Why So Many Students Aren't Receiving Loan Forgiveness

With Meghna Chakrabarti

A company called FedLoan services one-third of all federal student debt. But flawed paperwork and botched processing are stopping many students from receiving loan forgiveness they’re entitled to. We’ll find out why.

Guests

Ryann Liebenthal, freelance writer and editor. (@ryannliebenthal)

Adam Minsky, lawyer practicing in Massachusetts and New York City. He helps student loan borrowers and their families, both with disputes with the lenders and in general, guiding them through the process of borrowing for college. (@AdamSMinsky)

Matthew Sessa, executive director of student registration and financial services at the University of Pennsylvania. He has served both as deputy and acting chief operating officer at the Office of Federal Student Aid in the U.S. Department of Education. He also served senior leadership roles at the Pennsylvania Higher Education Assistance Agency, PHEAA.

From The Reading List

Mother Jones: “The Incredible, Rage-Inducing Inside Story of America’s Student Debt Machine” — “Today, FedLoan services about a third of all federal student debt, and last year the company took home $195 million from the Education Department. But for years, there were reasons to doubt the company’s competency to administer such a large portion of the government’s loan portfolio.

“To understand how FedLoan grew so powerful, you have to go back to the 1960s. At the time, about a quarter of high school students dropped out, while half of those who did graduate went on to college. To boost those numbers, President Lyndon B. Johnson signed the Higher Education Act in 1965. The bill came along at a moment when states were creating their own institutions to promote higher-­education access, including the Pennsylvania Higher Education Assistance Agency (PHEAA), which would eventually branch off and create FedLoan. It was a recipe that we still rely on today—the federal government provides loans to students across the country, and state governments and other agencies like PHEAA fill in the funding gaps. ‘When you look into the faces of your students and your children and your grandchildren,’ Johnson said, ‘tell them that the leadership of your country believes it is the obligation of your nation to provide and permit and assist every child born in these borders to receive all the education that he can take.’ ”

NPR: “Student Loan Watchdog Quits; Blames Trump Administration” — “The federal official in charge of protecting student borrowers from predatory lending practices has stepped down.

“In a scathing resignation letter, Seth Frotman, who until now was the Student Loan Ombudsman at the Consumer Financial Protection Bureau says current leadership ‘has turned its back on young people and their financial futures.’ The letter was addressed to Mick Mulvaney, the bureau’s acting director.

“In the letter, obtained by NPR, Frotman accuses Mulvaney and the Trump administration of undermining the CFPB and its ability to protect student borrowers.”

Washington Post: “Watchdog agency blasts government contractor for mishandling student loan forgiveness program” — “Flawed payment processing, botched paperwork and inaccurate information from FedLoan Servicing is derailing hundreds of public-sector workers from receiving student loan forgiveness, the Consumer Financial Protection Bureau said in a report Thursday.

“‘Borrowers working in public service should not miss out on key consumer benefits because their student loan servicer failed to comply with the law,’ CFPB Director Richard Cordray said in prepared remarks for a bureau event in Raleigh on Thursday. ‘Our examiners will scrutinize whether servicers are telling consumers what they need to do to qualify for loan forgiveness.’ ”

The Hill: “The Prosper Act will increase spending on higher education” — “Late last year, House Republicans proposed a major reform of the federal government’s student aid programs for higher education. The Congressional Budget Office recently released its official score of the bill, which is dubbed the Prosper Act. Republicans have latched onto the score to defend the bill as an act of fiscal responsibility, while Democrats and advocates have labeled the bill as a cut to student aid, claiming it slashes benefits and ‘hits students hard.’

“But both groups are wrong. The best available estimate of the bill’s impact shows that it would actually increase federal spending on student aid over the next 10 years. At first glance, the CBO estimate for the Prosper Act appears to show savings for the government. The first table in the report lists a $14.6 billion spending cut over the coming decade. But that figure, which has often been cited in media coverage of the score, refers to only one side of the federal budget: the entitlement side. That’s where the changes to student loan programs show up, so the projected $14.6 billion in savings largely reflects the elimination of loan forgiveness benefits that flow disproportionately to borrowers with expensive graduate degrees.”

The Hechinger Report: “With the new ‘Aim Higher Act,’ House Democrats want states to make community college free” — “House Democrats unveiled the Aim Higher Act this week, which they say would give students the opportunity to go to college debt free without compromising the quality of their education. The proposed bill is a direct response to the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act, which House Republicans introduced in December.

“Aim Higher, just like Prosper, would be a reauthorization of the Higher Education Act – the federal law that controls much of federal spending and lending for postsecondary education. It has not been reauthorized since 2008. Since then, student debt has grown, and 2016 presidential contenders Bernie Sanders and Hillary Clinton made ‘free college’ part of their campaign platforms.” [Copyright 2018 NPR]