CHECK OUT: Who benefits from canceling $ 1 billion in student debt?

Borrowers defrauded by their schools could have all of their direct federal student loans canceled.

Last week, the Department of Education announced a change that broadly summarized like the cancellation of $ 1 billion in student loans. The announcement has gained attention because of the Biden administration’s past discussions on student debt cancellation.

But some underlined that the Education Department’s decision would affect only a small number of student borrowers and barely reduce a nationwide student debt of more than $ 1.69 trillion.

THE QUESTION

Is the Biden administration canceling $ 1 billion in student loans and who would see that debt forgiveness?

WHY WE CHECK

A viral tweet posted a pie chart to show that the total amount of canceled debt was small compared to the total amount. Meanwhile, many social media users have debated the program‘s merits based on headlines that don’t quite reflect the full picture.

THE ANSWER

The Education Department is changing a formula used to calculate partial debt relief for borrowers already approved and defrauded by schools. The DoE estimates that this will help about 72,000 borrowers receive $ 1 billion in relief.

Total student loan debt in the United States is approximately $ 1.71 trillion, including $ 1.56 trillion in federal student loans. There are approximately 43.2 million people in the United States with student loans.

WHAT WE FOUND

To understand who is affected by DoE changes, we must first understand what is changed.

In December 2019, the Ministry of Education under Betsy DeVos announced a new methodology in calculating debt relief for graduates defrauded by their schools. The methodology compared graduates’ earnings to median earnings in their field to calculate whether they would receive full debt relief, 75%, 50%, or 25%. While some applicants could be rejected entirely, the DoE at the time placed special emphasis on graduates of Corinthian Colleges, Inc. institutions and guaranteed such graduates at least 10% relief regardless of income.

the new DoE decision announced last week removes this old formula and instead grants full student debt relief to anyone already approved for relief under the old methodology. Essentially, if a student were supposed to get any relief – even if they were in the group receiving 10% of the relief – they will see all federal student loans used to pay the colleges that defrauded them erased.

This change applies to students and graduates applying for Defense of the borrower, a program for borrowers who have participated in a program they believe has misled them or engaged in other misconduct. The program only cancels federal direct loans, which means that a borrower will retain debt on private student loans, federal family education loans program loans, or federal Perkins loan program loans.

In all, the Department of Education estimates that this will write off about $ 1 billion in student loans held by about 72,000 borrowers.

EducationData.org, which compiles a number of statistics on higher education, estimates the current total student debt nationwide to be $ 1.71 trillion based on statistics from the DoE. They estimate that $ 1.56 trillion is in federal student loans, which are the easiest loans for the government to take direct action. EducationData estimates that there are a total of 43.2 million Americans with student loan debt and 42.9 million with federal student loan debt.

To put all of these numbers into perspective, the DoE change will write off about 0.05% of total student loan debt nationwide for about 0.16% of total borrowers. So the pie chart in the viral tweet pretty much represents the total drop this will cause in student loan debt nationwide.

Unsurprisingly, given the priority the Biden administration and Congressional Democrats have placed on student debt relief, the Education Department has said they will do more in the future. “This is the Department’s first step in dealing with borrower defense claims as well as the underlying settlements. The Department will pursue additional actions, including re-regulation, in the future, ”the DoE said.

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