Today I heard the Secretary of Education give aa teaser that more forgiveness of student loans was going to take place soon.
I was wondering if this pinged the securitized debt holders of the loan. I never found a reasonable answer to that (I expect it will be like a bond called early?)
Anyway, came across a couple of interesting spins:
The Department of Education said Tuesday that it will cancel $3.9 billion in student loan debt for 208,000 students who attended the now-defunct for-profit ITT Technical Institute – bringing the total amount of loan discharges approved under President Joe Biden to nearly $32 billion.
Some former ITT Tech students were already eligible for debt cancellation, but now the department will automatically cancel all remaining federal student loan debt that borrowers took on to attend the school from January 1, 2005, through its closure in September 2016.
ITT Tech shut down shortly after the government pulled the plug on its federal funding because it had failed to show it was in compliance with certain accreditation standards. At the time, the school was the subject of several state and federal probes over its recruitment tactics, lending practices and job placement figures.
The Department of Education also announced Tuesday that it has formally notified DeVry University (coincidently associated with the Secretary of Education of the previous administration) that it is required to pay millions of dollars for previously approved student debt cancellations for about 1,800 of its students. DeVry University is still operating and the government wants to recoup the cost of the student loan discharges from the institution. It is difficult for the government to get money back from colleges like ITT Tech that have already shut their doors, Cordray said.
The following one waxed more towards the macroeconomic effect of the actions:
Canceling federal student loans will cost the federal government hundreds of billions of dollars— and it’s the general public that will eventually end up footing the bill.
Canceling up to $10,000 in federal student loans per borrower would cost the government roughly $245 billion, according to the Committee for a Responsible Federal Budget (CRFB). If income caps were implemented to limit forgiveness to folks with lower incomes, that would only drop the CRFB’s estimate to about $230 billion.
But what exactly does “cost the government” mean? Canceled federal student loans would be immediately added to the federal deficit, which measures how the country owes more money than it takes in during a year.
Analysts agree that canceling federal student loans would increase the deficit. But what they’re split on is how significant that addition would be, and how the government could eventually recoup the costs. (READ ON
Got an answer to my original question here:
No matter what amount of student debt is canceled, the government stands to sustain a loss as federal student loans would cost not only the remaining principal balance but the interest that was expected on all future payments.
There are also various loan types to consider. While the federal government issues about 92 percent of all student loans, 8 percent are owned by private banks and only managed by the government. Another 8 million borrowers collectively owe $175 billion in commercially owned student loans, data shows.
A 2019 Moody’s analysis estimated loan cancellation could result in $86 billion in lost revenue from student loan principle, interest, and fees.
A report from the Urban Institute also notes canceling student loan debt would gradually increase the national debt as the money has already been disbursed through the Treasury Department and eventually will not be paid back at the expected due date.
“Forgiveness means that money that the government thought was going to come in a year from now, five years from now, 10 years from now, 20 years from now, isn’t coming in,” Donald Marron, director of economic policy initiatives at the Urban Institute and coauthor of the report, told Changing America.