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A crash course in student loan debt forgiveness

The administration’s actions so far have largely focused on students who were defrauded by now-shuttered schools, like Corinthian. But the moves have also sharpened a debate on whether the rising cost of higher education is an undue burden for young adults. Opponents say that simply forgiving student debt is a moral hazard and penalizes people who paid theirs off already.

Our conversation, conducted by email, is below.

WHAT MATTERS: What’s this latest move by the Biden administration, and how many people does it affect?

LOBOSCO: Wednesday’s action is the Biden administration’s biggest move to cancel student debt to date, totaling $5.8 billion for 560,000 borrowers.

It will affect all borrowers who attended a Corinthian College at any time during its existence, dating back to 1995, and still have an outstanding federal student loan debt.

Some former Corinthian students previously qualified for student loan forgiveness, but the new action will ensure that all borrowers will receive debt relief automatically. They won’t have to take action.

How is this possible?

WHAT MATTERS: How is the administration able to simply forgive this debt? Why didn’t Congress need to weigh in?

LOBOSCO: The Department of Education has long had the power — granted by Congress in the Higher Education Act — to cancel federal student loan debt held by borrowers who were misled by their colleges or were enrolled at schools that engaged in other misconduct in violation of certain state laws.

But the department rarely used this power before 2015, when Corinthian Colleges and several other for-profit schools suddenly shut down in the face of federal and state investigations into their practices. Many schools were found to have misled prospective students with inflated job placement numbers and the transferability of their credits to other schools.

At that time, the Obama administration streamlined the process, known as borrower defense to repayment, making it easier for these borrowers to file forgiveness claims with the Department of Education. The agency was flooded with applications, and the Trump administration, which fought to change the policy, stopped processing the claims for more than a year. More than 100,000 applications were pending when Biden took office.

Since then, the Department of Education has been chipping away at the backlog, speeding up the process by granting forgiveness to groups of borrowers at a time.

What’s a for-profit college?

WHAT MATTERS: What’s the difference between a for-profit college and other colleges, which also cost a lot of money?

LOBOSCO: The big difference is that for-profit colleges aim to make money, unlike non-profit public and private colleges and universities.

Not all for-profit colleges are bad. They tend to confer certificates for trade-related professions that prepare students to quickly enter the workforce. In that respect, they attract a lot of nontraditional students — like parents and military veterans who want to gain skills that make them marketable to new employers.

But many for-profit colleges have left thousands of students with degrees that did not help them get higher-paying jobs and that saddled them with a student loan debt.

How have for-profit colleges changed?

WHAT MATTERS: What is the state of for-profit colleges right now? How has that industry changed in recent years?

LOBOSCO: Enrollment at for-profit colleges in 2020 was about half of what it was in 2010, when more than 2 million students were enrolled, according to the College Board.

Corinthian Colleges — which operated schools under the names of Everest, Heald College or WyoTech — enrolled more than 110,000 students at 105 campuses at its peak in 2010. It sold most of its campuses in 2014 and shuttered the remaining ones in 2015.

A year later, another for-profit college, known as ITT Tech, also suddenly closed after facing state and federal probes into its recruitment tactics.

What’s going on with debt forgiveness in general?

WHAT MATTERS: This is but one effort. What does the larger debt forgiveness effort look like? How much student debt has been forgiven and how much is out there?

LOBOSCO: Under the Biden administration, the Department of Education says it has approved the cancellation of $25 billion of student debt for 1.3 million borrowers as of this week.

Nearly $8 billion in forgiveness provides relief for 690,000 borrowers who were misled by their colleges. More than $8.5 billion has been canceled automatically for more than 400,000 borrowers who are permanently disabled who were previously eligible for debt relief but had not applied.

The administration has also temporarily expanded eligibility for what’s known as the Public Service Loan Forgiveness program — which cancels the remaining federal student loan debt after a public-sector worker has made 10 years of qualifying payments. The expansion has led to the cancellation of $6.8 billion for more than 113,000 borrowers.

The Biden administration has also made changes to the income-driven repayment plans, bringing millions of borrowers close to forgiveness.

What about mass debt forgiveness?

WHAT MATTERS: Cancelling debt for people who were defrauded is one thing. A lot of Democrats want to see debt forgiveness for people who got legitimate degrees too. Where does that effort stand?

LOBOSCO: Many Democrats and advocacy groups continue to call on Biden to broadly cancel up to $50,000 for each of the 43 million borrowers who have federal student loan debt.

Biden is considering canceling some student debt.  Here's why it might not be such a great idea

To date, Biden has resisted that pressure and has instead taken a piecemeal approach to canceling a student debt by expanding existing forgiveness programmes.

In April, Biden said he is considering canceling a student loan debt more broadly — though he also doubled down on his resistance to canceling as much as $50,000 per borrower.

On the campaign trail, he proposed canceling a minimum of $10,000 in student debt per person as a response to the pandemic, as well as forgiving all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for those borrowers earning up to $125,000 a year.