Testing the Loan Forgiveness Waters
Just a few weeks ago, the current Administration announced the forgiveness of 18,000 college student loans for students of the bankrupt, for-profit, IT Tech schools. IT Tech folded in 2016 after being accused of inflating the job prospects of their students, among many other wrongdoings. The 500 million in forgiven loan debt represents a tiny fraction of the total college debt occurring every year.
I followed this story years ago, and fully believe the tactics of IT Tech were predatory towards students and families. I also believe the Federal Government was negligent in failing to take corrective action earlier by turning off access to the federal loan funds program after an investigation years ago. In the end, these students qualify for loan cancellation under the current, narrowly defined law.
But this is NOT the only “forgiveness of loan” problem currently in the system. Some 130,000 backlogged “public sector” cases remain in limbo and shouldn’t be ignored. The statute says if you work in the public sector, i.e. for state, local or federal government for 10 years and you’ve paid your loans on time during that period, you can apply for loan forgiveness. And, that is exactly where it has all stopped. Those people are in financial purgatory, with an unresolved student loan debt on their record, and no resolution in sight. It is impacting their ability to get mortgages, qualify for auto loans, and borrow to open small businesses.
This must be addressed NOW and the Department of Education needs to work overtime to resolve it.
Another treacherous area in student loans is the rush to re-finance your loans from federal to private lenders. For the uninitiated, there are two categories of loans- federal and private. You will find the details in Chapter 5 of ENOUGH! The College Cost Crisis. Today, it is tempting to refinance your federal loans because private loans currently show a significantly lower interest rate. However, you may not realize what you are giving up. Consider these possibilities.
You might give up the federal option of income-based repayment plans.
You might give up the zero interest Covid forbearance (meaning, they put back in all the payments AND the accrued interest you didn’t have to pay during Covid.)
By giving up your Federal loans, you may give up any chance at getting them forgiven should that happen in the future.
FINAL WORD- don’t switch from federal to private without getting financial guidance- and I don’t mean the private lender on the phone.
The college lending system is flawed, opaque, and borderline predatory. Worse, parents and students find it difficult or impossible to understand what signing on the bottom line means. Our society has not valued basic money skills at home or in school. Too many people don’t understand the impact of those student loans on their futures. They just sign up, start their college career, and hope it all works out. Then, a few years from now, the reality of loan repayment lands in the middle of their plans and impacts everything for 2 decades or more.
This Administration made bold campaign promises about forgiving large swaths of student debt. Why not start with the backlogged 10-year public service, please-cancel-my-debt-as-you-promised claims? Stop predatory lending at the shyster for-profits by turning off the federal money spigot where warranted. While you are doing that, take a hard look at non-profits with abysmal graduation rates. There’s one in my backyard. What’s the difference between taking your money for an unrecognizable degree, or just graduating 12% of your students in 6 years? Not much in my book.
As to outright debt cancellation, let’s look for creative, “credits for service” ways to work off that debt. I’ve suggested a GoFundMe model of doing volunteer work. A borrower must do credited volunteer work, but friends and family can join them and donate their own volunteer credits to the student’s account against the debt. The affordable housing non-profit, Habitat for Humanity, has just such a program for its future homeowners. A receiving family must work a certain number of hours ( last count it was 200+) before they can qualify to be awarded their own place where they make interest-free payments they can afford. I can support a hand-up for students with debt.
Finally, do anything you can to borrow as little as possible for school. Work in the summers and holidays. Hustle to earn money at every opportunity while in college without impacting your studies. Knock the debt down as much as you can as soon as you can. Otherwise, it becomes a financial albatross for decades.
This won’t be the last blog on loan forgiveness. Expect more information as things develop.
Next week let’s help your student hear the right message with just one little tweak in how we speak to them. It may make all the difference in their world.
Until Next Time,
All My Best,
Bonnie Burkett
