There’s been lots of talk within the Biden Administration about forgiving student loan debt. But with chaos widely reported at companies that service student loans, some debtors can’t even figure out how much they owe — much less actually pay down their balances.
Rampant billing errors are contributing to both over and underpayments, straining bank accounts and sometimes resulting in higher outstanding interest. Monthly billing statements are missing entirely for some debtors, leaving them unable to figure out what they’re supposed to be paying. And even though the issues are caused by loan servicers rather than debtors themselves, they’re resulting in dinged credit scores and increased borrowing costs for already cash-strapped students and alumni.
Meanwhile, there’s little guidance being provided to stranded borrowers as reports flow in of issues like exorbitant customer service wait times, with some being left on hold for hours. Debtors can file complaints with the Education Department, but this doesn’t help them get in touch with their servicer, get a corrected loan statement, or get refunded for an overpaid bill. Of course, it also doesn’t buy them back the hours of their life they spent on hold trying to get a basic question answered.
It’s a slow-motion scramble for clarity that prolongs the debt cycle while stoking further doubt (and instability) in the viability of the higher education funding system. As Ryan Cooper at the American Prospect points out, a higher degree of reliance on private servicers is a big part of the issue:
“The problem is the dependence on mostly private companies to actually service the loans correctly. These companies have a mile-long track record of errors—wrong names, wrong addresses, wrong payments, you name it.”
But other parties are predictably passing the blame, with servicers saying that Biden bungled the process of unpausing student loan repayment late last year. Others are pointing their fingers at the pandemic itself as the main driver of chaos.
Whoever’s “fault” it is, the Biden Administration and state attorney generals have begun issuing fines to some of the worst offenders, such as a $2 billion penalty to a company called Aidvantage. Unfortunately, these ceremonial measures don’t provide much solace to student borrowers who are deep in debt, unsure of what they owe, and can’t even get someone on the phone to figure it out.
Maybe the Biden administration will finally find a way to forgive student debt that actually passes legal muster. However, that will only create a potentially even bigger problem as the government will be forced to make up for all that “missing” student loan money by making it up with taxes or firing up the Fed’s printing presses.
Meanwhile, as once noted by Michael Maharrey here on SchiffGold, students will find no relief from their skyrocketing tuition costs as schools are forced to scramble for new sources of funding after an act of debt forgiveness wizardry.
“Student loan forgiveness does nothing to address the underlying problem – the high cost of tuition. In fact, forgiveness will likely make the problem worse.”
As higher education costs go up, the value of a college degree mostly just seems to go sideways. Schools tasked with staying financially afloat as they take on more and rising costs, such as the trend of hiring bloated DEI bureaucracies, have seemingly become more concerned with outdoing competitors with on-campus amenities than improving the quality of education.
How much worse can it get before we see a collapse in the institution of higher education itself? The average college tuition went up almost 70% between 2000 and 2020. All signs seem to be pointing to higher inflation in 2024, with the “blessing” of student loan forgiveness only adding more fuel to the fire. And while chaos at student loan servicers may prove to be a mere sprinkle of tinder atop the ticking bomb of debt, it’s yet another destabilizing ingredient for an economy on the brink of combustion.
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