The Biden administration is gearing up for a major test of the federal government’s bureaucracy: tens of millions of applications for student debt relief, the Wall Street Journal reported. Later this month, the administration will launch the largest student loan forgiveness program in U.S. history. The government and the servicers who manage the federal student loan portfolio will have less than three months to process the initial batch of applications and ensure balances are adjusted before Jan. 1, 2023, when borrowers are due to start making mandatory payments on their loans for the first time in nearly three years. Previous student loan programs have been marked by delays and confusion, such as a loan-forgiveness program for people with public-service jobs that the Biden administration overhauled last year, after the Education Department revealed that only 5,500 borrowers had seen their debt wiped clean since the creation of the program more than a decade ago. Administration officials and Democratic lawmakers acknowledged that a messy rollout of President Biden’s new federal loan-forgiveness program would be a political liability right before the November midterm elections.
The national poverty rate was 12.8% in 2021, but was significantly different for the nation’s oldest and youngest populations, according to a new Census Bureau report released yesterday. The child poverty rate (for people under age 18) was 16.9% in 2021, 4.2 percentage points higher than the national rate, while poverty for those ages 65 and over was 10.3%, 2.5 percentage points lower than the national rate. The American Community Survey (ACS) 1-year estimates provide data for a number of demographic, social and economic indicators, including poverty. The national child poverty rate was 16.9% but there was considerable variation among states, ranging from 8.1% to 27.7%. In 2021, the national poverty rate for people ages 65 and over was 10.3%, significantly lower than the poverty rate for all people and the child poverty rate. There were geographic variations in these poverty rates though not as pronounced as for the child poverty rate. The poverty rates for the older population ranged from 6.7% to 14.1%.
President Biden’s program to erase large amounts of student loan debt attracted some criticism immediately after it was announced in August and, more recently, several lawsuits. Scammers have targeted borrowers. The administration has reduced the number of people eligible for forgiveness. All before an application form for debt forgiveness even exists, the New York Times reported. Many of the details were not yet complete when the plan, which was hailed by progressive Democrats and would forgive up to $20,000 in debt for individuals making under $125,000, was unveiled. The goal of the program was to instantly improve the finances of millions of Americans. For those outside the White House, the reality has been much more chaotic. Department of Education officials are racing to create the application and get a public information campaign up and running without substantial additional resources, according to several people familiar with the process. White House officials stress they are meeting often and across departments to get the form completed in October. Still, activists, borrowers and loan servicers worry that the program — the most costly executive action in history — might undergo more changes if problems continue to mount. “It’s too soon to say that they’re doing anything wrong because we haven’t even seen the form come out,” said Natalia Abrams, a founder of the Student Debt Crisis Center, a nonprofit advocacy group. The confusion around applying for loan forgiveness — including questions about changes in income — has amplified calls from Ms. Abrams and others for the administration to dispense with applications and automatically forgive the debt of those who qualify for the program. But that would leave the plan open to legal challenges: Opponents of automatic debt relief say that borrowers in some states would be forced to pay taxes on the forgiven debts. Some borrowers have been excluded without much notice: On the same day officials in six Republican-led states filed a lawsuit accusing Mr. Biden of abusing his power and acting unlawfully, the administration updated eligibility guidance to say that borrowers whose federal loans are privately held were no longer part of the program. The effort was no coincidence — eliminating eligibility for those students could make it harder for a Republican attorney general to successfully attack the entire program in court. There are other challenges: Conservatives have assailed the program’s price tag. Last week, when the news came that the plan could cost around $400 billion, with the bulk of the effects to the economy felt over the next decade, administration had an unusual line of defense. The estimate, by the nonpartisan Congressional Budget Office, said that as many as 90 percent of the 37 million eligible borrowers would apply, but White House officials suggested the price of the program was likely to be lower because not all who were eligible would participate.
Colleges that lend directly to their students cannot later refuse to release a student’s transcript as a way of forcing them to make loan payments, the Consumer Financial Protection Board said on Thursday, calling the practice “abusive” and a violation of federal law, the New York Times reported. The loans made directly by a college, rather than a traditional lender, are used to pay for classes, but they don’t come with the same protections as federal student loans do. Hundreds of thousands of students at for-profit colleges have taken these loans, which are known as institutional loans, and they’re also offered at some public and nonprofit institutions. The consumer bureau’s ruling was aimed at stopping the colleges from withholding transcripts from students who haven’t repaid the debt. One college that the bureau examined refused to release transcripts to students in default until the full amount had been repaid, even when students had entered into a payment plan. Transcript withholding can make it difficult for students to apply for jobs even if they’ve graduated, since they can’t prove to prospective employers that they have a degree. In some cases, graduates can’t take a job certification exam without a transcript, effectively barring them from employment in the field they studied. Without a transcript, students also can’t transfer their credits to another college if they want to pursue a different career or if they’ve finished a two-year degree and want to earn a bachelor’s degree. The bureau said that blanket policies that use transcript withholding as a way to collect these debts are “designed to gain leverage over borrowers and coerce them into making payments.”
Consumers spent a bit more in August than the previous month, a sign the economy is holding up even as inflation lifts prices for food, rent, and other essentials, the Associated Press reported. Americans boosted their spending at stores and for services such as haircuts by 0.4% in August, after it fell 0.2% in July, the Commerce Department said Friday. Yet much of that increase reflected higher prices, with an inflation gauge closely monitored by the Federal Reserve rising 0.3% in August, the government’s report showed. The figures suggest that the economy is showing some resilience despite sharply rising interest rates, violent swings in the stock market, and high inflation. Still, there were signs that rising prices are weighing on shoppers. Consumer spending, adjusted for inflation, is growing at a weaker pace. It increased at an annual rate of 2% in the April-June quarter. Yet July and August data indicate that spending growth is on track to slow to an annual rate of just 0.5% in the July-September quarter, economists said.
The Biden administration was accused in a lawsuit by six Republican-led states of overstepping its authority with a plan to forgive federal student loans, Bloomberg News reported. Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina asked a federal judge on Thursday to immediately block the program before the administration starts the process of canceling loan balances in the coming weeks. President Joe Biden’s plan is based on a 2003 federal law authorizing student-debt forgiveness for individuals serving in the military during a war or living somewhere designated as a “disaster area” by a governmental entity, according to the complaint. The states argue the White House plan isn’t “remotely tailored to address the effects of the pandemic on federal student loan borrowers,” as required by the law. They also cited Biden’s claim in a recent “60 Minutes” interview that “the pandemic is over.” “The Biden Administration’s executive action to cancel student loan debt was not only unconstitutional, it will unfairly burden working class families and those who chose not to take out loans or have paid them off with even more economic woes,” said Missouri Attorney General Eric Schmitt in a statement. “The Biden Administration’s unlawful edict will only worsen inflation at a time when many Americans are struggling to get by.”
The Consumer Financial Protection Bureau (CFPB) yesterday sued MoneyLion Technologies, an online lender, and 38 of its subsidiaries, for imposing illegal and excessive charges on servicemembers and their dependents. The CFPB alleges that MoneyLion violated the Military Lending Act by charging more than the legally allowable 36% rate cap on loans to servicemembers and their dependents, through a combination of stated interest rates and monthly membership fees. The CFPB also alleges MoneyLion required customers to join a membership program to access certain “low-APR” loans, and then did not allow them to cancel their memberships until their loans were paid. This is the CFPB’s fourth enforcement action related to the Military Lending Act in the past two years.
Sen. Elizabeth Warren (D-Mass.) and House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) yesterday reintroduced the Consumer Bankruptcy Reform Act, bicameral legislation proposing to simplify and modernize the consumer bankruptcy system and make it easier for consumer debtors, according to a press release. Originally introduced in 2020, this legislation would replace the two separate consumer bankruptcy chapters known as chapters 7 and 13 with a single system available to all consumers, streamlining the filing process and reducing filing fees. The bill would also aim to ensure that families can care for themselves, their children, and their elderly parents during the bankruptcy process by helping renters with back rent avoid eviction, giving people a path to protect their homes and cars, and letting filers discharge local government fines. Read the full press release.
According to the press release, the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law's hearing at 1 p.m. today will focus on the purported loopholes and abuses in the current consumer bankruptcy system and how the Consumer Bankruptcy Reform Act might provide improvements. Click here to watch a live webcast of the hearing at 1 p.m. ET.
