The Biden administration has taken up the task of streamlining the U.S. Department of Education’s student loan programs through what’s known as negotiated rulemaking, which began in October. In this process, negotiators are selected by the department to represent groups that it views as affected by the issues up for discussion. In the negotiation process, the negotiators come to agreement—or not—on regulatory language revisions, and the department concludes the process by releasing new regulations. Despite the dry, bureaucratic veneer of what’s colloquially known as “neg-reg,” the results can be enormously consequential for students and student loan borrowers.
While the Department of Education granted a number of impacted groups a figurative seat at the table, several key voices were missing from among the negotiators. While student borrowers that were defrauded by predatory schools and representatives from the civil rights community provided valuable insights to the negotiators about deceptive tactics used to lure in students—including inflated job placement and starting salaries as well as the impact of student debt on the racial wealth gap—members of these groups were not selected to join the chorus of advocates chosen to participate in negotiations. It is particularly surprising that the Department of Education failed to include a negotiator that would represent the interests of the civil rights community in the process—an unfortunate contrast to President Biden’s executive order on racial equity—but that should not stop the department and negotiators from putting impacted students at the center of discussions so that, at a minimum, there are burden-free processes and protections with them in mind.
For decades, an overly complex and bureaucratic student loan system has locked out many borrowers, leaving these students and their families with little recourse as they languish in the economic uncertainty that all too often accompanies college attendance. Despite the existence of repayment, refund, and forgiveness options for a broad swath of students with loan debt, the system has yet to provide a clear path to eventual financial freedom for the majority of borrowers. The nation’s outstanding $1.7 trillion student loan debt—which is held disproportionately by women, borrowers of color, and for-profit college attendees—is reflective of a broken system marred by high default rates and an overly burdensome loan forgiveness and discharge system.
For this round of negotiated rulemaking, the Department of Education identified eleven issue areas in need of reform and proposed solutions that improve the current repayment system, offer additional paths to loan discharge and cancellation, extend protection to student borrowers, and create processes where none previously existed. Given what we now know about the mounting student debt crisis and the disparate impact of student debt on borrowers of color, the focus on reforms that improve access and simplify existing programs is urgent, if not overdue.
A Clearer Path to Financial Freedom for All Borrowers
Information asymmetries are especially burdensome for students who depend on student loans to finance their education. These students already face significant financial challenges: borrowers without access to familial wealth are, for obvious reasons, more likely to face challenges in repayment. Furthermore, high monthly payments can inhibit a borrower’s ability to save, which puts them further behind on the path to financial freedom. These financial challenges are further compounded by the complexities of student debt: inexperienced, low-wealth borrowers can encounter severe difficulty navigating the student debt system, whether seeking out repayment or debt forgiveness. It is not uncommon for borrowers to end up with multiple student loan types and, thus, multiple loan servicers. The tax on these borrowers’ time to muddle through a complex web of information sources is enormous, and unnecessary. The landscape is made more complicated for borrowers when loans switch servicers, as over 14 million students and borrowers will experience in 2022 when several servicers will cease to service federal student loans and those students’ accounts will be transferred elsewhere.
For too long, the complexities and information asymmetries embedded in the Department of Education’s student loan programs have restricted heavily indebted students from avoiding default or accessing the already-limited relief that debt cancellation can provide. Furthermore, while existing cancellation programs can remove financial burden for those students who are successful in accessing it, it cannot repair trust in a system that many borrowers entered in good faith, only to feel somewhat victimized. The bad experiences of student borrowers under the status quo—particularly those seeking cancellation—are well known; documentation requirements and the placement of the burden of proof on the student are onerous at best, and at times, punitive. It is clear that verification of income, employment, and other factors could be both automated and automatic. Such automation and transparency are crucial for creating a linear pathway to cancellation for eligible borrowers and protecting all borrowers from the serious financial consequences of default. An equity-centered approach to reform would center borrower experiences to correct the structure of repayment and forgiveness plans.
A Swifter Path to Justice for Defrauded Borrowers
The law is clear that misled and defrauded borrowers are eligible for at least partial cancellation of their outstanding federal student loan debt, but the process for obtaining that cancellation is arduous. While the Biden administration has cancelled $1.5 million in student loan debt through borrower defense to repayment claims, a number of serious issues plague the borrower defense system, including a deficit of ways to hold school owners financially accountable and ways to help borrowers who were granted insufficient partial relief. Some borrowers are simply unaware their loans can be cancelled and may not receive such guidance from their loan servicer; others may not trust the process or have time to engage with it.
The vast majority of borrower defense claims are filed by former for-profit college students, who are more likely to be nonwhite, nontraditional students with work and familial obligations and who fall deep in debt as they pursue degrees they believe will grant them financial freedom. These students also account for a disproportionate share of student loan debt, including total number of borrowers and all loan dollars. The Department of Education has the opportunity to rebuild trust that has been lost among these students, their families, and their communities. One step toward rebuilding that trust is to use processes that meet borrowers where they are.
Throughout the first negotiated rulemaking session, numerous borrowers shared stories with the committee of undue pressure and deception they encountered from their schools while enrolled at for-profit colleges that have since closed. Many of these borrowers described aggressive enrollment tactics that left them concerned that if they didn’t act immediately, they’d lose out on the ability to attend the school of their choice. Worse still, those who graduated from these colleges didn’t reap the market-based rewards they hoped—and were sometimes promised—that additional credentialing would provide. Nationwide, students are encouraged to enter higher education based on that promise, and they do so—despite huge information asymmetries and navigating complicated systems to incur great financial debt—just to arrive in the classroom. A truly just and equitable regulatory system would work in the favor of students first, and mitigate the risks associated with student–college information asymmetries.
Putting the “Forgiveness” Back in the Public Service Loan Forgiveness Program
Established in 2007, the Public Service Loan Forgiveness (PSLF) program is meant to offer federal student loan borrowers debt forgiveness after ten years of public service work and 120 on-time monthly payments. Tragically, the program has been underutilized, with many eligible borrowers unaware that they qualify and many others being denied forgiveness due to paperwork errors as they moved through the complex process. A roadmap to streamlining and automating the program so that it can fulfill its promise was announced during the first week of neg-reg: on a temporary basis, the Department of Education will lighten the documentation burden on borrowers by automating and retroactively giving credit for payments that previously didn’t count toward the program. Perhaps most importantly, the department will also begin a process for reviewing previously denied applications. While this expanded relief is available for a limited time, it highlights the need—and potential—for programmatic reform and offers a clear example of how interagency data-sharing, which the department will utilize to automatically give federal employees and service members credit for PSLF, and transparency about program denial can eliminate trivial barriers to economic freedom for the nation’s public servants.
Easing the Burden on Borrowers Who Become Disabled
Borrowers who experience what is referred to as total and permanent disability (TPD) are supposed to be granted loan discharges from the Department of Education, and while a data-matching agreement between the department and the Social Security Administration has made it easier to identify borrowers who qualify for TPD loan discharge, the system is not perfect. Borrowers not identified through data sharing must still apply for TPD discharge, and in that time they can incur heavy overdue balances and potentially default.
Under the current rule, TPD loan discharge comes with an overly burdensome monitoring period during which applicants must recertify their income. While the Department of Education has temporarily suspended the annual earnings documentation requirement during the public health crisis, the rule had required borrowers to be subject to a three-year income monitoring period, during which they could lose their qualification for discharge if their income exceeded a certain threshold or they neglected to complete and return an income verification form. Unfortunately, these forms were unclear, did not clearly articulate that failure to comply would result in loan reinstatement, and were in themselves manual requirements that those with severe disabilities may have difficulty understanding or completing.
Negotiators are expected to address practical concerns about TPD loan discharge program eligibility, including the rule that medical doctors or doctors of osteopathic medicine are the only categories of medical professionals currently able to certify TPD applications. This current rule places an undue burden on disabled borrowers in rural communities who may receive their primary care from nurse practitioners or physician assistants. The proposed regulations would eliminate the income monitoring period, expand disability categories, expand allowable documentation, and allow the Department of Education to accept certification from additional health care professionals. Disabled borrowers should be able to prioritize their health and well-being while benefiting from expanded access instead of worrying that a simple delay in response could send them back into debt.
Automatic Restitution for Students Who Attended Schools That Closed
Borrowers who attended schools that closed experience a unique set of traumas that can leave them feeling victimized and fearful about their remaining options. Data from the past decade indicate the vast majority of borrowers impacted by school closure attended for-profit colleges, and many did not complete their course of study. Under the current rules, only those students who were enrolled within 120 days of the closure, who were unable to complete their program at the school, and who did not transfer to another school qualify for a discharge of their federal student loans. Thus, in order to qualify, students must delay continuing their higher education at another institution, and this pause sometimes means students never restart. Furthermore, despite promises about the transferability of earned credits, many for-profit college students find that, even if they wait, they cannot easily transfer to another college. The Department of Education also wants to reinstate an automatic closed school discharge process that improved upon its predecessor by making the terms of obtaining such a discharge easier for borrowers to understand.
Clarity and Efficiency Move Us Closer to Equitable Outcomes
As the new year approaches and borrowers with federal student loan debt prepare for the Department of Education’s payment pause to end, there is a renewed urgency for the department to review and approve claims from wronged borrowers and those who have committed their professional career to public service. Strengthening borrower protections in the federal student loan program is critical for supporting all borrowers who need more flexibility and relief options, especially those facing dire economic consequences in the wake of the COVID-19 pandemic. Borrowers should be able to easily navigate their loan repayment options, file applications for relief where appropriate, and understand claims denials.
While the Department of Education has proposed progressive steps to right what has gone wrong in our student loan system, more must be done. Chipping away at the lengthy backlogs for borrower defense and Public Service Loan Forgiveness claims, expanding eligibility, and implementing robust student protections will go a long way in improving outcomes for students. The Biden administration’s executive order on advancing racial equity should be the guidepost the department and the negotiating committee refers to as they revise higher education rules. If the department is to abide by the spirit of that order and rewrite regulations so that they advance racial equity, then at a minimum, students and borrowers must be given accessible, transparent, and streamlined processes.