Help From Congress for Distressed Student Loan Borrowers

Before the pause on federal student loan payments expires at the end of this month, President Biden is expected to announce that he will use his executive authority to unilaterally cancel some amount of existing student loan debt, per borrower. 

Proponents of student debt cancellation have urged the President to cancel all federal student loan debt, something he has signaled he would not do. Even so, there’s a case to be made for a broad-based approach to student debt cancellation as a way of providing economic relief to Americans who are financially burdened by crushing student loan debt at a time of growing inflation fears and tight household budgets. 

We will soon find out if the political will exists to act on student debt cancellation. 

In the meantime, the growing student loan debt crisis imperils the financial security of millions of households, not only in New York but across the nation. Every 28 seconds a student loan debt borrower goes into default. Studies show that student loan debt has a disparate impact on low-income borrowers of color, particularly Black and Latina/x women. Findings from a new Community Service Society (CSS) report, “Mitigating the Growing Impact of Student Loan Debt,” bear this out. 

The report, based on our annual Unheard Third survey, found that 43 percent of Black women and 38 percent of Latina/x women have outstanding student loan debt compared to just 27 percent of White women. Overall, women owe two-thirds of all student loan debt. However, Black women repay their student loans at a slower rate compared to their peers and are more likely to struggle with meeting essential expenses because of this debt. Default rates are also higher among Black and brown borrowers 

Of course, student debt cancellation in any form would not help the next cohort of student loan borrowers. Absent massive reforms to our higher education financing system and the reining in of skyrocketing costs associated with obtaining a post-secondary education, each new year will bring another cohort of borrowers. And each successive cohort will have to cope with the same predatory practices inherent in our loan servicer sector and highly complex student loan repayment system that has contributed to today’s $1.7 trillion student debt crisis.

But help for borrowers struggling with student loans may be on the way. 

Legislation introduced this month by Representative Hakeem Jeffries (D-NY-08) and Representative Jahana Hayes (D-CT-05) would establish federal funding for nonprofit consumer assistance programs to assist borrowers in effectively managing their student debt and navigating an extraordinarily complex system to make sure they’re in the right repayment plans and are taking advantage of all options available to them, including loan forgiveness and discharge. 

H.R.8643 The Student Loan Literacy Act of 2022, is modeled after a program funded by New York State Lawmakers – the Education Debt Consumer Assistance Program (EDCAP). Since its launch in 2019, EDCAP has saved consumers in New York millions by helping borrowers apply for Public Service Loan Forgiveness (PSLF), get out of default, avoid wage garnishments and social security offsets, resolve disputes with loan servicers, access cancellation and relief programs, and much more. [Full disclosure: EDCAP is administered by CSS]. This year, EDCAP received $3 million in funding from Governor Hochul to expand services statewide. Having robust consumer assistance programs like EDCAP is and will continue to be vital. 

Whether President Biden decides to cancel $10,000 or $50,000 in student loan debt, there will be an increased need for consumer assistance programs to help borrowers navigate the complex student loan system and make informed decisions about the best way to address their debt. To illustrate this, consider the borrower with multiple loans and different interest rates and who may be close to qualifying for other forgiveness or discharge benefits. If she owes more than $50,000, she will need help to ensure that the $50,000 is applied in the most beneficial way, and advice on developing a plan to tackle her remaining debt. 

Just ask Lisa Cepeda, 59, of Brooklyn who first met with an EDCAP counselor in January 2020. At the time, the Brooklyn Bridge Park Corporation employee was financially burdened by an old, defaulted Perkins loan that eventually led to the seizure of her tax refunds for many years. EDCAP tracked down the defaulted loan and negotiated a resolution that ended Ms. Cepeda’s tax refund intercepts. EDCAP’s assistance in this case was critical because of the complexities of the outstanding judgement and the number of parties involved in figuring out a solution. EDCAP is currently helping Ms. Cepeda get on track for PSLF.

H.R.8643 would allocate $80 million in grant funding to states to pass down to community-based organizations and other direct service providers who engage with borrowers directly. With more than 45 million Americans owing $1.7 trillion in student debt, it makes economic sense to fund programs that can help borrowers reduce or eliminate their debt, and put themselves on a path to financial health. 

Even our bitterly divided Congress should be able to agree on that. 

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