Federal Student Loan Research Articles

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

A Review of the Federal Student Loan Debt Relief Plan

The Biden-Harris Administration's federal student loan debt relief plan aims to relieve student loan debt burdens from the United States. Their relief plan impacts the overarching national economy with multifaceted effects on the economy and attainment of vital life milestones. This paper explores the multifaceted effects and their impacts. It utilizes a Cost-Benefit Analysis to assess the potential limitations and transformative impact the plan could have on America’s socio-economic landscape. The contents of this paper highlight the complex interplay between the economy and societal well-being and the many factors that affect policymaking.

Is the GI Bill Enough? An Exploratory Analysis of Student Veteran Borrowing in College

In the United States, many student veterans use their GI Bill benefits to help fund their postsecondary education; however, when the GI Bill is not enough, student veterans may turn to grants and loans to subsidize their financial needs. This study examines the degree and extent to which Pell Grants and student loans are being used by student veterans using data pulled from the National Center for Education Statistics’ Baccalaureate and Beyond dataset. We found that Pell Grant awards were higher for student veterans with disabilities as well as Blacks and that a student’s age contributed to the overall amount of federal student loans borrowed. Implications, future directions, and a discussion of the results are provided.

Assessing the Relative Progressivity of the Biden Administration's Federal Student Loan Forgiveness Proposal

Abstract We quantify the total stock of balances eligible for the Biden Administration's 2022 student loan forgiveness proposal and examine which groups would have benefited most. Up to $442 billion in loans were eligible. Those who would have benefited most were younger, had lower credit scores, and lived in lower- and middle-income neighborhoods. We also find that Black and Hispanic borrowers would have disproportionately benefited from the proposal. We then compare the distribution of beneficiaries for the proposed policy to several alternative hypothetical forgiveness proposals and three existing tax credits. The additional forgiveness for Pell Grant recipients increased the progressivity of the policy at a cost of $129 billion. Reducing the income eligibility criterion in half from the proposal would have reduced the cost by nearly $100 billion and made the policy more progressive. Compared with existing tax credits, the announced forgiveness policy is less progressive than the Earned Income Tax Credit but more progressive than the 2019 Child Tax Credit and higher education tax credits. We conclude with a discussion of how each policy lever affects the progressivity of loan cancellation to help inform future policy.

Student Debt Relief and Racial Wealth Gaps

The Biden-Harris Administration released a plan to cancel federal student loans for 43 million borrowers on August 24, 2022. While the Supreme Court struck down the Biden-Harris student debt relief plan on June 30, 2023, the White House is now planning to use the Higher Education Act of 1965, a federal law that governs the student loan program, to bring about relief for student borrowers. This article estimates the potential impact of broad-based student debt relief on racial and ethnic wealth gaps. On average, federal student debt potentially eligible for relief explains 3 percent of the White-Black wealth gaps, suggesting that broad-based student debt relief could significantly mitigate racial wealth inequities.

“They Can Never Take it Away from You”

Abstract This article uses the contradictions and complicity of conclusions to think through the United States’ collective student loan burden while grounding this burden at its historical roots in the mid-twentieth century. In particular, it is concerned with the impasse surrounding the Biden administration's conclusion of the federal student loan payment pause and demands for full student loan debt cancellation. Reading with Lauren Berlant's Cruel Optimism, it suggests that this impasse entails a relation of optimistic cruelty: the active infliction of the affective and material conditions of capital as a means of leverage over oneself and others to maintain a status quo. Attendantly, this article draws attention to the centrality of liquidity/discipline to the conditions of indebtedness within financial capital, highlighting three foundational developments in the emergence of student loan debt: the creation of the Guaranteed Student Loan Program as the country's first universal program of student loans in 1965; the establishment of the Student Loan Marketing Association as a government-sponsored enterprise to provide private liquidity for the federal program in 1972; and the successful push to enact bankruptcy reforms to protect the viability of Sallie Mae from the early 1970s on. The establishment of liquidity/discipline at the industry's inception has allowed student loan indebtedness to flourish into the present and highlights the optimistic cruelty of concluding the federal payment pause to enforce a wholly insufficient status quo.

Federal Student Loan Debt in Public Health and the Opportunities for Loan Repayment Programs.

A need persists for graduates with public health training in government public health roles; however, earnings for these positions tend to be lower when compared with earnings for people with undergraduate or graduate training who are working in other sectors, such as private health care or pharmaceuticals. This study assessed federal student loan debt associated with education for public health, with an aim to quantify the need that may be met through the federal Public Health Workforce Loan Repayment Program (PHWLRP), which is one tool that policy makers have proposed to incentivize people with public health training to pursue employment in government public health. We analyzed federal student loan data provided by the National Center for Education Statistics College Scorecard for the 2018-2019 academic year. We merged these data with the Integrated Postsecondary Education Data System to estimate the number of degrees awarded. We used Spearman rank correlation to compare associations between debt and annual earnings by award level (bachelor's, master's, and doctoral degrees). Across all award levels, the median level of federal student loan debt associated with education for public health was $33 366. The median annual earnings 1 year after graduation were $80 687 for graduates with doctoral degrees and $33 279 for graduates with bachelor's degrees. As policy makers attempt to strengthen the public health workforce with a focus on funding and implementing the PHWLRP, the existing levels of student debt should be considered to ensure that programs such as the PHWLRP are funded and reflect the needs of graduates and government public health employers.

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

What Went Wrong with Federal Student Loans?

고등교육 보편화에 따른 중국 학자금 대출 제도와 미국 연방 학자금 대출 제도 비교분석

[Purpose] This study aimed to comprehensively examine the current situation of Chinese student loan system in the context of the universalisation of higher education in China, and to make feasible recommendations for improvement based on a comparative analysis with the United States federal student loan system.
 [Methods] Using a comparative research method, this study provided a detailed analysis that outlines the critical differences between the student loan systems in China and the U.S. Pivotal points include access to information channels, required documentation, loan types, support scope, and repayment strategies. Data were collected from official national websites, policies, and a range of secondary data sources.
 [Results] The study showed that central governments in both China and the U.S. have played an important role in guiding the student loan system to promote educational equity. However, significant gaps and limitations have been identified in Chinese student loans. These include the fragmentation of information channels and the complexity of the application process; the uniformity of loan types; the narrow scope of support; and the unity of repayment options. In contrast, the U.S. has a more mature and detailed system with features such as specialised student loan administration and servicing agencies, the convenience of online services, the diversity of loan types, the breadth of support and the flexibility of repayment plans.
 [Conclusion] This study suggested that China should improve the efficiency of its student loan system by borrowing from the U.S. federal student loan system. Specific strategies include building an efficient student loan platform that integrates online and offline services; expanding the types and amounts of loans and implementing a total loan limit model; and promoting the implementation of Income-Driven Repayment Plans to meet the needs of more students.

THE LONG PATH FORWARD FOR STUDENT LOAN FORGIVENESS

Less than a year after the Biden administration proposed forgiving up to $10,000 in federal student loan debt for most borrowers, the Supreme Court ruled the policy unconstitutional. At the core of the case was whether the HEROES Act of 2003 granted the Secretary of Education the authority to “waive or modify” federal student loan terms, up to and including forgiving those loans. The Court ruled in a 6-3 decision that broad forgiveness was beyond the scope of what Congress intended when passing the HEROES Act, further arguing in the majority decision that policies with such a large economic and political impact should be decided through Congress, and not executive action. In the wake of that decision, the Biden administration has shifted policy toward improving the borrowing process as well as the repayment process. Political attention has focused on repayment (from the Biden administration’s attempts at loan forgiveness to Republican-sponsored legislation proposing new repayment structures) but must also turn to reforming how students decide whether and how much to borrow to ensure future students do not face unmanageable student loan debt.

Administrative Burden in Federal Student Loan Repayment, and Socially Stratified Access to Income-Driven Repayment Plans

Administrative Burden in Federal Student Loan Repayment, and Socially Stratified Access to Income-Driven Repayment Plans

Deservingness and the Politics of Student Debt Relief

As the pandemic accelerated calls to provide relief to millions of student borrowers, President Biden announced executive action to cancel $10,000 of student debt for most federal student loan holders. Both prior to and following his announcement, policymakers have debated the merits and details of student debt relief, focusing particular attention on the perceived deservingness of student loan borrowers. But we have little systematic evidence about how the public evaluates borrower deservingness, or whether elite arguments framing support or opposition to debt relief in terms of deservingness influence public preferences for student debt cancellation. We employ original conjoint and framing experiments conducted just prior to Biden’s announcement to explore each query. We find that, while certain borrower characteristics indicating need (e.g., amount of debt), responsibility for debt (e.g., type of institution attended), and reciprocity (e.g., time in repayment) can influence people’s evaluations of whether borrowers deserve debt relief, those results may not translate to broader deservingness arguments for or against student debt cancellation in a clear manner. Ultimately, our results shed light on a timely policy issue, while extending scholarly understandings of deservingness for a critical and understudied aspect of the American welfare state.

The Ugliness of the Federal Student Loan System

Neetu Arnold reviews Josh Mitchell’s The Debt Trap: How Student Loans Became a National Catastrophe

Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal

Assessing the Relative Progressivity of the Biden Administration’s Federal Student Loan Forgiveness Proposal

The Influence of Financial Literacy on Financial Behaviors: Evidence From Mandatory Federal Student Loan Entrance Counseling

This study examines the relationship between mandatory federal student loan entrance counseling, financial literacy, and financial behaviors using evidence collected from federal student loan borrowers as part of the National Student Financial Wellness Study conducted by The Ohio State University. Results from a structural equation model indicate that effective federal student loan entrance counseling is positively related to financial literacy, which is associated with more positive financial behaviors. Additionally, the results show that positive financial behaviors are associated with lower expected student loan debt burdens. Although the results indicate that mandatory federal student loan entrance counseling may contribute to increased financial literacy, positive financial behaviors, and reduced debt burdens of many students, the information delivered in entrance counseling seems to be "lost" on about one-third of the students in the sample. The result that financial literacy is associated with positive financial behaviors is promising for family and consumer sciences professionals as they seek to educate students and communities about personal finance topics. Results also highlight the need to supplement or enhance mandatory student loan entrance counseling with other resources and forms of financial education.

Minimizing the Repayment Cost of Federal Student Loans

Federal student loans are fixed-rate debt contracts with three main special features: (i) borrowers can use income-driven schemes to make payments proportional to their income above subsistence; (ii) after several years of being in good standing, the remaining balance is forgiven but taxed as ordinary income; and (iii) accrued interest is simple, i.e., not capitalized. For a very small loan, the cost-minimizing repayment strategy dictates maximum payments until full repayment, forgoing both income-driven schemes and forgiveness. For a very large loan, the minimal payments allowed by income-driven schemes are optimal. For intermediate balances, the optimal repayment strategy may entail an initial period of minimum payments to exploit the noncapitalization of accrued interest, but when the principal is being reimbursed maximal payments always precede minimum payments. Income-driven schemes and simple accrued interest mostly benefit borrowers with very large balances.

SIGEST

In this section we present “Minimizing the Repayment Cost of Federal Student Loans,” by Paolo Guasoni and Yu-Jui Huang. This is the highlighted SIGEST version of an article that first appeared in the SIAM Journal on Financial Mathematics (SIFIN) in 2021. The article studies optimal strategies for repayment of federal student loans in the USA. These loans, which can be used to cover tuition and living expenses, have specific features that make them tricky to evaluate. Sections 2 and 4, as in the original SIFIN article, take account of two key student loan features: capping repayment levels at a proportion of current income, and forgiving the debt after a sufficiently long period of good standing. Sections 3 and 5, which are new to the revised SIGEST version, give results that incorporate a third feature: the effect of simple interest. The modeling and analysis presented here shed light on an important, mathematically challenging financial product and give practical insights into a complicated and potentially daunting set of choices available to those who must negotiate their way through these contracts.

Personal finance education mandates and student loan repayment

This paper estimates the impact of requiring high school students to complete personal finance education on federal student loan repayment behavior after college. I merge student loan borrowing and repayment data from the College Scorecard with data from the Integrated Postsecondary Education Data System on counts of high school graduates enrolling in college from different states. I estimate the causal effect of personal finance education mandates by relating the change in the share of university students subject to a state mandate to changes in university cohort student loan outcomes. I find only students with higher-income parents respond by adjusting borrowing, reducing median balances by 7%. By contrast, first-generation and low-income borrowers bound by mandates did not significantly adjust borrowing, but were nonetheless more likely to pay down balances. Repayment improvements are in part due to better understanding of the terms governing federal student loans. State mandates that incorporate career research alongside personal finance education are associated with better student loan repayment than those focused only on personal finance education.