Limiting student debt relief based on income is a terrible idea and a technological disaster in the making.
By: Bryce McKibben (he/him); The Hope Center for College, Community, and Justice
In response to demands from voters, young people, and those struggling under the weight of student debt, President Biden has acknowledged that his Administration is seriously considering fulfilling a campaign promise to cancel student debt for millions of Americans through executive action. The Biden Administration is also looking at limiting this debt relief to those earning less than $125,000 per year.
In theory, this cut-off sounds like an attempt to target benefits for the middle-class and working families and exclude the wealthy. In practice, an income cap would require the federal government to set up a paperwork trap that could deny relief to the student loan borrowers who most urgently need the help. The negative impacts of this “means-testing” and other eligibility requirements in government programs create administrative burdens that end up significantly undermining well-intentioned policies. Rather than trying to design the perfect income limits, the Biden Administration should provide universal and automatic relief to all federal student loan borrowers, free of applications and hassle.
President Biden and his Administration are recognizing that canceling student debt is a matter of economic and racial justice and a way to provide direct relief while the U.S. Senate remains deadlocked on major economic reforms. We know that the average federal student loan borrower holds more than $37,000 in debt — an absurd amount that has skyrocketed for decades and is uniquely burdening Black borrowers. Broad student debt relief would be very popular, but trying to restrict these benefits by placing an income cap on student debt cancelation would be both extremely risky and not nearly as simple as it sounds. In search of keeping a small fraction of borrowers from enjoying what should otherwise be a political victory lap, the Administration appears to be considering inventing a paperwork headache for millions of people right before Congressional midterms and one that would exclude borrowers with the lowest incomes.
Most people assume the entire federal government has earnings information on each citizen, but this could not be further from the truth. Arcane technological barriers and restrictive privacy laws prohibit the federal government from having income information on file for most student loan borrowers. Even the Internal Revenue Service (IRS) may not have the information; millions of people don’t file taxes because they make too little income. “Means-testing” student debt relief would prevent the U.S. Department of Education from providing debt cancelation automatically and would require the federal government to rapidly develop, test, and implement an application process. The implications of this paperwork hassle are bound to be more of a roadblock than some of the President’s advisors may be willing to admit.
As a former United States Senate staffer who helped write the law governing data sharing between the IRS and the U.S. Department of Education, I know how difficult it is for federal agencies to determine how much everyone makes. Most federal agencies, including the one overseeing $1.6 trillion in outstanding federal student loans, have no idea how much each person earns each year and are prohibited from getting that information except in rare circumstances. Even when we passed a major bill to expand secure data sharing for federal financial aid programs a few years ago, we only made incremental progress. The privacy controls were so convoluted and hotly debated that the law had to be amended twice after that, and the law still hasn’t been implemented more than two years later (it isn’t scheduled to be until late 2023).
Only if people proactively consent to share their recent tax return information directly with the U.S. Department of Education can the federal government connect some of the dots between how much you make and your federal student loan or grant. And even if they had this data on everyone, it would be a mess to disentangle for debt relief. A married taxpayer filing jointly with multiple dependents earning $120,000 per year could easily have more than one student loan borrower in their household — but to which borrower is the family income attributed, and who gets the cancelation?
These data-sharing difficulties are not new. Nearly 13 years ago, the IRS and U.S. Department of Education agreed on a process to “simplify” the federal financial aid process when they invented an electronic tool that allows students and families to retrieve their tax returns and transfer the information over to financial aid forms. The tool is a widely-loathed example of good intentions gone awry. Data must match up perfectly; anyone who does not file taxes, has recently gotten married or divorced, or changed their address or name, cannot use the tool, and they must then enter all their tax return information manually. This tool once stopped functioning entirely during the height of the college application season and took months to repair. To this day, the process is a small administrative nightmare only available to roughly half of financial aid applicants.
If the Biden Administration insists on obtaining income information on each borrower to decide who gets student debt relief, they risk a major political trainwreck. Rapidly standing up a new government website for 43 million student loan borrowers has the potential to recreate yet another HealthCare.gov disaster, with angry borrowers giving up after frustrating experiences trying to obtain relief. And, a broken student loan repayment system that has been effectively dormant for more than two years is in no shape to help. Servicers are almost certainly incapable of handling the flood of calls they would receive, and the U.S. Department of Education is missing contact information for millions of borrowers.
With an income test, anyone that does not already file taxes would have to report their earnings to the U.S. Department of Education, subject to verification, which could yield even more forms. Borrowers who have previously been in default and had their paychecks garnished might not be eager to hand over new income information. And how would people who do not have access to the internet complete this new form? The borrowers most likely to be stymied by an application process would be those who are eligible but do not have the resources or time to navigate it.
Those advocating for means-testing often fail to consider the bureaucracy it creates and how the restrictions can significantly undermine any intended “benefits.” There are numerous examples of this collateral damage. After the federal government collects income information for would-be students seeking financial aid for college through the FAFSA, it then chooses to verify many of those same applicants to make sure what they report is true. The result is a maze of paperwork that disproportionately harms students of color and Pell Grant recipients, and leads some students to abandon their college dreams altogether. Additionally, data from The Hope Center for College, Community, and Justice at Temple University, show that — among the students already struggling to get enough to eat or a stable place to live — more than 4 in 5 have not been able to access any of the tax benefits that are available to them. And in another example, the documentation requirements for income-driven repayment have created significant hurdles and disparities for the borrowers most in need of relief from their debt. We should be moving away from using tax returns and income limits to provide crucial and timely relief to those who need help.
As the Biden Administration debates a means-testing requirement for borrowers to get student debt cancelation, they should consider whether they want to move in the opposite direction — more bureaucracy with high risk and low reward — rather than automatic and universal relief that includes everyone.
Bryce McKibben is the Senior Director of Policy & Advocacy, The Hope Center for College, Community, and Justice at Temple University. He was previously a senior higher education policy advisor for the U.S. Senate Health, Education, Labor, and Pensions Committee, Majority Staff.