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How Colleges And Universities Are Cancelling Some Student Debt

By News Creatives Authors , in Leadership , at July 30, 2021

Across the country, headlines in trade, local, and national press read that colleges and universities are cancelling student debt. A number of institutions of higher education have used recent federal relief dollars to provide some debt relief to students in recent months. But borrowers should understand that it is a much narrower kind of cancellation than some might realize, because it isn’t federal student debt that is being forgiven or cancelled.

The American Rescue Plan (ARP) that passed Congress in March provided more than $36 billion to institutions of higher education in the Higher Education Emergency Relief Fund (HEERF) that was created under the CARES Act. (Additional HEERF funds were provided in the December omnibus legislation.) Colleges and universities received their funds based on a formula that considered the number of students enrolled, with a weight for students receiving Pell Grants.

Under ARP, a portion of the funds were required to go directly to students in the form of emergency grants. Institutions had some fairly broad discretion on the remainder of the funds, so long as the use was related to the COVID-19 pandemic, including to make up for lost revenue. In March, the Department of Education announced updated guidance on the institutional portion of funds and included a new provision. It said the new guidance would:

Empower institutions to use their grants to discharge student debts and support student services: In addition to the grants made directly to students, this guidance illustrates opportunities for institutions to use their own grants to reimburse themselves for lost revenue while supporting students during the pandemic, including discharging unpaid institutional balances so students can resume their studies and subsidizing childcare services for student parents.” 

What this provision allows is for institutions to cancel debts students owe to the institutions themselves. And it doesn’t apply to all previous students who might owe a college or university. Higher education institutions do not have the ability to provide student debt cancellation on the loans that are held by the federal government.

This new guidance will help many students reduce the debt that owe institutions—not to mention help colleges collect on the balances on their ledgers—and will provide a sigh of relief for those students. Wiping out these balances will likely help a number of students continue their education. And it will prevent institutions from withholding the release of transcripts, which can prevent students from continuing their education elsewhere or for getting a job, even if they have a miniscule balance. It’s a practice some have appropriately labeled “higher education’s mean and dirty trick.”

However, it is important for students—and the journalists writing about these actions—that this is not the same as the cancellation of federal student debt that some are pushing. Federal student loans account for the vast majority of outstanding student debt, with private loans and institutional aid making up only a small portion. Currently, payments and interest on federally-held student loans are suspended, but there is no indication that the federal government will provide student loan cancellation outside of the existing programs to forgive student debt, like Public Service Loan Forgiveness, income-driven repayment, and forgiveness for defrauded students, and others.

There is concern among many that these stories distort borrowers understanding of what might happen to their federal loans, which could affect how they budget and other financial decisions. It is especially concerning as the current payment and interest suspension is set to end at the end of September, though many have called for extending the pause. The relief is an important step to help those students who have been impacted by the pandemic, but those who are writing about this should be careful to ensure that students aren’t being misled around such an important issue — one that has significant impacts on the financial security of many Americans.

Related Readings:

Schumer, Warren, Pressley Urge Biden To Extend Student Loan Payment Pause And Cancel Student Debt

Betsy DeVos Sent Coronavirus Money To Tiny Colleges. Did They Need It?


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