Their student loans should have been canceled already. Now they fear it won’t happen under Trump. | MarketWatch
Published by MarketWatch on November 18, 2024
Stephen Richards received a letter in May from the Biden administration promising to cancel his $79,000 in student debt. Months later, he’s still waiting for the loans to disappear — and Donald Trump’s election win has made the situation feel more urgent.
“It is kind of a tumultuous time,” said Richards, 36, adding that he is “having anxiety about it for sure.”
Richards took on his debt to attend a campus of the Art Institutes in Philadelphia. The for-profit college shuttered the last of its schools in 2023, after being dogged by allegations for years that it used misleading job-placement figures and other statistics to lure students into taking on debt to enroll. In May, the Biden administration announced it would cancel $6.1 billion in loans for students like Richards who went to Art Institutes schools, saying the company had defrauded students in the process of enrolling them.
For Richards, coping with the loans since he graduated in 2011 has been a struggle. Though he works in graphic design, the field that he studied while at Art Institutes, he’s found that having the school on his resume has become “a scarlet letter.” He’s currently unemployed for the second time in two years.
When Richards learned the government planned to cancel his loans, he called his servicer, which told him the process could take up to seven months, or until Dec. 1. Once that date passes, “I’m really going to start pressing them,” Richards said.
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“It will essentially reset my entire life,” he said of the relief, adding that the debt has impacted his credit and that the balance has ballooned far beyond the initial amount he borrowed. “That relief, you really can’t even put a price on that.”
During President Joe Biden’s time in office, his administration has worked to reform the student-loan system, most notably — and, so far, unsuccessfully — by trying to extend student-loan forgiveness to groups of borrowers who previously weren’t eligible for relief. But the Biden-era Education Department has also made it easier for borrowers who have been entitled to debt cancellation under the law for years to actually have their loans wiped out. As part of those efforts, the Biden administration has said it is canceling $175 billion in student debt for nearly 5 million borrowers.
But there are still tens of thousands of borrowers, like Richards, who are in the process of receiving that relief and are waiting anxiously for their cancellation to go through in the waning days of Biden’s time in office. Trump hasn’t said much about his plans for student debt, but if his first term is any indication, borrowers will likely be battling his administration’s officials for debt cancellation. In addition, if Trump goes through with promises to dismantle the U.S. Education Department, it would certainly complicate the administration of student loans, including any cancellation.
“One of the biggest things that this administration needs to wrap up is executing all the student-loan discharges they have already approved and making sure that borrowers actually see their loans cleared out as a result,” said Clare McCann, the managing director of policy and operations at the Postsecondary Equity & Economics Research Center.
McCann, who worked at the Education Department during both the Obama and Biden administrations, noted that actually getting borrowers’ debt wiped out after they’ve been deemed eligible for cancellation is a complex, manual process.
It also requires the cooperation of servicers, which advocates and the Consumer Financial Protection Bureau have accused of throwing up obstacles to promised relief. A recent CFPB report found that some borrowers waited months or even years after receiving notices of cancellation for their debt to actually be wiped out.
“It can take a very long time. It’s complicated to execute, but that’s going to be the important piece of making meaningful relief for borrowers,” McCann said.
The Education Department didn’t provide comment for this story by press time.
Debt cancellation falls into a few categories
Those still waiting on debt cancellation fall into a few categories. Some are borrowers who are nearing or at the end of the process to receive Public Service Loan Forgiveness — a program that allows borrowers working for the government and some nonprofits to have their debt canceled after at least 10 years of payments — but are still in limbo due to litigation or logistical challenges. There are other borrowers who are waiting on a promise from the Biden administration to review their payment history and see if certain months should qualify toward relief under PSLF and other debt-relief plans.
Then there are borrowers who were scammed by their schools, like Richards. These borrowers have the right to have their debt canceled through a provision known as borrower defense to repayment. The Biden-era Education Department has said borrowers who attended certain schools automatically qualify for this relief, but at least 156,000 borrowers who went to these colleges are still waiting for their debt to be wiped out, according to an analysis of Education Department data by the Project on Predatory Student Lending.
In addition, more than 400 people are still waiting on debt relief that they should have received as part of a 2022 settlement with the Education Department. Another nearly 350 borrowers are supposed to have their debt canceled by Dec. 20 as part of the deal. The lawsuit at issue, which dates back to the Trump administration, accused then-Education Secretary Betsy DeVos of stalling on decisions surrounding debt cancellation for borrowers who were scammed by their schools.
Many of these borrowers who attended for-profit colleges, which in some cases have been defunct for years, have been waiting to have their debt wiped out since former President Barack Obama’s administration. When Trump won the 2016 election, student-loan-borrower advocates accused the Obama administration of moving too slowly on debt relief, leaving borrowers vulnerable to a change in policy under the incoming Trump administration. That concern ultimately came to fruition, with scammed students facing roadblocks to accessing relief — a scenario advocates worry might repeat itself.
“It shouldn’t be part of the legacy of [the Biden] administration that people continue to pay these debts when it’s acknowledged that they’re the product of this consumer fraud,” said Eileen Connor, the director of the Project on Predatory Student Lending, which represents former students of for-profit colleges in court. “I don’t think that borrowers can stand that second letdown,” she added.
Heald College was part of the Corinthian Colleges chain, which collapsed in 2015 during the Obama administration amid a hail of scrutiny, including from the federal government. Still, Jaime Maldonado, 47, lived for years with the $30,000 in federal student loans she took on to attend the school, paying what she could and assuming she’d die with it.
When the Biden administration announced in 2022 that everyone who had attended Corinthian would have their debt wiped out, Maldonado was relieved. But it took two years and being the named plaintiff in a lawsuit accusing her servicer of stalling on the debt cancellation for the loans to finally go away.
Maldonado is still waiting on roughly $8,800 she’s owed as a refund for having paid the debt for years when it should have been canceled. She’ll settle with letting that money go as long as her loans remain zeroed out, she said. Her experience of being told she had received debt relief, but waiting years for it to process — including a period when her balance went to $0 and then reappeared — makes Maldonado hesitant to celebrate. The debt still appears on her credit report, and she’s anxious about what a Trump presidency will mean for the future of her loans.
“Even though I’ve found that debt relief, at this point there are still hundreds of thousands of borrowers that don’t have it, that are still waiting,” she said. “My hope is that in the next three months, the Department of Education just fast-tracks everything for the people that are owed it, so that nobody has to worry.”
Maldonado finds her own situation “a little bit terrifying,” she said. “Right now, I feel like it’s great that [my debt is] not there, but is it going to come back? I’m not totally at ease about it.”
The Trump transition team didn’t immediately respond to a request for comment. Trump and other Republican critics of debt relief haven’t indicated they would take steps to reverse discharges that borrowers have already received — and it would probably be logistically challenging for them to do. But those still waiting on cancellation could be at risk: In Trump’s first term, the Education Department stalled on decisions related to borrower defense and in some cases approved discharges, but provided only minimal relief instead of wiping out borrowers’ balances in full.
That’s why advocates are pushing the current administration to move quickly. Connor noted that cancellation under borrower defense is distinct from the Biden administration’s ultimately unsuccessful efforts to expand debt relief to groups that hadn’t previously been eligible.
“We’re not asking for something that people aren’t legally entitled to,” she said. “We’re not trying to do any kind of midnight regulation or unwarranted windfall. We’re asking for a commitment and follow-through on the commitments that have been made, because that’s what people are entitled to.”
‘My worst nightmare’
Laura Eraso is in a different category of borrowers whose debt should already be wiped out. She has made 121 payments on her loans, one more than the 120 required to be eligible for relief under PSLF. Shortly after she hit the 121 mark, Eraso’s loans were put into forbearance, meaning they were paused. Each time she’s tried to fill out the application online to have her discharge processed, she’s received an error message saying she can’t apply because her loans are paused. Ultimately, she submitted a paper application, which her servicer confirmed it received.
She sought advice from experts, who told her to be patient and that what she’s experiencing is a clerical error that will sort itself out. But it’s been months, and after Trump was elected president again, Eraso, a public defender, has become even more concerned that her discharge could be further delayed or won’t go through.
“My worst nightmare is that myself, and colleagues that I work with, and people that have dedicated their life to public-service work, are not going to get the forgiveness that they thought that they were going to get entering into these loan programs,” she said. Eraso, 38, is still paying back private loans from her schooling and is staring down the prospect of sending a child to college in four years without enough savings to pay for it, due in part to her own student-loan payments.
“I’m very afraid that my loans will just be in limbo and then eventually I will be prompted to make some payment that will be exorbitant,” she said. “It’s definitely in the back of my mind that’s something that could happen.”
Conservative thinkers and congressional Republicans have expressed skepticism toward PSLF and an interest in getting rid of it. Actually doing away with the program would require Congress to agree — a potentially difficult task, even with both chambers in Republican hands. In addition, any changes to PSLF would likely apply only to new student-loan borrowers, not those already in the program like Eraso.
But even if the Trump administration doesn’t get rid of PSLF outright, borrowers could still face hiccups in their progress toward relief. Before Biden took office, borrowers struggled for years to access PSLF. In 2021, the Education Department fixed logistical and paperwork challenges that previously made it difficult for eligible borrowers to have their debt wiped out under PSLF.
It’s unlikely the Trump administration would continue to prioritize these efforts, which means borrowers like Eraso could once again face hurdles in having their debt wiped out. In addition, during Trump’s first term, the Education Department tended to back servicers in tussles with advocacy groups and attorneys general when they accused those firms of throwing up obstacles to eligible borrowers receiving relief under PSLF.
Persis Yu, the deputy director of the Student Borrower Protection Center, an advocacy group, said her organization as well as other advocates will be pressing for borrowers to receive the cancellation they’re entitled to, regardless of the party in power. She’s also watching to see whether the Biden administration will complete a promised review of borrowers’ payment history, she said, and adjust their accounts in cases where they weren’t receiving credit toward forgiveness under PSLF and other programs.
For some borrowers, this adjustment could suddenly make them eligible to have their debt discharged. But the adjustment is also useful for borrowers who don’t receive immediate relief from it, Yu said, because it gives them an accurate understanding of how far they are from debt relief. That’s important information for borrowers to have in a situation where they might have to push harder for the benefits they’re eligible for under the law.
“Borrowers will continue to have legal entitlements to things like Public Service Loan Forgiveness under the next administration,” Yu said. “Many folks are rightfully concerned that the next administration won’t prioritize that relief,” she said, but “borrowers still have rights even if the Department of Education is not taking proactive steps to give them those rights.”
She pointed to attorneys general as officials who are uniquely positioned to protect those rights. Indeed, during the first Trump administration, attorneys general battled with the Education Department and student-loan servicers, accusing them of impeding borrowers’ pathway to relief.
Jeremy Tinsley was expecting his student debt to be wiped out this year, but it’s now looking like that won’t be the case. He has worked as a public defender and paid his loans for 10 years. At the start of 2024, it appeared he’d have the 120 payments needed to qualify for PSLF by the end of the year.
But in November, he was still four payments short. That’s because litigation surrounding Biden-era student-loan reforms stymied his progress. He applied in August 2023 for SAVE, the Biden administration’s repayment program, but by July of this year, it had been blocked by a federal court after Republican-led states sued.
The Education Department paused SAVE as the litigation worked its way through the court system. That means that borrowers enrolled in the plan don’t have to make payments, but the months they spend in the payment pause don’t count toward the 120 payments needed for PSLF.
Now Tinsley, 35, feels stuck. He’s read some advice online suggesting he switch to another repayment plan, but that would mean an untenable monthly bill. It could also take a couple of months for the switch to process.
“I’m not sure exactly what’s going to happen,” Tinsley said. “Whenever Trump gets in office and into power, he will definitely not try to have people’s loans canceled the same way that Biden was trying to do it.”
Having the roughly $200,000 in student debt he still owes wiped out would help Tinsley move forward with his life and help him in his goal of starting a family, he said. But now, that plan is in limbo.
“I thought that everything was going to be fine and work out and that it would all be canceled at some point this year,” he said. “I’m hopeful that I can still, at some point, pay these last four payments and eventually get my loans canceled and have that done with. But who really knows?”
