Biden’s Student Loan Freeze Shows Path To Erase Billions Of Debt
Thanks to vagaries of the accounting world, Donald Trump’s administration had a chance in the final weeks of the presidential race to cancel more than $200 billion of student loans with no immediate hit to the Department of Education’s massive portfolio. Biden’s Student Loan Freeze Shows Path To Erase Billions Of Debt
Yet it didn’t do it.
Now, perhaps Joe Biden will.
For years, bean counters at the department have been writing down the value of its $1.4 trillion portfolio of student debt as they adopted ever-more-pessimistic views of how much borrowers will repay. In September, the analysts made their biggest adjustment yet, valuing loans at just 82 cents on every dollar owed, down from 104 cents in 2015, records show. The debt is now worth $258 billion less than the amount outstanding.
Had officials under Education Secretary Betsy DeVos decided to identify some of the borrowers least likely to repay, and then forgiven those debts, it wouldn’t have put a major dent in the remaining portfolio’s value. Such losses were, theoretically, already reflected anyway.
By Wall Street standards, the government’s loan writedowns are gigantic, amounting to $98 billion in September alone. While they have gone virtually unnoticed in the political realm so far, they are almost sure to attract attention now, as consumer advocates urge Biden’s new administration to ease the burden on young professionals and jump-start the pandemic-stricken economy.
Some are starting to ask: If the government doesn’t expect to collect hundreds of billions of dollars from borrowers, why not try to erase it now?
“Betsy DeVos has already decided that a bunch of this debt is not going to be paid back,” said Mike Pierce, director of policy at the nonprofit Student Borrower Protection Center and a former official at the federal Consumer Financial Protection Bureau. “That makes it much easier for the Biden administration to justify canceling.”
The Education Department didn’t respond to messages seeking comment both before and after the change in administration.
Loans or Rent
Shortly after his inauguration as U.S. president on Wednesday, Biden asked the department to extend his predecessor’s pandemic policy of waiving interest and to continue letting borrowers skip monthly payments on government-owned student loans until at least the end of September. About 24 million borrowers have stopped payments, department data show.
Biden has expressed sympathy for borrowers but suggested he’s reluctant to wipe away debt without an act of Congress. In November, he said student-loan burdens are “holding people up. They’re in real trouble. They’re having to make choices between paying their student loan and paying their rent.”
While Wall Street often values its debt holdings based on the prices they would fetch in the market, the government’s markdowns mainly reflect “amounts not expected to be recovered.” From a valuation perspective, that means there wouldn’t be much immediate difference between forgiving doomed loans and waiting for borrowers to turn out their empty pockets.
Still, there’s the issue of moral hazard: If authorities offer relief to struggling borrowers, it could create an incentive for others to stop repaying too, causing more of the portfolio to sour.
Rush For Relief
Much of the gap between what is owed and what the government reckons will be repaid stems from loan programs that cap monthly payments relative to borrowers’ incomes. Income-based repayment plans promise the possibility of loan forgiveness after two decades of steady payment, or one decade for public-service workers.
As annual borrower defaults climbed past 1 million, Barack Obama’s administration made the repayment plans increasingly generous. Enrollment has tripled since 2014.
The anticipated cost of income-based plans has risen, too. The Education Department recently realized borrowers in the plans were earning “substantially” less than it had forecast. So the government cut its projections of borrowers’ future income by 35%, boosting the estimated tab to be forgiven in later years.
“There already is significant loan forgiveness,” said Constantine Yannelis, who researches student debt and teaches finance at the University of Chicago’s Booth School of Business. “We’re just talking about moving it up or giving it to borrowers who wouldn’t qualify for it under current rules.”
Yannelis said he recently found that debt owed by lower-income borrowers had a lower present value to the federal government than debt owed by high-income borrowers.
Across-the-board loan cancellations make little sense, but the government has all the information it needs to target forgiveness, said Adam Looney, a finance professor at the University of Utah whose research on student loans dates to his time as a tax official at the U.S. Treasury Department. In fact, he said, the Education Department’s own valuation reflects a belief the government will eventually cancel large amounts owed by people earning little or at least too little relative to their debts.
Forgiving loans could encourage future students to over-borrow on the hope that their debts will be wiped away, advisers to the federal consumer bureau warned in a report this month. And that could, in turn, remove some of the pressure on colleges to lower their costs.
But there is a growing expectation in the public anyway that relief is coming. In a December survey by the Federal Reserve Bank of New York, respondents estimated there is a 39% chance — more than ever in five years of polling — that the federal government will cancel some amount of student loans over the next year.
Trump Leaves Town An Outcast, Trailed By Record Pandemic Deaths And Job Losses
Trump Turned Republicans Into Losers
Trump Ends Historically Unpopular Presidency With 34% Approval
After Capitols Become Fortresses, Far-Right Protesters Are Mostly A No-Show
Bank of America Sued Over EDD Unemployment Debit Card Fraud #GotBitcoin
Civil Rights Groups Warn Of A Grim Future For Black Voters Without Court Intervention
Internet Detectives Make Up To $1000 Identifying Pro-Trump Rioters. Some Have Already Been Fired
CEOs Consider Ways To Smooth Biden’s Presidential Transition, Including Holding Back Campaign Money
Cash-Strapped Americans Are Drawing Down Savings As Pandemic Divisions Widen
Democrats Take Senate Control With Georgia Wins
Financial Inequality Grouped By Race For Blacks, Whites And Hispanics
Google Staff Launch Union, Escalating Tension With Leaders
China Tells Inefficient Firms To Toughen Up Or Prepare To Fail
Nigerian Stocks Head For Best Annual Run Since 2013
The Goldman Sach’s Solution Could Work Out Fine For Alibaba’s Jack Ma
Investors Double Down On Stocks, Pushing Margin Debt To Record
Trump Signs Virus Relief Bill After Deriding $600 Checks
How The Central Bank Collapse Will Likely Play Out #GotBitcoin
Housing Boom Brings A Shortage Of Land To Build New Homes
Africa’s Richest Man Initiates Nigeria’s First Share Buyback
No Matter What Congress Does, 12 Million Jobless Americans Will Temporarily Lose Unemployment Benefits
Mar-a-Lago Neighbors Tell Trump That They Don’t Want Him To Live There
Trump Strutted Like A Player, Then He Got Played
Meet The Electoral College, America’s Most Important Voters
Supreme Court Rejects Texas Challenge To Biden’s Victory In Presidential Election
Unsold US Hotel Rooms Near 1 Billion As Lodging Crisis Deepens
Hunter Biden Says His Taxes Are Under Investigation
Lawyers Across The Country Urge Bar Associations To Investigate Trump’s Legal Team
Did Rudy Giuliani Fart Twice At A Michigan Election Fraud Hearing?
‘Jim Crow’ Land Ownership Spurs Black Farmers’ Appeals To Biden
Can President Trump Pardon Himself And His Family?
Historians Sue To Force Trump Administration To Preserve Records
Bribes For Presidential Pardons Scheme Investigated by DOJ
Why Withholding Evidence Until They (Giuliani/Trump) Gets To The Supreme Court Is A Stupid Idea
Pro-Trump Group Donor Sues Administration Over Failure To Expose Election Fraud
Giuliani Drops Sidney Powell As Trump ‘Strike Force’ Splits
Joe Biden The Oldest President Ever Will Help Young Americans Confront A Generational Wealth Gap
Biden Asks For Donations To Fund Transition
Governor Cuomo Gets Emmy For ‘Leadership’ During Pandemic. Trump Gets Nada, Zip, Bumpkis, Zelch!!
Fed To Return Lending-Backstop Funds To Treasury As Requested #GotBitcoin
Thriving New York Times, Fox News Ponder A Post-Trump Scenario
Trump Unveils ‘Platinum Plan’ For Black Americans (BS!!!) #GotBitcoin
The Record Economic Boom Is A Mirage! Just More Trump BS! Keep Moving #GotBitcoin
US States Face Biggest Cash Crisis Since The Great Depression (#GotBitcoin?)
Factory Jobs Still Head Offshore Despite Trump Promises Including Commerce Secretary’s Auto Parts Company
Trump Issues Executive Order Making Some Civil Servants Easier To Hire And Fire
Black Homeowners Pay $13,464 More On Their Mortgages, Study Says
Trump Weighs Prospect Of Defeat After Insulting Both Seniors AND Women
Wealthy Nations Defy Trump With Debt Lifeline To Ailing Cuba
Who Is Helmut Norpoth And Why Does He Say Trump Will Win Big?
Companies Raise Inability-To-Pay Claims Amid Pandemic, Justice Department Official Says
Homeland Security To Grant Millions To Groups To Combat White Supremacists And Other Extremists
Prediction (Betting) Market Doubts Trump Will Complete First Term After COVID-19 Diagnosis
Trump Used Facebook To Try And Convince 3.5 Million Black Americans Not To Vote In 2016
Trump’s Tax Revelation Destroys Successful Business Mogul Image
Cost Of Racism: U.S. Economy Lost $16 Trillion Because Of Discrimination, Bank Says
Bloomberg, Others Rack Up $20M To Register 32K Florida Felons Deeming Them “Time Served”
Some Wealthy Americans Are Already Prepping Their Finances For A Joe Biden Presidency — Here’s How
Kamala Harris Woos Black And Latino Voters As Joe Biden’s Running Mate
Biden Appeals To Florida Latinos As Polls Show Trump Gaining
Poll: Should Trump As A Civilian Face Class-Action Lawsuits For Minimizing Severity Of Covid19?
Trump As A Civilian To Face Avalanche Of Lawsuits!!!!
Trumponomics Forces Amazon Drivers To Hang Cellphones From Trees Desperate To Get Gigs
Trump Is Silent While Russian Navy Conducts Biggest Drills Near Alaska Since Soviet Era
Open Letter To Supporters of The Draft-Dodger-In-Chief!
Right-Wing Facebook MEGA-Troll Wall-Of-Shame
Donald Law And Order Trump Encourages People In North Carolina To Vote Twice, Which Is Illegal
Here’s Why No Bankers Go To Jail (#GotBitcoin?)
Cities With Republican Mayors Also Had Protests Which Resulted In Property Damage
Trumponomic’s Furloughs Turn Into Permanent Job Losses (#GotBitcoin?)
Trump White House Commits Multiple Hatch Act Violations In Re-Election Attempt
After Three Years of Attacking L.G.B.T.Q. Rights, Trump Suddenly Tries Outreach
Scrapping Payroll Tax Without Replacement Would Hit Social Security Benefits By 2021 (#GotBitcoin?)
Boomers And Millennials Facing The Effects Of Trumponomics While Still Recovering From Last Recession
Money Funds Waive Charges to Keep Yields From Falling Below Zero (#Bitcoin?)
Millions of US Jobs To Be Lost For Years, IRS Projections Show (#GotBitcoin?)
Kellyanne Conway To Leave White House As Trump Divisiveness Indeed Hits Close To Home
The US National Debt Has Exceeded The Total Value Of The GDP (#GotBitcoin?)
When The Stock Market And Economy Becomes Disconnected (#Bitcoin?)
Donald Trump, Peter Navarro (Trade Adviser) And A $765 Million Loan To Kodak That Deal Blew Up
Steve Bannon Joins Six Other Criminally Charged Ex-Trump Advisers
Trump Calls For Goodyear Boycott Amid Outrage Over ‘MAGA’ Ban
Trump’s Big Donors From 2016 Want Nothing To Do With Him This Year
State Budgets Hit Hard By Trumponomics Create A Drag On U.S. Recovery
Joe Biden-Kamala Harris Ticket Makes Debut After Historic VP Pick
Biden, Obama Release Campaign Video Applauding Their Achievements
Small Businesses Brace For Prolonged Crisis, Short On Cash And Customers (#GotBitcoin?)
Ultimate Resource For Violations of The U.S. Constitution Including “Money” And Coronavirus
Trump Campaign Forced To Use Tele-Rallies As Coronavirus Cases Surge
Roger Stone Uses Racial Slur In Live Radio Interview With Black Host
The Fed Is Setting The Stage For Hyper-Inflation Of The Dollar (#GotBitcoin?)
The Next Phase Of The Retail Apocalypse: Stores Reborn As E-Commerce Warehouses
Famous Economist Mohamed El-Erian Warns Investors To Stay Away From Zombie Companies And Zombie Markets
Republicans Alarmed By Democratic Senate Hopefuls’ Fundraising Haul
American Airlines Plans To Furlough Up To 25,000 Workers This Fall (#GotBitcoin?)
Consumer Appetite For Cars, Homes Bolsters U.S. Economy
Banks Get Ready For Wave of Recession-Led Loan Defaults (#GotBitcoin?)
32% of U.S. Households Missed Their July Housing Payments
What You Need To Know About The New Small-Business Bankruptcy Laws
Police Wrestle With Surge In Crime In U.S. Cities Amid Defunding Efforts
Here’s An Investment That Perfectly Tracks The Economy
Fed, Treasury Disagreements Slowed Start of Main Street Lending Program
When A Texas Oil Boom Goes Busts
Trump Takes Cognitive Test And Can Identify A Rhino vs A Camel
Don’t Know How Much Stimulus Is Needed? Put It On Autopilot, Some Say
Colorado Police Chief Fires Three Officers Over Reenacted Chokehold Placed On Elijah Mcclain
Republicans Give Trump Labor Day Deadline To Turn Things Around. After That, He’s On His Own
Chapter 11 Business Bankruptcies Rose 26% In First Half of 2020
Chaotic Trump Administration Plus Russian Bounty Intelligence Equals Loss Of American Lives
Supreme Court Orders Restructuring of Consumer-Finance Watchdog
Reddit, Acting Against Hate Speech, Bans ‘The_Donald’ Subreddit
Class Action Lawsuit Alleges Visa Subsidiary Violated Privacy And Data Protections Of Venmo, Stripe, Square’s Cash App, Robinhood & More
Private Equity’s Trillion-Dollar Piggy Bank Holds Little For Struggling Companies (#GotBitcoin?)
TikTok Teens Overload Trump’s Online Store With Orders Only To Abandon Shopping Cart
Bill Gates Says Trump’s Lack Of Leadership Is Making Pandemic Picture ‘More Bleak Than I Would Have Expected’
Fed Stress Test Finds U.S. Banks Not Healthy Enough To Withstand “Few Quarters” Economic Downturn
Elizabeth Warren Was Right About Whacky Stockmarket Fundamentals (#GotBitcoin?)
Two Of The Latest High-Profile Trump Resignations
US Banks Have Seen A Record $2 Trillion Surge Of Deposits Since The Coronavirus Crisis Began
Our Facebook Page
Your Questions And Comments Are Greatly Appreciated.
Monty H. & Carolyn A.