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00:01: This is Planet Money from NPR.
00:06: You know how sometimes you rewatch a movie and you're like, what a second.
00:12: The big twist was planted right there in the beginning and I just didn't notice it.
00:18: Well, well, this here today, this is one of those kinds of stories.
00:21: Yeah, except this was not a movie.
00:24: This was last year when President Biden held a press conference about federal student loans.
00:31: Good afternoon.
00:33: Biden's up at a podium in front of a painting of Teddy Roosevelt writing a horse.
00:38: It's a good painting.
00:39: There's also a well placed row of books right there in the background because you know
00:43: this announcement it was going to be about book learning.
00:46: My campaign for president I made a commitment that would provide student debt relief and
00:53: I'm honoring that commitment today.
00:55: Yeah, this was the big student loan forgiveness announcement, of course.
00:59: Biden explained how the federal government intended to erase some or even all federal student
01:05: loan debt for some 40 million Americans.
01:08: Boom, there it was, the biggest student loan forgiveness program in history.
01:13: All this means people can start finally crawl out from under that mountain of debt.
01:18: Now, you know, you would think that the speech could end there.
01:22: Everyone can go home, the big announcement is made,
01:25: but weirdly, Biden did just keep talking after that.
01:29: Yeah, he went in on this completely different student loan thing.
01:35: And look, I follow these kinds of announcements for living.
01:38: I am an education reporter at NPR.
01:41: Whatever this other part of this speech was,
01:44: it turned real fast into absolute, wonky word salad.
01:50: Yeah, yeah.
01:51: Here's a taste of that.
01:52: we're proposing to make what's called an income driven repayment plan simple and fair.
01:58: And here's how, knowing with an undergraduate loan today, we're in the future.
02:04: And click, this is definitely where I would have turned the TV off because what even is any of that.
02:10: So okay, fast forward to today.
02:13: And what we know is that things did not go great for that big headline grabbing announcement at the top of the speech.
02:20: giant forgiveness plan. It got challenged legally, went to the Supreme Court, and we know just weeks ago,
02:26: the court struck it down. Yeah, dead. Now, since that ruling, there was a relatively small group of
02:33: loans forgiven on, let's call them technicalities, but, but look in terms of, of Biden's promise to make
02:38: some big sweeping loan forgiveness, like that died with the Supreme Court decision. Or that is what
02:49: Everyone, including me, seemed to think.
02:52: And then one day, my education covering co-host here,
02:55: Cory Turner, wanders up to my desk and says, no, no, no, Kenny.
02:59: We need to go rewatch that Biden press conference.
03:03: Because it's true.
03:04: The plot twist was right there.
03:07: At that moment, when a lot of people tuned out,
03:09: during that incredibly dense bit of word salad,
03:12: make us called an income-driven repayment plan.
03:16: Yeah, that part right there.
03:18: Today, we are here to tell you that it's looking more and more like that jargony stuff.
03:24: Might have been a kind of separate, gigantic, student debt relief plan, hiding in plain sight.
03:32: And it may even be bigger than the one the Supreme Court just killed.
03:39: Hello and welcome to Planet Money.
03:40: I'm Kenny Malone, and I'm Cory Turner, and this idea of Biden coming into office and
03:45: a racing debt with the stroke of his pen, it was dramatic, it was easy to understand,
03:50: and also it's not going to happen.
03:52: No, no, but today on the show, we explain a sneaky other student loan forgiveness plan
03:59: that is still alive and will affect millions of Americans.
04:05: If you have federal student loans, there is a strong chance you could benefit from this,
04:10: but only if you know what it is.
04:13: So grab your word-solid forks folks.
04:18: We're gonna dig in to explain how this will work.
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05:11: Okay, so the loan forgiveness plan that everyone was talking about,
05:15: the one that got killed, that was a relatively simple piece of policy really,
05:20: because you know, the Biden administration, without Congress,
05:23: tried to forgive a mountain of federal student loan debt in one fell swoop, snap and done.
05:29: That plan would have cost about $400 billion.
05:33: And the Supreme Court said, no, no, no, no, no.
05:35: You don't have the authority to do this, President Biden.
05:39: Traditionally, only Congress has had the authority to spend that kind of money.
05:43: And so in some ways, the story we're gonna tell you today
05:47: is about a different way of making policy.
05:51: Yeah, it's about the Biden administration
05:53: looking at the authority it maybe does have and finding an unexpected tool,
05:59: almost a sneaky tool really to use for loan forgiveness.
06:03: And that sneaky tool was created under a totally different president
06:07: who was dealing with a totally different student loan problem.
06:10: I'm astatic to introduce to you President Bill Clinton.
06:15: This is from 1993.
06:17: President Bill Clinton is giving a speech to students at Rutgers University.
06:22: I know it won't disappoint many of the students here to know that
06:26: We also have to reform the whole system of student loans.
06:31: The background of a clause there, because, yeah,
06:33: even 30 years ago, student loans, kind of a mess.
06:37: In fact, there was this sort of crisis happening back then.
06:40: Huge numbers of people were defaulting on their student loans.
06:45: So up to this point, unlike today,
06:46: if you took out a federal student loan, you weren't actually borrowing directly from the US government.
06:52: You were borrowing from a private bank,
06:55: and they were not very flexible about repayment.
06:58: Yeah, you'd graduate and it didn't really matter
07:01: whether or not you had a job or if you did how much your job was paying,
07:05: the banks would start asking for big monthly payments, basically no flexibility on that.
07:10: And this was one of the reasons why
07:12: by 1990 lots of borrowers were in trouble,
07:15: nearly one in four who went into repayment on their federal student loans, defaulted within about a year.
07:21: got one in four and that default crisis,
07:25: that's a big part of what Clinton was proposing to fix there.
07:29: Yes, so he was proposing two big changes.
07:32: Change number one, the federal government
07:34: would start to cut out the banks and issue loans directly to students.
07:39: And that would allow change number two,
07:41: and this one's gonna matter quite a lot,
07:43: the government could then be much more flexible
07:47: on how quickly each loan got repaid.
07:50: So what we seek to do is to enable the American students
07:54: to borrow the money they need for college
07:57: and pay it back as a small percentage of their own income over time.
08:02: He was pitching what's called an income-based repayment plan.
08:05: And the details sounded pretty straightforward.
08:07: Students monthly loan payment would be based on their income after they graduated.
08:12: So the government would take a look at your earnings
08:15: and say, OK, based on your income,
08:17: we think you can afford to pay, say, $50.
08:20: each month on this loan, or $25 or $1 or whatever.
08:25: And what's so interesting to me is that when I hear this,
08:28: maybe it sounds like some kind of government charity
08:31: program, but no, this was very explicitly a way
08:35: to keep people paying down their student loans.
08:38: Like, instead of people defaulting and then potentially not paying anything,
08:42: this would be a way to at least get something
08:45: from people, little by little, over a longer period of time.
08:48: In fact, that was one of the selling points for income-based repayment back in 1993, according to Jason DeLio.
08:56: He studies higher ed policy at the Urban Institute.
08:59: The Clinton administration, when they testified before Congress, was asked how much do you think this will cost?
09:04: Jason says the Clinton administration projected that this program would basically be cost neutral.
09:10: They said we view it as a wash, where people sort of cross subsidized one another, right?
09:15: high income people paid more, low income people paid less.
09:18: And, you know, I think Congress at the time thought, okay, well, if that's what you're going to design, great.
09:24: And so, Congress passed Clinton's plan.
09:26: The federal government started taking over the federal student loan system and gave the
09:31: president through his education secretary the power to create the first large scale income-based repayment plan.
09:39: Congress also wrote a wide open law, which just says the secretary shall design an income
09:44: driven repayment plan. That includes monthly payments based on a share of your income.
09:52: He's laughing because that wide open law is another thing that would matter quite a bit.
09:58: Because the law didn't just give Clinton this one-time authorization to do his little income-based
10:04: plan. It said that any president, again through their Department of Education, was allowed to keep creating income-based repayment plans.
10:13: And over the last 30 years, the Department of Ed,
10:15: and sometimes Congress, have done exactly that.
10:18: They've created a bunch of income-based repayment options, each with slightly different rules and increasingly tortured government names.
10:27: Yeah, people who've taken out federal loans
10:29: may recognize some of these weird ones.
10:31: We started with ICR income contingent repayment,
10:35: then came IBR income-based repayment in 2012.
10:38: President Obama created pay as you earn with the killer acronym payee.
10:44: There's an e on the end.
10:45: But then, then he created another one called Revised Pay as you earn, or of course, repayee.
10:52: The point here is that there is now a totally accepted history of a president being allowed
10:57: to create a new federal loan repayment plan.
11:01: Totally a thing that happens and has happened, which brings us back to where we started this whole episode.
11:07: Good afternoon.
11:09: Biden's big loan forgiveness press conference last summer,
11:13: you know, Roosevelt painting, horse, et cetera,
11:15: but, but specifically, that moment where Biden just kept
11:19: talking and got all word-salty, if you go back and listen.
11:23: Hopefully now, you can hear that what Biden is doing
11:26: is simply announcing yet another one of these income-based repayment plans.
11:32: We're proposing to make what's called an income-driven
11:36: repayment plan simple and fair. And here's how, known with an undergraduate loan
11:42: today or in the future, or for community college or for your college. By our
11:47: account, this will be the sixth such plan. It too has a belabor name saving on a
11:54: valuable education plan, which somehow it turns into the acronym Save. You've got
11:59: to drop a few words or let, but whatever it gets there. But here is the thing about Biden's save plan.
12:05: It is unlike any repayment plan before it,
12:08: because once you start to parse out the specific repayment details,
12:14: you start to wonder, like, wait, wait a second.
12:17: Are people actually going to end up repaying their loans with this?
12:21: Yeah, it's a really big loan forgiveness program.
12:24: Again, Jason DeLyle from the Urban Institute.
12:27: I think it's going to be less obvious
12:29: that it's a big loan forgiveness program
12:30: to both borrowers and onlookers as well.
12:34: But yeah, it's a big loan forgiveness program.
12:38: After the break, how the Biden administration plans to turn loan repayment into loan forgiveness,
12:46: in a way we've never seen before.
12:58: Sometimes I will go out to dinner with my parents, and my dad will insist on paying, and
13:03: then I'll say something like, oh no no it's fine, you can pay for the parking meter,
13:08: and maybe some coffee later in a donut, and it'll all even out.
13:12: But I'm doing the math in my head, and I'm thinking like, no it will not all even out.
13:16: these little things are clearly not going to add up to the whole dinner that I am trying to repay you for.
13:23: Well, this is what I think of when I think about what the Biden administration is about to do with
13:30: student loans. Yeah, this is definitely not the snap your fingers and forgive all the loans plan.
13:37: The Supreme Court killed that one. The plan we're going to describe is more like loan forgiveness in slow motion.
13:45: And this all has to do with that new repayment plan that Biden announced.
13:49: Right, right, right.
13:50: It's a repayment plan where he basically says,
13:52: hey, this is a loan, which, of course, historically
13:55: is a thing that people have to pay back.
13:58: But no rush on this one.
13:59: Just pay what you can here.
14:01: And when you run the math in your head,
14:04: it maybe doesn't look like a lot of people
14:06: are going to have to pay back all of their loan.
14:09: And we're gonna use the rest of this episode
14:11: to simply explain how this slow motion forgiveness is going to work.
14:15: And we're going to do that by walking through one very specific example.
14:21: Hey, thanks for doing this. I appreciate it.
14:23: Yeah, no problem.
14:25: This is Jana Goodman. She lives in the Milwaukee area, has three kids,
14:29: and is one of the roughly 45 million people who have federal student loans.
14:34: Jana took out about $28,000 a decade ago to attend a two-year technical college,
14:39: part time while she was working full time. She says it was a classic night
14:43: school situation. I wanted to become a nurse at that time and so I was going to
14:48: go back and get a nursing degree just an associate's to start and that's when I
14:52: started taking out loans. I was a single woman living on my own with my own
14:57: apartment so the only way that anything like that would be within reach for
15:02: someone like me would be to take out loans. You know if you think about it when
15:06: When you take out a student loan, it's kind of a gamble.
15:09: You're betting that the degree you hope to get will increase your earning potential, which
15:13: will then help you pay off those loans.
15:15: But Jana, like lots of borrowers, wound up taking a break from school.
15:20: She got married, she started a family, and never ended up finishing her degree.
15:25: Of course, she still had those $28,000 in loans.
15:29: Yeah, so Jana is part of this really big group of people who have federal student loans, but no degree.
15:36: that group really stood to benefit from Biden's original, you know, snap of the finger,
15:41: loan forgiveness program. And so, Janna was really upset when the Supreme Court struck that down.
15:47: I was at a loss. I felt just worried, like, just something off in a distance, this
15:52: dune cloud that was hanging out about to come over me. I'm still pissed that the student loan,
15:58: that the Supreme Court ruled against it, I think it's bullsh**.
16:02: Janet understood that the Supreme Court decision meant her debt wasn't going anywhere,
16:07: especially not overnight. When I called her, she also hadn't heard anything about this sort of
16:13: sneaky second loan forgiveness plan we're talking about today. Now, this is going to be a little
16:18: confusing bear with me. Sure. The Biden administration is right now rolling out a brand new income-driven and repayment plan.
16:28: Corey explains to Janna that, first of all,
16:30: this Biden repayment thing, again called save,
16:34: is something that she would have to opt into.
16:37: And if she does opt in, that program basically has three smaller mechanisms, let's call them, that when they work together,
16:47: do add up to a kind of slow motion loan forgiveness that we've never seen before.
16:52: And we're gonna show you how that might work for Janna.
16:56: Okay, so mechanism number one.
16:59: Under this new Biden repayment plan,
17:00: the government is gonna ask for its money back
17:03: way more slowly by asking for way less money each month.
17:09: Plus a huge number of people will suddenly fall
17:13: into this other category where they won't even have to make a monthly payment.
17:18: Right, so it janna's situation, for example,
17:21: she has a family of five, traditionally, the government has said, hey,
17:25: a family like that, they need about $53,000 a year to live on.
17:30: So if Janice family had earned more than that,
17:33: which they did, the government would be like,
17:36: you can clearly afford to pay us back for your student loan.
17:39: You make enough money.
17:40: So make a monthly payment, please.
17:42: But Biden's new plan says,
17:45: actually, people need more to live on.
17:48: So for a family of five, like Janice,
17:50: they won't have to make a monthly payment
17:52: unless they earn about $80,000 a year.
17:55: Well, Janice family earned a little less than that last year.
17:58: So suddenly under this new plan,
18:00: the government may not ask Janice to pay anything each month.
18:04: And as we explained this to Janice, it was clear.
18:06: This was all news to her.
18:07: Oh, I understand I'm gonna have to make payments here.
18:10: But I think they'll still be fairly low.
18:12: But you could qualify for a $0.00 payment.
18:16: So how?
18:17: You're going.
18:18: Janice was intrigued, clearly.
18:20: But look, that first thing, mechanism, whatever, by itself, that is not student loan forgiveness.
18:26: Actually, it's kind of the opposite, because if Janna was paying nothing on her student loans every month,
18:32: then typically interest would build up faster
18:35: and faster and her student loan would balloon.
18:37: But mechanism number two in this new Biden plan takes care of that too.
18:43: Here's how it works.
18:44: As long as your paying each month
18:46: what the government thinks you can afford.
18:49: Any interest that you're not covering disappears.
18:53: The government forgives it every month.
18:55: So if the government says you can only afford a zero dollar monthly payment
19:00: with an all the interest that month is forgiven.
19:03: Yes, yes.
19:04: However, Corey, interest forgiveness is also not loan forgiveness by itself.
19:09: Because even if the government forgives Janice
19:12: interest every month, she's not making any payments,
19:15: she would still have that big old loan but she has to pay off.
19:17: Like that would still sit there and be there.
19:19: And that, Kenny, is where the last mechanism, thing number three comes in.
19:25: For undergraduate borrowers who keep up with their payments
19:27: for 20 years, the government promises to forgive whatever's left.
19:32: And if you borrowed $12,000 or less from the government,
19:35: maybe for community college, under this new plan,
19:38: you'll only have to wait 10 years to get that forgiveness.
19:42: So, okay, all of this adds up to a situation
19:46: For Biden is basically telling low to moderate income borrowers, a version of what my dad
19:53: would say to me about dinner, you know, a little payment here, a little payment here,
19:57: you'll get us back, but no, eventually the debt is forgiven before it's paid back.
20:03: Yeah, so for low income borrowers like Janet, you can see how this might work.
20:07: If every month the government says your monthly payment is zero dollars, and they just
20:13: Just keep paying nothing over and over until 10 or 20 years later, depending on how much they borrowed.
20:20: Finally, boom, loan forgiveness without paying back a cent.
20:25: So yeah, it is not that original.
20:28: Snap your fingers overnight, loan forgiveness.
20:31: But if you play it out, you get there.
20:35: I definitely feel better having a very clear roadmap.
20:42: And having it laid out like this is helpful
20:45: for somebody like me because as you,
20:47: we both know it can be very confusing and complex.
20:51: And despite it, you know, the debt not being canceled,
20:54: I think it's good to, I mean, I guess it's not the best, but I'm happy these things exist.
20:59: I'm happy there's a way forward.
21:01: Now, you can maybe hear the Jan as a little skeptical, even weary, she says.
21:06: For the same reason that like every other borrower
21:08: we've been talking to lately is skeptical.
21:11: You know, they've been burned once already
21:13: by the last big loan forgiveness promise.
21:16: And this version is like, you know,
21:18: not nearly as straightforward as that one.
21:19: So, you know, you get it.
21:21: And look, it's not going to be total loan forgiveness
21:24: for every single person who borrows money.
21:26: That'll only be for the lowest income borrowers.
21:30: The Urban Institute ran the numbers
21:31: and estimates that about one in five people
21:34: who take out a federal student loan to pay for a bachelor's degree will never repay a dime.
21:39: Yeah, so 20%.
21:40: But still, urban does estimate that the vast majority of people who borrow money for undergrad
21:47: will eventually wind up having at least some of their federal student loan forgiven.
21:51: The Biden administration says, look, this is a really important safety net, something
21:56: we should have done a long time ago.
21:58: But Jason DeLyle, who has been running these numbers at the Urban Institute, says, this
22:03: This plan seems to go beyond even that.
22:06: So no longer a safety net, like it has been in the past for undergraduates, this looks
22:12: more like a broad-based subsidy for undergraduate degrees through long forgiveness.
22:18: It's a very roundabout way of subsidizing higher education.
22:23: The statistic that really drives it home for me compares the old repayment system to this one.
22:29: And this math, by the way, comes straight from the Biden administration.
22:31: They're not hiding anything.
22:33: So historically, for every $10,000 the government loaned to students.
22:38: It collected about $11,000.
22:40: So that's a thousand bucks in the government's pocket.
22:43: But with this new repayment plan for every $10,000 the government loans, it's going to recoup about $6,100.
22:52: So yeah, like that is a very different vision for a student loan program, where the government
22:58: makes a loan knowing that on average,
23:01: it's gonna forgive about 40% of that loan.
23:04: It's also a very expensive vision for a student loan program.
23:08: The Department of Education estimated this will cost
23:10: about $140 billion over the next 10 years, but a very recent independent estimate from outside the White House
23:18: said this could end up costing $475 billion.
23:22: Over the same period, that would actually be more money
23:25: then Biden's original snap of the fingers, lone forgiveness plan.
23:29: Yeah, which of course brings us to the huge lubing question over all of this.
23:35: Is this like new plan also going to get challenged
23:39: and struck down because, you know, like plan A,
23:42: it is trying to do something super big and super expensive, maybe even bigger and more expensive without going through Congress.
23:50: The experts I spoke with agreed on two things.
23:54: it would almost certainly get challenged legally.
23:57: But also, this is important.
23:59: This plan is actually built on much stronger legal ground than the other one.
24:05: Yeah, you know, we talked to Jason DeLio about this
24:07: and he told us really this goes back to that moment in 1993
24:12: when Bill Clinton was first selling Congress
24:15: on the general idea of letting the president make these income-based repayment plans.
24:20: This is a program that Congress clearly gave the authority to the Secretary of Education to design income-driven repayment plans.
24:30: So it's in law, there aren't any parameters.
24:35: I mean, I certainly think the administration
24:38: is on safer legal ground in designing an income-driven repayment plan.
24:44: So yeah, right, tighter laws, I guess, if you don't like this.
24:49: You know, Kenny, it's been interesting.
24:52: As part of my job, I have talked to a lot of people who love this plan.
24:56: They say this is a really important change
24:58: that is going to help millions of people, specifically low income people, access college.
25:04: I've also talked to lots of other people who ask,
25:07: are we sure this is really the best way to help low-income Americans?
25:12: Why this particular thing?
25:14: Because you know, the Biden administration
25:15: has proposed a lot of other potentially powerful programs.
25:19: I've covered a bunch of them.
25:20: There was an effort to make community college free.
25:23: There was a big push for universal preschool, plus a fairly short-lived expansion of the child tax credit.
25:30: But all of that stuff, it died
25:34: because Biden needed Congress to make them happen and Congress said no.
25:39: And so what we're talking about today, this slow motion loan forgiveness thing, it's not happening because it's necessarily
25:45: a better use of money than those other programs.
25:48: It's not an either or.
25:49: It's happening because the Biden administration thinks
25:53: and hopes this is something it can do without going through Congress.
26:08: If you still have more questions about how this new repayment thing will work, my
26:15: amazing colleague here, Cory Turner, has done an even more extensive write-up of this.
26:19: We'll link to that in the show notes.
26:21: And Cory, Cory would also like to hear from you if you do end up trying this.
26:26: Yeah, email me at dcturner at npr.org.
26:30: I love hearing from borrowers.
26:31: So dcturneratnpr.org.
26:35: This episode was produced by Emma Peasley and edited by Molly Messick.
26:39: It was fact-checked by Sierra Huarez and engineered by Robert Rodriguez.
26:43: Alex Goldmark is our executive producer.
26:45: Special thanks to Dominique Baker,
26:46: Nat Malcus, Abby Schafferoff,
26:48: as well as the dozens of student loan borrowers
26:51: who have shared their stories with me.
26:53: I'm Kenny Malone.
26:54: I'm Corey Turner.
26:55: This is NPR.
26:56: Thanks for listening.