an unprecedented financial burden with the potential to widen the gender gap even further. 

Read the full article here.

Activists keep up pressure as Biden weighs student debt move

This past month, activists have put pressure on President Biden and Congress to act on federal student debt cancellation. This comes as a response to Biden’s insistent communication that he does not plan on canceling all, or even most, of the nation’s student debt burden. So far, much of his action against student debt has been deferred payments not cancellation. 

The Associated Press recently reported on activists’ concerns; citing the tweets of long-time student debt forgiveness advocate and organizer, Melissa Byrne. 

“First, she tweeted that activists need to “ramp up” their efforts, stay “warm + fuzzy” and “fight until we win.” (“White House staff reads tweets,” she explained.) Then she and her allies dove into their group chats as they considered ways to keep the pressure on.

“We need to keep our eye on the prize,” Byrne said.”

The flurry of activity comes in a crucial stretch, with Biden saying he would make a decision in the coming weeks. After promising to address the issue during his campaign for president, he’s now weighing how much federal student loan debt should be canceled and who should benefit.”

Read the full article here.

Payday loans are hurting borrowers in Wisconsin

In Wisconsin, borrowers are paying high interest rates on payday loans without caps. They’re one of only seven states without regulations that put a cap on payday loans. 

According to a PBS interview with Melody Harvey, a consumer science professor at University of Wisconsin-Madison, borrowers in Wisconsin pay, on average,  $395 in fees on $500 loans – that’s an interest rate of 338%. 

Because the consumer base for payday loans typically consists of credit restrained borrowers, often as a last resort, the issue has sparked debate over whether or not these loans are predatory. 

“That is the major debate occurring within the research space right now.” Harvey said. “So we don’t fully know what the welfare implications of these loans are at this time.”

PBS news reported that the Wisconsin Legislature tried to put forth regulations to cap payday interest rates at 36%, the most commonly used cap in states with regulations in place, but it didn’t pass. 

Read the full interview here.

Claims that President Biden plans to forgive $1.6 trillion in student debt UNTRUE

On Monday, President Biden met with the Congressional Hispanic Caucus – a meeting where the President reportedly made a statement about his intention to forgive $1.6 trillion of student debt.

CBS News originally reported that Biden had discussed plans to forgive an amount that would make a huge dent in the $1.75 trillion owed nationwide. $1.6 trillion would mean loan forgiveness for 43 million borrowers. Despite the widespread claims that Biden is planning to forgive “most, if not all” student debt, CBS News has since revised their claim to more accurately describe the Biden Administration’s actual plans to forgive student debt. 

The story now lines up with previous statements made by President Biden regarding student loans – that Biden is “looking to forgive some federal student loan debt”. 

According to a conversation between Rep. Tony Cardenas, who was present at the Hispanic Caucus meeting on Monday, and CBS News; President Biden didn’t specify how much student debt he’s planning on forgiving. He did, however, suggest that borrowers who attended public and private schools alike will both benefit from debt relief. 

"The president never mentioned an amount nor did the president say that he was going to wipe out all student debt," Cardenas relayed to CBS. "He did a dialogue with us about the differential between young people who went to public schools or private schools and we CHC members said he should focus on both. And he said, 'Okay, good to know.'"

Forbes later verified that, as far as we know, Biden’s stance on student loan forgiveness remains the same: the President continues to “support up to $10,000 of wide-scale student loan forgiveness for student loan borrowers”.