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Author: Lorna Collier

Pub. Date: 2021

Product: CQ Researcher

DOI: https://doi.org/10.4135/cqr_ht_college_debt_2021

Topics: College Financing and Funding, Education, Cost of Education and School Funding, Education Policy,

Education Standards and Testing, Online Education, Undergraduate and Graduate Education

Access Date: November 21, 2023

Publishing Company: CQ Press

City: Thousand Oaks

© 2021 CQ Press All Rights Reserved.

Abstract

The 45 million Americans who owe $1.7 trillion in college loans face uncertainty well into next year, as

Congress and the White House wrangle over if, when and how borrowers will have to pay their debts.

Payments for federal student loans — paused for nearly two years due to the COVID-19 pandemic

— are set to resume on Feb. 1 after a “final extension” granted by the Biden administration. It is un-

clear whether President Biden will waive student debt more broadly through executive action and, if

so, how much he might strike off borrowers’ tabs. The Department of Education is modifying various

loan forgiveness programs to provide some debt relief to borrowers, while states and colleges also are

providing aid.

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Current Situation

Three supporters of student loan debt cancellation display a banner near the White House

on June 15. Some 45 million Americans owe $1.7 trillion in college loans. (Getty Images/

Paul Morigi)

Since taking office in January, President Biden has canceled $9.5 billion in student loans for more than

563,000 borrowers. That is only a small fraction of the $1.7 trillion owed. 1 But Biden is considering or has

taken other measures to provide additional student relief. The key actions include:

• Extending the payment pause;

• Forgiving some student debts; and

• Canceling certain student loans under existing programs.

Student loan borrowers had won another reprieve when the Department of Education in August extended the

“pandemic pause” in loan payments from its original Sept. 30 deadline to Jan. 31, 2022, with payments set to

resume Feb. 1. 2

The payment freeze began in March 2020, as part of the Coronavirus Aid, Relief and Economic Security

(Cares) Act. The measure paused payments with zero interest accumulating for those with federal student

loans, and also stopped collection efforts for borrowers in default.

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The Trump and Biden administrations have extended the pause several times. The Department of Education

said in August that the current extension will be the last one. “As our nation’s economy continues to recover

from a deep hole, this final extension will give students and borrowers the time they need to plan for restart

and ensure a smooth pathway back to repayment,” Education Secretary Miguel Cardona said. 3

More than 120 student and consumer advocate organizations have urged Biden to extend the pause beyond

January. Some congressional Democrats called for the extension to last through at least March 31, 2022.

“COVID created severe hardship for some, and threw many others off their stride,” said Senate Majority

Leader Chuck Schumer, D-N.Y. “To make borrowers repay their debts now would be unfair, would be harsh

and in many instances would be cruel.” 4

Sen. Charles Schumer (center), joined by Fiona Miles, Spencer Payton and Daryl Holman,

discusses his plan to cancel $50,000 in debt per borrower during an appearance in New

York City in December 2020. (Getty Images/Pacific Press/LightRocket/Lev Radin)

About 90 percent of student loan borrowers have taken advantage of the pause, with 10 percent continuing

their monthly payments. 5 In a July survey of 23,845 students by the Student Debt Crisis Center, a student

borrower advocacy organization based in Los Angeles, 90 percent said they were not ready to resume pay-

ments in October. 6 An earlier survey by Pew Charitable Trusts similarly found that 67 percent of borrowers

said they would have difficulty affording payments then. 7

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Even before the pandemic, nearly one-third of student loan borrowers were in delinquency or had defaulted

on their loans. 8

During the 2020 presidential campaign, Biden called for forgiving up to $10,000 in federal student debt

for every borrower. Other prominent Democrats, including Sen. Elizabeth Warren of Massachusetts and

Schumer, have pushed for a $50,000 debt cancellation, saying Biden could accomplish this through executive

action. 9

However, House Speaker Nancy Pelosi, D-Calif., said Biden does not have the authority to cancel debt, only

to postpone it, and that loan forgiveness requires an act of Congress. 10 Schumer, liberal Democrats, some

legal analysts and consumer groups disagree. Biden referred the matter to the departments of Justice and

Education in February, seeking clarification about the scope of his executive powers, but has not revealed

whether he has received legal guidance or said when it might be expected. 11

“He clearly does have the power to do this under the Higher Education Act,” says Cody Hounanian, program

director at the Student Debt Crisis Center, which supports wiping out $50,000 in debt per borrower. “Due to

the urgent nature of the economic impact caused by the pandemic, we really feel strongly that an executive

action that immediately cancels student debt is the best approach.”

Hounanian says if Congress has to enact loan forgiveness, it would “take too long for lawmakers to work out

the kinks, if they ever could come to any compromise when it comes to debt cancellation.”

Some moderate and conservative Democrats oppose loan forgiveness, and most Republicans do so as well

because of concerns over cost and other issues. Sen. John Thune, R-S.D., argued forgiveness would be un-

fair to those borrowers who have paid, or are paying, off their loans. He also said, “What incentive will colleges

have to restrain tuition growth if they think they can rely on the federal government to subsidize their students’

tuition fees through loan forgiveness?” Political analysts said even the $10,000 forgiveness is unlikely to pass

in the Senate. 12

Executive Actions

In the meantime, Biden has erased student debt for borrowers who meet certain limited criteria. One category

includes borrowers who are permanently disabled. 13

About 364,000 borrowers with $7.1 billion in loans met this criteria. In March, the Department of Education

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canceled $1.3 billion in debts for 41,000 applicants under the Total and Permanent Disability Discharges Pro-

gram. In August, the administration used Social Security disability information to erase an additional $5.8 bil-

lion for 323,000 disabled borrowers. 14

The administration also has been working to make the disabled student loan forgiveness program easier to

use and more well-known among those who might qualify. 15

A second category involves students defrauded by schools. The Education Department canceled student debt

for these borrowers under a policy known as “borrower defense to repayment” policy, which is aimed at pro-

tecting students from what the department considers predatory institutions (often for-profit, online colleges).

Through July, the department had canceled about $1.55 billion in loans for nearly 92,000 borrowers under the

borrower defense rule. In August, the department erased another $1.1 billion owed by 115,000 borrowers who

had attended the now-defunct, for-profit ITT Technical Institute, using a “closed school discharge” provision.

16

The borrower defense policy was set up under the Obama administration, which approved 99.2 percent of

those who applied. During the Trump presidency, Education Secretary Betsy DeVos said the program made

it too easy to get loans forgiven, so the department changed the rules, resulting in 99.4 percent of applicants

being denied. 17

The Biden administration overturned DeVos’ rules and enacted other measures to rein in for-profit schools.

For example, as part of the American Rescue Plan passed in March, the Department of Education removed

a rule that, critics said, made veterans an attractive target for for-profit schools. In general, for-profit colleges

are not allowed to receive more than 90 percent of their funding from federal sources, although GI Bill benefits

do not count toward the limit. By enrolling veterans, for-profits could stay in business. 18

“For too long, bad actor colleges have treated veterans and service members as nothing more than dollar

signs in uniform,” said Carrie Wofford, president of Veterans Education Success, who supported the policy

change.

The change will likely affect about 37 schools, although the revisions will be rolled out slowly and may not be

fully felt until at least 2023. 19

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In addition, the Biden administration is working to revamp the Public Service Loan Forgiveness (PSLF) Pro-

gram, which began in 2007. The program encourages Americans to work in public service jobs by forgiving

the balance of their loan debt after 10 years’ worth of payments. 20

However, the program has been so mired in red tape that only 1 to 2 percent of applicants receive any for-

giveness. The Biden administration has sought to streamline applications and make the program more user-

friendly. It also is seeking public suggestions for other improvements. 21

Biden has proposed making more funds available to borrowers sooner, by having awards start at five years

rather than 10. 22

Congress and the administration are debating other steps to take. One involves income-based repayment

plans (also known as income-driven plans), which let borrowers pay less on their student loans when they

earn less and nothing if they make below a certain amount. Loan balances would also be forgiven after 20

to 25 years of payments. Biden campaigned on a proposal that would cap loan payments at 5 percent of in-

come. The administration is considering these and other adjustments, such as shortening the repayment time

or including household expenses when determining payments. 23

Congressional Proposals

In Congress, two main changes to lessen the burden of college debt are under consideration:

Bankruptcy reform. In August, Sens. Dick Durbin, D-Ill., and John Cornyn, R-Texas, introduced a bipartisan

bill that would make it much easier for student loan borrowers to wipe out college debt by declaring bankrupt-

cy. Durbin has tried before to change bankruptcy rules covering student debt, but this is the first time he is

doing so with a Republican co-sponsor. 24

“There has been growing bipartisan support for this policy change,” says Michele Streeter, associate director

of policy and advocacy for The Institute for College Access & Success, an advocacy group in Washington.

The proposed bill “demonstrates growing momentum for congressional action.”

Free community college and more financial aid. The House of Representatives passed a $3.5 trillion bud-

get resolution in August that includes $109 billion for two years of free community college nationwide. The bill

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also would increase federal Pell Grants, which provide financial aid to students, by $85 billion.

The spending would be funded by taxes on wealthy corporations and individuals. Republicans — and some

Democrats — say the resolution is too costly. Senate Democrats hope to pass this and other budget mea-

sures through a procedure called reconciliation, which allows it to pass with a simple majority — and therefore

without any Republican votes. 25

State and College Actions

States, colleges and universities are trying to reduce student debt by both making college less expensive and

wiping out some student loans.

This fall, many institutions froze tuition, while as many or more did only modest increases averaging about 2

percent, said Jim Hundrieser, vice president of consulting and business development at the National Associ-

ation of College and University Business Officers. 26

Freezes or low tuition hikes have been possible because many state budgets have recovered more quickly

from the pandemic than expected, and thus legislators have not had to cut higher-education appropriations as

had been feared. Also, colleges and universities have been able to use COVID-19 stimulus funding to offset

tuition losses. 27

Some colleges and universities, including many historically Black colleges and universities (HCBUs) and state

systems, have used federal stimulus money to help clear student debts — money students owe their institu-

tions for tuition, fees, room and board. 28

About 26 states, including California, Hawaii and Oregon, now offer free community college. However, often

these programs cover tuition but not textbooks, supplies or other expenses. Some states, such as Arkansas,

Kansas and New York, restrict the benefit to low-income students or to those studying in particular fields,

rather than providing a universal benefit. 29

Students can receive debt relief in some states or cities if they practice there, often in certain high-need fields.

For example, California will cover up to $50,000 in college debt per borrower for dentists, doctors, physician

assistants and nurses who agree to work in the public sector or a nonprofit in a high-need location for at least

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two years full time or four years part time. 30

States also have passed or are considering bills to protect student loan borrowers from predatory student

loan servicing companies. About a dozen states have passed borrowers’ bills of rights, with another dozen

pending that could pass by year’s end, according to the Student Borrower Protection Center. 31

The Biden administration has backed the states, overturning a Trump administration rule in August that limited

state authority over companies that manage student loans. States now will be free to go after servicers for

deceptive practices or other problems that have resulted in thousands of consumer complaints. 32

Industry groups and some lawmakers say added state regulations covering federal loan servicers will raise

costs, ultimately hurting borrowers and causing confusion.

Consumer advocates and some state officials disagree. “States have long played an integral role in higher

education oversight and have been on the front lines of protecting student borrowers from fraud and abuse,”

said Maura Healey, attorney general of Massachusetts. “My office looks forward to collaborating with the de-

partment to ensure servicer accountability and borrower rights.” 33

Still unknown is the ongoing impact of the COVID-19 pandemic on college debt. Four in 10 students say

they need more financial aid now than before the pandemic. 34 While student enrollment has increased over

2020-21, the resurgence in cases due to the Delta variant has caused quarantines or virtual instruction to re-

sume in some places. 35 Whether this will cost colleges more and result in future tuition hikes, or will increase

the need for the federal government to step in with more stimulus money and borrower help, remains unclear.

Footnotes

1. Annie Nova, “Education Department will cancel student debt for 115,000 borrowers,” CNBC, Aug. 26,

2021, https://tinyurl.com/39z6p2ne; Stephen Roll, Jason Jabbari and Michal Grinstein-Weiss, “Student debt

forgiveness would impact nearly every aspect of people’s lives,” Brookings Institution, May 18, 2021,

https://tinyurl.com/j9pscnku.

2. Annie Nova, “Biden extends payment pause for student loan borrowers through January,” CNBC, Aug. 6,

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2021, https://tinyurl.com/2xcs7y36.

3. “Biden Administration Extends Student Loan Pause Until January 31, 2022,” news release, U.S. Depart-

ment of Education, Aug. 6, 2021, https://tinyurl.com/5577vrvd; Meghan Lustig, “Update on Coronavirus Stu-

dent Loan Relief,” U.S. News & World Report, Aug. 12, 2021, https://tinyurl.com/4b5pwkyh.

4. Abigail Johnson Hess, “Senators Warren, Smith and Markey urge Biden to extend federal student loan

pause to March 31, 2022,” CNBC, July 13, 2021, https://tinyurl.com/ek5hua4m; Jillian Berman, “Schumer,

Warren, Pressley urge Biden to extend student-loan payment pause — and cancel student debt,” Market-

Watch, July 27, 2021, https://tinyurl.com/3s3pa3w4.

5. Annie Nova, “Biden’s call for $10,000 in student loan forgiveness not included in stimulus plan,” CNBC,

Jan. 14, 2021, https://tinyurl.com/y2ey2pjd.

6. Jillian Berman, “’We’re going to lose a generation of student-loan borrowers’: Pressure mounts to extend

payment pause,” MarketWatch, July 5, 2021, https://tinyurl.com/2yrnu5ma.

7. Nova, “Biden extends payment pause for student loan borrowers through January,” op. cit.; Travis Plunkett,

Regan Fitzgerald and Lexi West, “Many Student Loan Borrowers Will Need Help When Federal Pause Ends,

Survey Shows,” Pew Charitable Trusts, July 15, 2021, https://tinyurl.com/vh2hasb8.

8. Nova, ibid.

9. Darragh Roche, “Joe Biden Can’t Cancel Federal Student, Nancy Pelosi Says,” Newsweek, July 29, 2021,

https://tinyurl.com/3y7awx3w.

10.Ibid.

11. Alexis Gravely, “Can Biden Cancel Student Debt? Depends Who You Ask,” Inside Higher Ed, Aug.

11, 2021, https://tinyurl.com/vs5x76hw; Zack Friedman, “Student Loan Forgiveness Hasn’t Happened, But

Where’s The Legal Memo That Was Supposed To Decide Student Loan Cancellation?” Forbes, Sept. 5, 2021,

https://tinyurl.com/fuetnyw3.

12. Eric Levitz, “Has Biden Abandoned Wide-Scale Student-Loan Forgiveness?” New York Magazine, updat-

ed Aug. 20, 2021, https://tinyurl.com/36hj6fjf; “Thune: Loan Forgiveness is Not a Solution for the Student Debt

Problem,” press release, Office of Sen. John Thune, Feb. 24, 2021, https://tinyurl.com/3yvpzuj9.

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13. Nova, “Education Department will cancel student debt for 115,000 borrowers,” op. cit.; Collin Binkley,

“US to Erase Student Debt For Those With Severe Disabilities,” U.S. News & World Report, Aug. 19, 2021,

https://tinyurl.com/42hrppnr.

14. Levitz, op. cit.; “Biden to cancel student debt for 300,000 Americans with severe disabilities,” The Associ-

ated Press, KTLA, Aug. 19, 2021, https://tinyurl.com/x7yk83z.

15. Levitz, ibid.

16. “Department of Education Approves Borrower Defense Claims Related to Three Additional Institutions,”

press release, U.S. Department of Education, July 9, 2021, https://tinyurl.com/h2vxjbck; “Extended Closed

School Discharge Will Provide 115K Borrowers from ITT Technical Institute More Than $1.1B in Loan For-

giveness,” press release, U.S. Department of Education, Aug. 26, 2021, https://tinyurl.com/2r6etcvv.

17. Levitz, op. cit.

18. Leo Shane III, “GI Bill vets may be less attractive to for-profit schools under new law,” Military Times,

March 10, 2021, https://tinyurl.com/r7ubvefc.

19.Ibid.

20. Anna Helhoski, “Public Service Loan Forgiveness: What It Is, How It Works,” Nerdwallet, Aug. 18, 2021,

https://tinyurl.com/vchcwsw4.

21. Timothy Lawson, “We Want to Hear From You: Strengthening the Public Service Loan Forgiveness Pro-

gram,” Home Room, U.S. Department of Education, July 23, 2021, https://tinyurl.com/ttshb6w; Adam S. Min-

sky, “New Data Shows Most Who Apply To This Student Loan Forgiveness Program Are Denied,” Forbes,

June 14, 2021, https://tinyurl.com/ftrzvh88.

22. Levitz, op. cit.

23. Adam S. Minsky, “What A New Income Based Repayment Plan Could Mean For Student Loan Borrowers,”

Forbes, June 2, 2021, https://tinyurl.com/rzereff2.

24. Adam S. Minsky, “Landmark, Bipartisan Bill Would Allow Student Loan Discharge In Bankruptcy: Key De-

tails,” Forbes, Aug. 3, 2021, https://tinyurl.com/t9uttt8.

25. Tony Romm, “House passes $3.5 trillion budget plan, aims to vote on infrastructure package by late

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September,” The Washington Post, Aug. 24, 2021, https://tinyurl.com/4av85s6a; Ray Domanico, “Why ’Free

Community College’ Is Only Just the Beginning,” Yahoo News, Aug. 24, 2021, https://tinyurl.com/dtnsfek.

26. Emma Whitford, “Summer Brings Another Wave of Tuition Freezes,” Inside Higher Ed, June 28, 2021,

https://tinyurl.com/2et4jbrm.

27. Michael T. Nietzel, “The Trend Continues: More Universities To Freeze Tuition,” Forbes, May 5, 2021,

https://tinyurl.com/4un6seyh.

28. William Chittenden, “Colleges are using federal stimulus money to clear students’ past-due debts - an

economist answers five questions,” The Conversation, Aug. 13, 2021, https://tinyurl.com/s9xekjkz; Sharon

Epperson, “Clark Atlanta University, HCBUs across the country clear student balances and cancel debt with

federal funds,” CNBC, Aug. 24, 2021, https://tinyurl.com/jspc6zev.

29. Matt Kuncaitis, “Which States Have a Free Community College?” CollegeFinance, updated July 14, 2021,

https://tinyurl.com/36rxar3w.

30. Heidi Rivera, “11 States and Cities That Will Help You Pay off Your Student Loans,” Money, June 21,

2021, https://tinyurl.com/mpx7pnwr.

31. Danielle Douglas-Gabriel, “Biden administration rolls back DeVos rule limiting state authority over student

loan companies,” The Washington Post, Aug. 9, 2021, https://tinyurl.com/wdjsc55w.

32.Ibid.

33. Stacy Cowley, “The Education Department ends its effort to stop states from suing federal student loan

servicers,” The New York Times, Aug. 9, 2021, https://tinyurl.com/t8cbjx7x.

34. Jessica Dickler, “Another wave of students may opt out of college this fall,” CNBC, July 30, 2021,

https://tinyurl.com/yhpdzaue.

35. Michael T. Nietzel, “Initial Estimates Show Fall Enrollments Up At Several Public Universities,” Forbes,

Aug. 24, 2021, https://tinyurl.com/svvvdxpr; “Live Updates: Latest News on Coronavirus and Higher Educa-

tion,” Inside Higher Ed, 2021, https://tinyurl.com/2rhcrxak.

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About the Author

Lorna Collier is a freelance writer based in northern Illinois.

Chronology

2020

2021

March

As part of the Coronavirus Aid, Relief and Economic Security (Cares) Act, Congress

pauses payments for those with federal student loans and stops collection efforts for bor-

rowers in default.

August

President Donald Trump extends the student debt payment pause to Dec. 31, 2020.

December

The Trump administration extends the pause to Jan. 31, 2021.

January

On his first day in office, President Biden extends the payment pause through Sept. 30,

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https://doi.org/10.4135/cqr_ht_college_debt_2021

2021.

February

Democratic members in the House and Senate introduce resolutions calling on Biden to

cancel up to $50,000 in student debt per borrower; the administration says it will study

the matter.

March

Biden signs the American Rescue Plan, which includes about $40 million in higher ed-

ucation assistance.… The Education Department announces a rollback of Trump-era

rules that made it harder for defrauded students to have their loans forgiven; the change

leads to the cancellation of $1 billion owed by about 72,000 borrowers.

August

The student loan payment pause is extended through Jan. 31, 2022.… The Biden ad-

ministration grants student loan forgiveness totaling $5.8 billion to 323,000 borrowers

who are permanently disabled.… The House of Representatives approves a $3.5 trillion

budget resolution, including free community college and more student financial aid; Sen-

ate passage is uncertain.… 115,000 defrauded ITT Technical Institute students will have

$1.1 billion in loans wiped out, the Education Department says.

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