There’s nothing worse than somebody attempting to answer a fascinating question with inappropriate data (and if you want to read how bad it is I did a quick piece at the time). But it occurred to me that there is a way to address the issue of whether graduate repayments of student loans do see meaningful differences by provider, and think about what may be causing this phenomenon.
What I present here is the kind of thing that you could probably refine a little if you were, say, shadow education minister and had access to some numerate researchers to support you. I want to be clear up top is that, with public data and a cavalier use of averages and medians, this can only be described as indicative and should be used appropriately and with care (yes, this means you Neil).
My findings
There is a difference in full time undergraduate loan repayment rates over the first five years after graduation by provider in England when you look at the cohort that graduated in 2016-17 (the most recent cohort for which public data over five years is available).
This has a notable and visible relationship with the proportion of former students in that cohort from POLAR4 quintile 1 (from areas in the lowest 20 per cent of areas).
Though it is not possible to draw a direct conclusion, it appears that subject of study and gender will also have an impact on repayments.
There is also a relationship between the average amount borrowed per student and the proportion of the cohort at a provider from POLAR4 Q1.
The combination of higher average borrowing and lower average earnings makes remaining loan balances (before interest) after five years look worse in providers with a higher proportion of students from disadvantaged backgrounds..
On the face of it, these are not new findings. We know that pre-application background has an impact on post-graduation success – it is a phenomenon that has been documented numerous times, and the main basis for complaints about the use of progression data as a proxy for the quality of education available at a provider. Likewise, we know that salary differences by gender and by industry (which has a close but not direct link to subject of study).
Methodology
The Longitudinal Educational Outcomes dataset currently offers a choice of three cohorts where median salaries are available one, three, and five years after graduation. I’ve chosen to look at the most recent available cohort, which graduated in 2016-17.
Thinking about the five years between graduation and the last available data point, I’ve assumed that median salaries for year 2 are the same as year 1, and that salaries for year 4 are the same as year 3. I can then take 9 per cent of earnings above the relevant threshold as the average repayment – taking two year ones, two year threes, and a year five gives me an average total repayment over five years.
The relevant threshold is whatever the Department for Education says was the repayment threshold for Plan 1 (all these loans would have been linked to to Plan 1 repayments) for the year in question.
How much do students borrow? There is a variation by provider – here we turn to the Student Loans Company 2016 cycle release of Support for Students in Higher Education (England). This provides details of all the full time undergraduate fee and maintenance loans provided to students that year by provider – we can divide the total value of loans by the total number of students to get the average loan amount per student. There’s two problems with this – I want to look at a single cohort, and this gives me an average for all students at the provider that year. In the interests of speed I’ve just multiplied this average by three (for a three year full time undergraduate course) and assumed the year of study differentials net out somehow. It’s not ideal, but there’s not really another straightforward way of doing it.
We’ve not plotted all of the available data – the focus is on English providers, specifically English higher education institutions (filtering out smaller providers where averages are less reliably). And we don’t show the University of Plymouth (yet), there is a problem with the SLC data somewhere.
Data
This first visualisation gives you a choice of X and Y axis as follows:
POLAR % – the proportion of students in the cohort from POLAR4 Q1
Three year borrowing – the average total borrowing per student, assuming a three year course
Repayment 5YAG – the average total amount repaid, five years after graduation
Balance 5YAG – the average amount borrowed minus the average total repayments over five years
You can highlight providers of interest using the highlighter box – the size of the blobs represents the size of the cohort.
Of course, we don’t get data on student borrowing by provider and subject – but we can still calculate repayments on that basis. Here’s a look at average repayments over five years by CAH2 subject (box on the top right to choose) – I’ve plotted against the proportion of the cohort from POLAR4 Q1 because that curve is impressively persistent.
For all of the reasons – and short cuts! – above I want to emphasise again that this is indicative data – there are loads of assumptions here. I’m comfortable with this analysis being used to talk about general trends, but you should not use this for any form of regulation or parliamentary question.
The question it prompts, for me, is whether it is fair to assume that providers with a bigger proportion of non-traditional students will be less effective at teaching. Graduate outcome measures may offer some clues, but there are a lot of caveats to any analysis that relies solely on that aspect.
When
borrowers default on their federal student loans, the U.S. Department
of Education (“Department of Education”) can collect the outstanding
balance through forced collections, including the offset of tax refunds
and Social Security benefits and the garnishment of wages. At the
beginning of the COVID-19 pandemic, the Department of Education paused
collections on defaulted federal student loans.
This year, collections are set to resume and almost 6 million student
loan borrowers with loans in default will again be subject to the
Department of Education’s forced collection of their tax refunds, wages,
and Social Security benefits.
Among the borrowers who are likely to experience forced collections are
an estimated 452,000 borrowers ages 62 and older with defaulted loans
who are likely receiving Social Security benefits.
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of Social Security benefits.
It also describes how forced collections can push older borrowers into
poverty, undermining the purpose of the Social Security program.
Key findings
The
number of Social Security beneficiaries experiencing forced collection
grew by more than 3,000 percent in fewer than 20 years; the count is
likely to grow as the age of student loan borrowers trends older.
Between 2001 and 2019, the number of Social Security beneficiaries
experiencing reduced benefits due to forced collection increased from
approximately 6,200 to 192,300. This exponential growth is likely driven
by older borrowers who make up an increasingly large share of the
federal student loan portfolio. The number of student loan borrowers
ages 62 and older increased by 59 percent from 1.7 million in 2017 to
2.7 million in 2023, compared to a 1 percent decline among borrowers
under the age of 62.
The total amount
of Social Security benefits the Department of Education collected
between 2001 and 2019 through the offset program increased from $16.2
million to $429.7 million. Despite the exponential increase in
collections from Social Security, the majority of money the Department
of Education has collected has been applied to interest and fees and has
not affected borrowers’ principal amount owed. Furthermore, between
2016 and 2019, the Department of the Treasury’s fees alone accounted for
nearly 10 percent of the average borrower’s lost Social Security
benefits.
More than one in three
Social Security recipients with student loans are reliant on Social
Security payments, meaning forced collections could significantly
imperil their financial well-being. Approximately 37 percent of the
1.3 million Social Security beneficiaries with student loans rely on
modest payments, an average monthly benefit of $1,523, for 90 percent of
their income. This population is particularly vulnerable to reduction
in their benefits especially if benefits are offset year-round. In 2019,
the average annual amount collected from individual beneficiaries was
$2,232 ($186 per month).
The physical well-being of half of Social Security beneficiaries with student loans in default may be at risk.
Half of Social Security beneficiaries with student loans in default and
collections skipped a doctor’s visit or did not obtain prescription
medication due to cost.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
Currently, only $750 per month of Social Security income—an amount that
is $400 below the monthly poverty threshold for an individual and has
not been adjusted for inflation since 1996—is protected from forced
collections by statute. Even if the minimum protected income was
adjusted for inflation, beneficiaries would likely still experience
hardship, such as food insecurity and problems paying utility bills. A
higher threshold could protect borrowers against hardship more
effectively. The CFPB found that for 87 percent of student loan
borrowers who receive Social Security, their benefit amount is below 225
percent of the federal poverty level (FPL), an income level at which
people are as likely to experience material hardship as those with
incomes below the federal poverty level.
Large
shares of Social Security beneficiaries affected by forced collections
may be eligible for relief or outright loan cancellation, yet they are
unable to access these benefits, possibly due to insufficient
automation or borrowers’ cognitive and physical decline. As many as
eight in ten Social Security beneficiaries with loans in default may be
eligible to suspend or reduce forced collections due to financial
hardship. Moreover, one in five Social Security beneficiaries may be
eligible for discharge of their loans due to a disability. Yet these
individuals are not accessing such relief because the Department of
Education’s data matching process insufficiently identifies those who
may be eligible.
Taken together,
these findings suggest that the Department of Education’s forced
collections of Social Security benefits increasingly interfere with
Social Security’s longstanding purpose of protecting its beneficiaries
from poverty and financial instability.
Introduction
When
borrowers default on their federal student loans, the Department of
Education can collect the outstanding balance through forced
collections, including the offset of tax refunds and Social Security
benefits, and the garnishment of wages. At the beginning of the COVID-19
pandemic, the Department of Education paused collections on defaulted
federal student loans. This year, collections are set to resume and
almost 6 million student loan borrowers with loans in default will again
be subject to the Department of Education’s forced collection of their
tax refunds, wages, and Social Security benefits.
Among
the borrowers who are likely to experience the Department of
Education’s renewed forced collections are an estimated 452,000
borrowers with defaulted loans who are ages 62 and older and who are
likely receiving Social Security benefits.
Congress created the Social Security program in 1935 to provide a basic
level of income that protects insured workers and their families from
poverty due to situations including old age, widowhood, or disability.
The Social Security Administration calls the program “one of the most
successful anti-poverty programs in our nation’s history.”
In 2022, Social Security lifted over 29 million Americans from poverty,
including retirees, disabled adults, and their spouses and dependents.
Congress has recognized the importance of securing the value of Social
Security benefits and on several occasions has intervened to protect
them.
This
spotlight describes the circumstances and experiences of student loan
borrowers affected by the forced collection of their Social Security
benefits.
It also describes how the purpose of Social Security is being
increasingly undermined by the limited and deficient options the
Department of Education has to protect Social Security beneficiaries
from poverty and hardship.
The forced collection of Social Security benefits has increased exponentially.
Federal
student loans enter default after 270 days of missed payments and
transfer to the Department of Education’s default collections program
after 360 days. Borrowers with a loan in default face several
consequences: (1) their credit is negatively affected; (2) they lose
eligibility to receive federal student aid while their loans are in
default; (3) they are unable to change repayment plans and request
deferment and forbearance; and (4) they face forced collections of tax refunds, Social Security benefits, and wages among other payments.
To conduct its forced collections of federal payments like tax refunds
and Social Security benefits, the Department of Education relies on a
collection service run by the U.S. Department of the Treasury called the
Treasury Offset Program.
Between
2001 and 2019, the number of student loan borrowers facing forced
collection of their Social Security benefits increased from at least
6,200 to 192,300.
That is a more than 3,000 percent increase in fewer than 20 years. By
comparison, the number of borrowers facing forced collections of their
tax refunds increased by about 90 percent from 1.17 million to 2.22
million during the same period.
This exponential growth of Social Security offsets between 2001 and 2019 is likely driven by multiple factors including:
Older
borrowers accounted for an increasingly large share of the federal
student loan portfolio due to increasing average age of enrollment and
length of time in repayment. Data from the Department of Education
(which is only available since 2017), show that the number of student
loan borrowers ages 62 and older, increased 24 percent from 1.7 million
in 2017 to 2.1 million in 2019, compared to less than 1 percent among
borrowers under the age of 62.
A larger number of borrowers, especially older borrowers, had loans in default.
Data from the Department of Education show that the number of student
loan borrowers with a defaulted loan increased by 230 percent from 3.8
million in 2006 to 8.8 million in 2019. Compounding these trends is the fact that older borrowers are twice as likely to have a loan in default than younger borrowers.
Due
to these factors, the total amount of Social Security benefits the
Department of Education collected between 2001 and 2019 through the
offset program increased annually from $16.2 million to $429.7 million
(when adjusted for inflation).
This increase occurred even though the average monthly amount the
Department of Education collected from individual beneficiaries was the
same for most years, at approximately $180 per month.
Figure 1: Number of Social Security beneficiaries and total amount collected for student loans (2001-2019)
Source: CFPB analysis of public data from U.S. Treasury’s Fiscal Data portal. Amounts are presented in 2024 dollars.
While the total collected from
Social Security benefits has increased exponentially, the majority of
money the Department of Education collected has not been applied to
borrowers’ principal amount owed. Specifically, nearly three-quarters of
the monies the Department of Education collects through offsets is
applied to interest and fees, and not towards paying down principal
balances.
Between 2016 and 2019, the U.S. Department of the Treasury charged the
Department of Education between $13.12 and $15.00 per Social Security
offset, or approximately between $157.44 and $180 for 12 months of
Social Security offsets per beneficiary with defaulted federal student
loans. As a matter of practice, the Department of Education often passes these fees on directly to borrowers.
Furthermore, these fees accounted for nearly 10 percent of the average
monthly borrower’s lost Social Security benefits which was $183 during
this time.
Interest and fees not only reduce beneficiaries’ monthly benefits, but
also prolong the period that beneficiaries are likely subject to forced
collections.
Forced collections are compromising Social Security beneficiaries’ financial well-being.
Forced
collection of Social Security benefits affects the financial well-being
of the most vulnerable borrowers and can exacerbate any financial and
health challenges they may already be experiencing. The CFPB’s analysis
of the Survey of Income and Program Participation (SIPP) pooled data for
2018 to 2021 finds that Social Security beneficiaries with student
loans receive an average monthly benefit of $1,524.
The analysis also indicates that approximately 480,000 (37 percent) of
the 1.3 million beneficiaries with student loans rely on these modest
payments for 90 percent or more of their income,
thereby making them particularly vulnerable to reduction in their
benefits especially if benefits are offset year-round. In 2019, the
average annual amount collected from individual beneficiaries was $2,232
($186 per month).
A
recent survey from The Pew Charitable Trusts found that more than nine
in ten borrowers who reported experiencing wage garnishment or Social
Security payment offsets said that these penalties caused them financial
hardship.
Consequently, for many, their ability to meet their basic needs,
including access to healthcare, became more difficult. According to our
analysis of the Federal Reserve’s Survey of Household Economic and
Decision-making (SHED), half of Social Security beneficiaries with
defaulted student loans skipped a doctor’s visit and/or did not obtain
prescription medication due to cost.
Moreover, 36 percent of Social Security beneficiaries with loans in
delinquency or in collections report fair or poor health. Over half of
them have medical debt.
Figure 2: Selected financial experiences and hardships among subgroups of loan borrowers
Source: CFPB analysis of the Federal Reserve Board Survey of Household Economic and Decision-making (2019-2023).
Social Security recipients
subject to forced collection may not be able to access key public
benefits that could help them mitigate the loss of income. This is
because Social Security beneficiaries must list the unreduced amount of
their benefits prior to collections when applying for other means-tested
benefits programs such as Social Security Insurance (SSI), Supplemental
Nutrition Assistance Program (SNAP), and the Medicare Savings Programs.
Consequently, beneficiaries subject to forced collections must report
an inflated income relative to what they are actually receiving. As a
result, these beneficiaries may be denied public benefits that provide
food, medical care, prescription drugs, and assistance with paying for
other daily living costs.
Consumers’
complaints submitted to the CFPB describe the hardship caused by forced
collections on borrowers reliant on Social Security benefits to pay for
essential expenses.
Consumers often explain their difficulty paying for such expenses as
rent and medical bills. In one complaint, a consumer noted that they
were having difficulty paying their rent since their Social Security
benefit usually went to paying that expense.
In another complaint, a caregiver described that the money was being
withheld from their mother’s Social Security, which was the only source
of income used to pay for their mother’s care at an assisted living
facility.
As forced collections threaten the housing security and health of
Social Security beneficiaries, they also create a financial burden on
non-borrowers who help address these hardships, including family members
and caregivers.
Existing minimum income protections fail to protect student loan borrowers with Social Security against financial hardship.
The
Debt Collection Improvement Act set a minimum floor of income below
which the federal government cannot offset Social Security benefits and
subsequent Treasury regulations established a cap on the percentage of
income above that floor.
Specifically, these statutory guardrails limit collections to 15
percent of Social Security benefits above $750. The minimum threshold
was established in 1996 and has not been updated since. As a result, the
amount protected by law alone does not adequately protect beneficiaries
from financial hardship and in fact no longer protects them from
falling below the federal poverty level (FPL). In 1996, $750 was nearly
$100 above the monthly poverty threshold for an individual.
Today that same protection is $400 below the threshold. If the
protected amount of $750 per month ($9,000 per year) set in 1996 was
adjusted for inflation, in 2024 dollars, it would total $1,450 per month
($17,400 per year).
Figure
3: Comparison of monthly FPL threshold with the current protected
amount established in 1996 and the amount that would be protected with
inflation adjustment
Source: Calculations by the CFPB. Notes: Inflation adjustments based on the consumer price index (CPI).
Even if the minimum protected
income of $750 is adjusted for inflation, beneficiaries will likely
still experience hardship as a result of their reduced benefits.
Consumers with incomes above the poverty line also commonly experience
material hardship. This suggests that a threshold that is higher than the poverty level will more effectively protect against hardship.
Indeed, in determining an income threshold for $0 payments under the
SAVE plan, the Department of Education researchers used material
hardship (defined as being unable to pay utility bills and reporting
food insecurity) as their primary metric, and found similar levels of
material hardship among those with incomes below the poverty line and
those with incomes up to 225 percent of the FPL.
Similarly, the CFPB’s analysis of a pooled sample of SIPP respondents
finds the same levels of material hardship for Social Security
beneficiaries with student loans with incomes below 100 percent of the
FPL and those with incomes up to 225 percent of the FPL.
The CFPB found that for 87 percent of student loan borrowers who
receive Social Security, their benefit amount is below 225 percent of
the FPL.
Accordingly, all of those borrowers would be removed from forced
collections if the Department of Education applied the same income
metrics it established under the SAVE program to an automatic hardship
exemption program.
Existing options for relief from forced collections fail to reach older borrowers.
Borrowers
with loans in default remain eligible for certain types of loan
cancellation and relief from forced collections. However, our analysis
suggests that these programs may not be reaching many eligible
consumers. When borrowers do not benefit from these programs, their
hardship includes, but is not limited to, unnecessary losses to their
Social Security benefits and negative credit reporting.
Borrowers who become disabled after reaching full retirement age may miss out on Total and Permanent Disability
The
Total and Permanent Disability (TPD) discharge program cancels federal
student loans and effectively stops all forced collections for disabled
borrowers who meet certain requirements. After recent revisions to the
program, this form of cancelation has become common for those borrowers
with Social Security who became disabled prior to full retirement age. In 2016, a GAO study documented the significant barriers to TPD that Social Security beneficiaries faced.
To address GAO’s concerns, the Department of Education in 2021 took a
series of mitigating actions, including entering into a data-matching
agreement with the Social Security Administration (SSA) to automate the
TPD eligibility determination and discharge process.
This process was expanded further with new final rules being
implemented July 1, 2023 that expanded the categories of borrowers
eligible for automatic TPD cancellation. In total, these changes successfully resulted in loan cancelations for approximately 570,000 borrowers.
However,
the automation and other regulatory changes did not significantly
change the application process for consumers who become disabled after
they reach full retirement age or who have already claimed the Social
Security retirement benefits. For these beneficiaries, because they are
already receiving retirement benefits, SSA does not need to determine
disability status. Likewise, SSA does not track disability status for
those individuals who become disabled after they start collecting their
Social Security retirement benefits.
Consequently,
SSA does not transfer information on disability to the Department of
Education once the beneficiary begins collecting Social Security
retirement.
These individuals therefore will not automatically get a TPD discharge
of their student loans, and they must be aware and physically and
mentally able to proactively apply for the discharge.
The
CFPB’s analysis of the Census survey data suggests that the population
that is excluded from the TPD automation process could be substantial.
More than one in five (22 percent) Social Security beneficiaries with
student loans are receiving retirement benefits and report a disability
such as a limitation with vision, hearing, mobility, or cognition.
People with dementia and other cognitive disabilities are among those
with the greatest risk of being excluded, since they are more likely to
be diagnosed after the age 70, which is the maximum age for claiming
retirement benefits.
These
limitations may also help explain why older borrowers are less likely
to rehabilitate their defaulted student loans. Specifically, 11 percent
of student loan borrowers ages 50 to 59 facing forced collections
successfully rehabilitated their loans, while only five percent of borrowers over the age of 75 do so.
Figure
4: Number of student loan borrowers ages 50 and older in forced
collection, borrowers who signed a rehabilitation agreement, and
borrowers who successfully rehabilitated a loan by selected age groups
Age Group
Number of Borrowers in Offset
Number of Borrowers Who Signed a Rehabilitation Agreement
Percent of Borrowers Who Signed a Rehabilitation Agreement
Number of Borrowers Successfully Rehabilitated
Percent of Borrowers who Successfully Rehabilitated
50 to 59
265,200
50,800
14%
38,400
11%
60 to 74
184,900
24,100
11%
18,500
8%
75 and older
15,800
1,000
6%
800
5%
Source: CFPB analysis of data provided by the Department of Education.
Shifting demographics of
student loan borrowers suggest that the current automation process may
become less effective to protect Social Security benefits from forced
collections as more and more older adults have student loan debt. The
fastest growing segment of student loan borrowers are adults ages 62 and
older. These individuals are generally eligible for retirement
benefits, not disability benefits, because they cannot receive both
classifications at the same time. Data from the Department of Education
reflect that the number of student loan borrowers ages 62 and older
increased by 59 percent from 1.7 million in 2017 to 2.7 million in 2023.
In comparison, the number of borrowers under the age of 62 remained
unchanged at 43 million in both years.
Furthermore, additional data provided to the CFPB by the Department of
Education show that nearly 90,000 borrowers ages 81 and older hold an
average amount of $29,000 in federal student loan debt, a substantial
amount despite facing an estimated average life expectancy of less than
nine years.
Existing exceptions to forced collections fail to protect many Social Security beneficiaries
In
addition to TPD discharge, the Department of Education offers reduction
or suspension of Social Security offset where borrowers demonstrate
financial hardship.
To show hardship, borrowers must provide documentation of their income
and expenses, which the Department of Education then uses to make its
determination.
Unlike the Debt Collection Improvement Act’s minimum protections, the
eligibility for hardship is based on a comparison of an individual’s
documented income and qualified expenses. If the borrower has eligible
monthly expenses that exceed or match their income, the Department of
Education then grants a financial hardship exemption.
The
CFPB’s analysis suggests that the vast majority of Social Security
beneficiaries with student loans would qualify for a hardship
protection. According to CFPB’s analysis of the Federal Reserve Board’s
SHED, eight in ten (82 percent) of Social Security beneficiaries with
student loans in default report that their expenses equal or exceed
their income.
Accordingly, these individuals would likely qualify for a full
suspension of forced collections. Yet the GAO found that in 2015 (when
the last data was available) less than ten percent of Social Security
beneficiaries with forced collections applied for a hardship exemption
or reduction of their offset.
A possible reason for the low uptake rate is that many beneficiaries or
their caregivers never learn about the hardship exemption or the
possibility of a reduction in the offset amount.
For those that do apply, only a fraction get relief. The GAO study
found that at the time of their initial offset, only about 20 percent of
Social Security beneficiaries ages 50 and older with forced collections
were approved for a financial hardship exemption or a reduction of the
offset amount if they applied.
Conclusion
As
hundreds of thousands of student loan borrowers with loans in default
face the resumption of forced collection of their Social Security
benefits, this spotlight shows that the forced collection of Social
Security benefits causes significant hardship among affected borrowers.
The spotlight also shows that the basic income protections aimed at
preventing poverty and hardship among affected borrowers have become
increasingly ineffective over time. While the Department of Education
has made some improvements to expand access to relief options,
especially for those who initially receive Social Security due to a
disability, these improvements are insufficient to protect older adults
from the forced collection of their Social Security benefits.
Taken
together, these findings suggest that forced collections of Social
Security benefits increasingly interfere with Social Security’s
longstanding purpose of protecting its beneficiaries from poverty and
financial instability. These findings also suggest that alternative
approaches are needed to address the harm that forced collections cause
on beneficiaries and to compensate for the declining effectiveness of
existing remedies. One potential solution may be found in the Debt
Collection Improvement Act, which provides that when forced collections
“interfere substantially with or defeat the purposes of the payment
certifying agency’s program” the head of an agency may request from the
Secretary of the Treasury an exemption from forced collections.
Given the data findings above, such a request for relief from the
Commissioner of the Social Security Administration on behalf of Social
Security beneficiaries who have defaulted student loans could be
justified. Unless the toll of forced collections on Social Security
beneficiaries is considered alongside the program’s stated goals, the
number of older adults facing these challenges is only set to grow.
Data and Methodology
To
develop this report, the CFPB relied primarily upon original analysis
of public-use data from the U.S. Census Bureau Survey of Income and
Program Participation (SIPP), the Federal Reserve Board Board’s Survey
of Household Economics and Decision-making (SHED), U.S. Department of
the Treasury, Fiscal Data portal, consumer complaints received by the
Bureau, and administrative data on borrowers in default provided by the
Department of Education. The report also leverages data and findings
from other reports, studies, and sources, and cites to these sources
accordingly. Readers should note that estimates drawn from survey data
are subject to measurement error resulting, among other things, from
reporting biases and question wording.
Survey of Income and Program Participation
The
Survey of Income and Program Participation (SIPP) is a nationally
representative survey of U.S. households conducted by the U.S. Census
Bureau. The SIPP collects data from about 20,000 households (40,000
people) per wave. The survey captures a wide range of characteristics
and information about these households and their members. The CFPB
relied on a pooled sample of responses from 2018, 2019, 2020, and 2021
waves for a total number of 17,607 responses from student loan borrowers
across all waves, including 920 respondents with student loans
receiving Social Security benefits. The CFPB’s analysis relied on the
public use data. To capture student loan debt, the survey asked to all
respondents (variable EOEDDEBT): Owed any money for student loans or
educational expenses in own name only during the reference period. To
capture receipt of Social Security benefits, the survey asked to all
respondents (variable ESSSANY): “Did … receive Social Security
benefits for himself/herself at any time during the reference period?”
To capture amount of Social Security benefits, the survey asked to all
respondents (variable TSSSAMT): “How much did … receive in Social
Security benefit payment in this month (1-12), prior to any deductions
for Medicare premiums?”
The
Federal Reserve Board’s Survey of Household Economics and
Decision-making (SHED) is an annual web-based survey of households. The
survey captures information about respondents’ financial situations. The
CFPB relied on a pooled sample of responses from 2019 through 2023
waves for a total number of 1,376 responses from student loan borrowers
in collection across all waves. The CFPB analysis relied on the public
use data. To capture default and collection, the survey asked all
respondents with student loans (variable SL6): “Are you behind on
payments or in collections for one or more of the student loans from
your own education?” To capture receipt of Social Security benefits, the
survey asked to all respondents (variable I0_c): “In the past 12
months, did you (and/or your spouse or partner) receive any income from
the following sources: Social Security (including old age and DI)?”
The Education Department is discharging any remaining loans for more than 260,000 borrowers who attended Ashford University and will move to bar a key executive at Ashford’s former parent company from the federal financial aid system, the agency announced Wednesday.
The agency’s action, totaling $4.5 billion, builds on an August 2023 decision to forgive $72 million in loans for 2,300 former Ashford students after finding that the college repeatedly lied to them about the cost, time requirement and value of its degree program. The discharges through the department’s borrower-defense program are among the largest in the program’s history. Wiping out the loans for Corinthian College students cost the department $5.8 billion, while the discharges for former ITT Technical Institute students totaled $3.9 billion.
The University of Arizona acquired the predominantly online institution Ashford in 2020 and rebranded it as the University of Arizona Global Campus. At first, the university partnered with Zovio Inc., a publicly traded company that owned Ashford, to run the rebranded entity but decided in 2022 to buy Zovio’s assets. The University of Arizona has since moved to completely absorb the online campus.
Borrowers who attended Ashford from March 1, 2009, through April 30, 2020, are eligible for relief.
“Numerous federal and state investigations have documented the deceptive recruiting tactics frequently used by Ashford University,” said U.S. under secretary of education James Kvaal in a statement. “In reality, 90 percent of Ashford students never graduated, and the few who did were often left with large debts and low incomes. Today’s announcement will finally provide relief to many students who were harmed by Ashford’s illegal actions.”
The Biden administration has forgiven $34 billion via borrower defense for 1.9 million borrowers, the department said.
But forgiving loans for Ashford students isn’t enough for the department. Officials proposed a governmentwide debarment of Andrew Clark, who in 2004 founded Bridgepoint Education, which later became Zovio. He stepped down in March 2021.
The debarment would mean Clark could no longer be employed in any role at any institution that receives funding from Title IV of the Higher Education Act of 1965, which authorizes federal financial aid programs, for at least three years.
“The conduct of Ashford can be imputed to Mr. Clark because he participated in, knew, or had reason to know of Ashford’s misrepresentations,” the department said in a news release. “Mr. Clark not only supervised the unlawful conduct, he personally participated in it, driving some of the worst aspects of the boiler-room-style recruiting culture.”
The department’s Office of Hearings and Appeals has final say on whether to debar Clark, who can contest the decision.
With the Comprehensive Spending Review due next Wednesday, I thought it might be worth making some general points about student loans (in anticipation of potential changes to repayment thresholds and other parameters).
I do not think student loans are a good vehicle for redistributive measures.
As I told a couple of parliamentary committees in 2017, the current redistributive aspects are an accidental function of the decision to lower the financial reporting discount rate for student loans from RPI plus 2.2 percent to RPI plus 0.7. Such a downwards revision elevates the value of future cash repayments and in this case it meant that the payments projected to be received from higher earners began to exceed the value of the initial cash outlay.
The caveat here: in the eyes of government. That is the government’s discount rate, not necessarily yours. One of the reasons I favour zero real interest rates over other options is that it simplifies considerations of the future value of payments made from the individual borrower’s perspective.
Originally, student loans were proposed as a way to eliminate a middle class subsidy – free tuition – and have now become embedded as a way to fund mass, but not universal, provision.
I believe that if you are concerned about redistribution, then it is best to concentrate on the broader tax system, rather than focusing solely on the progressivity or otherwise of student loans. You can see from the original designs for the 2012 changes that the idea of the higher interest rates were meant to make the loan scheme mimic a proportionate graduate tax and eliminate the interest rate subsidy enjoyed by higher earners on older loans. The original choice of “post-2012” student loan interest rates of RPI + 0 to 3 percentage points was meant to match roughly the old discount rate of RPI plus 2.2%. Again, see my submission to the Treasury select committee for more detail.
I will just set out a few illustrative examples here as to why some of the debates about fairness in relation to repayment terms need a broader lens.
It is often observed that two graduates on the same salaries are left with different disposable incomes, if one has benefited from their parents, say, paying their tuition fees and costs of living during study so that they don’t lose 9 per cent of their salary over the repayment threshold (just under £20,000 per year for pre-2012 loans; just over £27,000 for post-2012 loans).
That’s clearly the case.
But the parents had to pay c. £50,000 upfront to gain that benefit for their child. And it is by no means certain that option is the best use of such available money. Only a minority of borrowers go on to repay the equivalent of what they borrowed using the government’s discount rate, and as an individual you should probably have a higher discount rate than the government. You also forego the built-in death and disability insurance in student loans.
Payment upfront is therefore a gamble, one where the odds differ markedly for men and women. (See analyses by London Economics and Institute for Fiscal Affairs for the breakdowns on the different percentages of men and women who do pay the equivalent of more than they borrowed.)
If a family has the £50,000 spare (certainly don’t borrow it from elsewhere), then the following options are likely more sensible:
pledge to cover your child’s rent until the £50,000 runs out: this allows student to avoid taking on excessive paid work during study and will boost their disposable income afterwards;
provide the £50,000 as a deposit towards a house purchase;
even put the £50,000 in a pot to cover the student loan repayments as they arise;
etc.
In two of those cases, you’ll have a useful contingency fund too.
All strike me as better options than eschewing the government-subsidised loan scheme.
Moreover, those three options remain in the event of a graduate tax or the abolition of tuition fees.
That fundamental unfairness – family wealth – isn’t addressed by changing the HE funding system. (I write as someone who helped craft the HE pledges in Labour’s 2015 and 2017 manifestos).
In many ways, the government prefers people to pay upfront because it reduces the immediate cash demand. From that perspective, upfront payment works as a form of voluntary wealth taxation (at least in the short-run). Arguably, those who pay upfront have been taxed at the beginning and are gambling on outcomes that mean that future “rebates” exceed the original payment for their children.
Perhaps this line of reasoning opens up debates about means-testing fees and emphasises the need to restore maintenance grants … but really it points to harder problems regarding the taxation of intergenerational transfers and disposable wealth.
I am not a certified financial advisor so comments above are simply my opinions. You should not base investment decisions on them.
Well, the name seems to mislead people into thinking that the provider of student finance is a private institution, potentially making profit out of students, when it is in fact publicly owned.
There are 20 shares in the SLC: 17 are owned by the Department for Education (which has responsibility for English-domiciled students) and another three, each of those owned by one of the devolved administrations.
When you want to see what’s going on with student loans you look at government accounts: national, departmental or those of devolved administrations.
OK. So what’s the point of mentioning this factoid?
I believe that the misunderstanding about the publicly-owned nature of the SLC contributes to thinking that leads to other confusions, such as those surrounding function of the interest rate in student loans and what the effect of reducing them would be.
Let’s leave aside the misunderstandings about the recent ONS accounting changes and concentrate on the claim that reducing interest rates would “address the size of the debt owed itself”.
The government is looking to reduce public debt, but lowering interest rates would only do this in the long-run, if the loan balances eventually written off were written off by making a payment to a private company to clear those balances.
There is probably another confusion here regarding the Janus-faced nature of student debt: it is an asset for government (it is owed to government) and a liability for borrowers. The outstanding balances on borrowers’ accounts are not the same as the associated government debt.
When the government thinks about public debt in relation to student loans, it is thinking about the borrowing it had to take on in order to create the student loans.
Imagine that I borrow £10 in the bond markets to lend you £10 for your studies: I have a debt to the markets and an asset, what you owe me. The interest on the former and the latter are not the same and the terms of repayment on the latter are income-contingent so I don’t expect to get sufficient repayments back from you to cover my debt to the markets.
Student loans are not self-sustaining. It requires a public subsidy – any announcements about loans in the spending review at the end of the month will be about how much subsidy the government is prepared to offer.
Economic & Fiscal Outlook, Office for Budgetary Responsibility (March 2021), adapted from Tables 3.14 & 3.26
I have constructed the table above from forecasts for Total Managed Expenditure and Financial Transactions taken from the Office for Budgetary Responsibility’s latest publication (it accompanied Wednesday’s Budget).
It shows how newly issued student loans are now split into two components for the purposes of presentation in the National Accounts. The portion of loans that are expected to be repaid are classed as “financial transactions”, while the portion expected to be written off is recorded as capital expenditure. The latter scores in “public sector investment”, which was adopted as a new fiscal target prior to the pandemic (net investment cannot exceed 3% of national income), though the rules are currently under review.
We can see that student loan outlay is expected to reach £20billion in the year to March 2021, rising to £23.6billion in five years’ time. The majority of new outlay is now expected to be written off and that share rises over the forecast period. By 2025/26 repayments on all existing loans are projected to re000000000000000ach nearly £5billion per year. (This figure has improved since the sale programme for post-2012 loans was abandoned, since the treasury now gets the receipts that would have gone to private purchasers).
As mentioned in recent posts on here, the Department for Education only currently has an allocation of £4billion to cover the capital transfer / grant element of new loans and so it has to be granted large additional budgetary supplements each year. This situation has dragged on as the planned spending review has been postponed. We can now expect developments in the Autumn.
Given the relative absence of higher education from yesterday’s Autumn Statement, I turned my attention to the Department for Education’s 2019/20 annual accounts, which were published earlier this month.
Regarding student loans, we have been in something of a hiatus since 2018, when Theresa May announced an review of post-18 funding and commissioned the Augar panel, which reported last summer. Although there were suggestions that we might get a long overdue response to the latter yesterday, we will probably have to wait now until the Budget next March, when the government will hope to have a better sense of its spending commitments.
That leaves student loan finance in limbo with the small, nominal budget allocation for loan write-offs shored up by large “Supplementary Estimates” provided by parliament each February.
This is in spite of an apparent “target RAB” of 36% and a budgeting process hanging over from 2014, when the old department for Business, Innovation and Skills (BIS) had responsibility for loans and was being “incentivised” to reduce the cost of the loan scheme. You can see both of these features still stipulated in the latest Consolidated Budgeting Guidance, but they represent zombie policy with little to no bearing on events.
Why so? Well, DfE was given an extra £12billionplus back in February to supplement 2019/20’s budget for “non-cash RDEL” (mostly student loan “impairments”) of £4.7billion per year. (Student loans are “impaired” because the loans are worth less in estimated repayments than the cash advanced.) The supplement produces a total that is more than triple the original allocation.
And… DfE managed to spend nearly £16billion of that last year. The accounts report an “underspend” of £1.1bn against that total.
As can be seen from the table below, “Fair Value movement” for student loans amounted to a non-cash cost of over £14billion.
£17.6billion of new loans were issued, a net increase of £15billion once repayments of over £2billion are considered, but the new impairments on post-2012 loans increased by £12.3billion; for “pre-2012” loans the stock remaining at year-end lost nearly £1.7bn when revalued.
Although the nominal value (“face value”) of outstanding post-2012 loan balances is nearly £105billion, those loans are thought to be worth less than £50bn.
The increases in impairments break down into a RAB charge and a stock charge.
The other £7billion was a write down on loans issued in previous years and is based on changes made to the model used to estimate loan repayments. Only £2.1billion of that downwards revaluation is attributable to Covid (the loans were revalued in July).
The accounts make available a further breakdown of the modelling changes.
The implications seem clear: HE is due a day of reckoning. From a financial perspective, the strongest measures would control outlay rather than boosting repayments. In cash terms, the former has immediate impact on finances, whereas the latter spreads the effect over decades and is politically difficult at this time.
Tuition fees are to be frozen again in 2021/22 and we should expect this to continue. Announcements in FE suggest that the government would also like students to switch away from longer, more expensive HE courses. More radically, I would expect the government to be reviewing the Augar suggestions of tuition fee reductions and caps on places for certain courses (Recommendation 3.7).1
“Over the medium term getting our borrowing and debt back under control. We have a sacred responsibility to future generations to leave the public finances strong, and through careful management of our economy, this Conservative government will always balance the books. If instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?”
1 “We therefore invite the government to consider the case for encouraging the OfS to stipulate in exceptional circumstances a limit to the numbers an HEI could enrol on a specific course, or group of courses. It would be critical for the OfS to be transparent about the grounds and process for such an intervention and we can offer no more than a broad indication of what these circumstances might be. Where there is persistent evidence of poor value for students in terms of employment and earnings and for the public in terms of loan repayments, the OfS would have the regulatory authority to place a limit, for a fixed period, on the numbers eligible for financial support who could be admitted to the course. The institution in question would remain free to recruit to all other courses without restriction. Such a cap system would clearly target the institutions that are offering poor value, rather than altering the entry criteria for individual students.”
p. 102, Independent Panel Report to the Review of post-18 Education & Funding
