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Biden Administration Just Announced $6 Billion in Student Loan Forgiveness
Biden Administration Just Announced $6 Billion in Student Loan Forgiveness

Biden Administration Just Announced $6 Billion in Student Loan Forgiveness

Last week, the Department of Education announced that it would cancel $6 billion of student loan debt. In addition, refunds will be issued to students of for-profit colleges that were closed as part of a settlement in a lawsuit.

Theresa Sweet and Miguel Cardona were plaintiffs who sought debt relief through the “borrower defense to loan repayment” program. Borrower defense was created by the Obama administration and allows the Education Department to forgive federal student loan debts of students who can prove they were defrauded at the school.

The Trump administration slowed down the Education Department’s evaluations of borrower defense requests. Former students of the defunct Corinthian Colleges sued Betsy DeVos, Education Secretary, for “unlawfully withholding” or “unreasonably delaying” action on Plaintiffs’ requests. Miguel Cardona was President Joe Biden’s education secretary.

The settlement provides that the Department of Education will forgive $6 billion of loans to 200,000 students from dozens of technical schools as well as for-profit colleges. The Department of Education will also reimburse borrowers who have made or paid off their entire loans. It is unclear how many borrowers will be eligible for loan forgiveness for outstanding debts and how many will be reimbursed for any debts they have already repaid. A spokesperson for the Department of Education said that they don’t comment on ongoing litigation and did not know how many borrowers fell into each category.

The Biden administration has granted debt forgiveness requests for thousands of students from for-profit colleges over the past two decades. The administration announced earlier this month that it would forgive loans of more than $5.8 billion to students of Corinthian Colleges.

The Department of Education is the nation’s largest student loan issuer, so it continues to support colleges and universities that do not prepare students. Because federal funding standards are low, it encourages the creation of schools that only exist to borrow federal money. Even though for-profit institutions serve most students, taxpayers are still responsible for those who cannot afford to make the most out of their education. All borrowers would be eligible for debt forgiveness, public and private, regardless of whether they are nonprofit private colleges or public institutions.

The simplest policy solution for the government to stop vulnerable and low-income students from being defrauded at for-profit colleges would be to get out of the student loan business. According to Neal McCluskey of the Cato Institute’s Center for Educational Freedom, there is evidence that federal student aid “fuels the ivory tower’s infamous price inflation, including approximately a doubling of sticker prices between 1991-92 school years and 2021-22 school year,” wrote McCluskey. He continued: “It also makes sense. If you give lots of people easy money to buy one thing, the cost of that item will rise as more people want it and have greater bells, whistles, and other amenities.”

Private, public and non-profit schools would need to charge rates that are affordable to students or show private lenders that their education will allow them to repay federal student loans.

This solution is not likely to be found right now. In 1993, a limit was placed on federal loans’ annual amounts. It is unlikely that this restriction will be lifted again. Increasing calls for the cancellation of federal student loan debt is a sign of this. The Biden administration is focusing on the symptoms in the midst of all this chaos, while the underlying cause goes unacknowledged.

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