Linda McMahon Poised to Be Next Secretary of Education (Forbes)

The Senate Health, Education, Labor, and Pensions Committee has advanced Linda McMahon's nomination for Secretary of the US Department of Education (ED). The HELP panel voted 12-11 to approve McMahon, former CEO of World Wrestling Entertainment and co-founder of the America First Policy Institute. According to the Hill, McMahon is almost certain to be confirmed by the Senate. President Trump has directed McMahon to dismantle ED, which includes funding for poor school districts and children with disabilities, in addition to holding a student loan portfolio estimated to be worth $1.6 Trillion. A number of civil rights organizations, including the NAACP, oppose the nomination. DOGE already fired dozens of workers from the small agency. 

List of Government Contractors Involved with the Student Loan Portfolio

Thanks to Alan Collinge and Student Loan Justice for this information on government contractors for the US Department of Education's Student Loan Portfolio. 

What now for the US Department of Education?

What happens now with the US Department of Education now that Elon Musk claims that it no longer exists? It's hard to know yet, and even more difficult after removing career government workers that we have known for years.  

We are saddened to hear of contacts we know who have been fired: hard working and capable people, in an agency that has been chronically understaffed and politicized. 

We also worry for the hundreds of thousands of student loan debtors who have borrower defense to repayment claims against schools that systematically defrauded them--and have not yet received justice. 

And what about all those FAFSA (financial aid) forms for students starting and continuing their schooling? How will they be processed in a timely manner?

Without funding and oversight, the Department of Education looks nearly dead. But with millions of poor and disabled children relying on Title I funding and IDEA and tens of millions more with federal student student loans, it's hard to imagine those functions disappearing for good.  

Let's see how much slack is taken up by private enterprise and religious nonprofits who may benefit from the pain. With student loans, much of the work has already been contracted out. It would not be out of the question for the student loan portfolio to be sold off to corporations who could profit from it. And that may or may not require Congressional approval.  

Social Security Offsets and Defaulted Student Loans (CFPB)

Executive Summary

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.¹ 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.² 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.³

This spotlight describes the circumstances and experiences of student loan borrowers affected by the forced collection of Social Security benefits.⁴ It also describes how forced collections can push older borrowers into poverty, undermining the purpose of the Social Security program.⁵

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.⁶

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.⁷ 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.⁸ The Social Security Administration calls the program “one of the most successful anti-poverty programs in our nation's history.”⁹ In 2022, Social Security lifted over 29 million Americans from poverty, including retirees, disabled adults, and their spouses and dependents.¹⁰ Congress has recognized the importance of securing the value of Social Security benefits and on several occasions has intervened to protect them.¹¹

This spotlight describes the circumstances and experiences of student loan borrowers affected by the forced collection of their Social Security benefits.¹² 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;¹³ and (4) they face forced collections of tax refunds, Social Security benefits, and wages among other payments.¹⁴ 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.¹⁵

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 192,300.¹⁶ 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.¹⁷

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 62.¹⁸
• 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 2019.¹⁹ Compounding these trends is the fact that older borrowers are twice as likely to have a loan in default than younger borrowers.²⁰

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).²¹ 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.²²

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.²³ 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.²⁴ As a matter of practice, the Department of Education often passes these fees on directly to borrowers.²⁵ Furthermore, these fees accounted for nearly 10 percent of the average monthly borrower’s lost Social Security benefits which was $183 during this time.²⁶ 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 $1,524.²⁷ 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,²⁸ 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).²⁹

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.³⁰ 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.³¹ 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.³²

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.³³ 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.³⁴

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.³⁵ 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.³⁶ 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.³⁷ 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.³⁸ 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.³⁹ 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).⁴⁰

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.⁴¹ This suggests that a threshold that is higher than the poverty level will more effectively protect against hardship.⁴² 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.⁴³ 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.⁴⁴ 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.⁴⁵ 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.⁴⁶ In 2016, a GAO study documented the significant barriers to TPD that Social Security beneficiaries faced.⁴⁷ 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.⁴⁸ 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.⁴⁹ In total, these changes successfully resulted in loan cancelations for approximately 570,000 borrowers.⁵⁰

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.⁵¹

Consequently, SSA does not transfer information on disability to the Department of Education once the beneficiary begins collecting Social Security retirement.⁵² 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.⁵³

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.⁵⁴ 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.⁵⁵

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,⁵⁶ while only five percent of borrowers over the age of 75 do so.⁵⁷

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.⁵⁸ 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.⁵⁹

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.⁶⁰ To show hardship, borrowers must provide documentation of their income and expenses, which the Department of Education then uses to make its determination.⁶¹ 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.⁶²

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.⁶³ 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.⁶⁴ 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.⁶⁵ 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.⁶⁶

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.⁶⁷ 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 public-use version of the survey dataset, and the survey documentation can be found at: https://www.census.gov/programs-surveys/sipp.html

Survey of Household Economics and Decision-making

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 public-use version of the survey dataset, and the survey documentation can be found at https://www.federalreserve.gov/consumerscommunities/shed_data.htm  

Appendix A: Number of student loan borrowers ages 60 and older, total outstanding balance, and average balance by age group, August 2024

Age Group	Borrower Count (in thousands)	Balance (in billions)	Average balance
60 to 65	1,951.4	$87.49	$44,834
66 to 70	909.8	$39.47	$43,383
71 to 75	457.5	$18.95	$41,421
76 to 80	179.0	$6.80	$37,989
81 to 85	59.9	$1.90	$31,720
86 to 90	20.1	$0.51	$25,373
91 to 95	7.0	$0.14	$20,000
96+	2.8	$0.05	$17,857

Source: Data provided by the Department of Education.

The endnotes for this report are available here. 

Our First FOIAs of 2025

The Higher Education Inquirer has started the year by digging deeper into the Federal Student Loan Portfolio using the Freedom of Information Act (FOIA) process. If you would like to know something that has not been made public by the US Department of Education (ED), please contact us. ED has a number of additional websites for public information, such as the College Scorecard, Federal Student Aid website, College Navigator, IPEDS data website, and the Closed Schools Monthly Report. But the availability of good data could be reduced in coming years. As usual, we appreciate your comments below.  

 

 

Image from US Department of Education regarding FOIA Request 25-01935-F

 

 

 

When Banks Lost Control of the Student Loan Mess

History can be many things. It can be both informative and purposely deceptive. And from time to time, historical events need to be revisited if we seek the truth. We also find critical historical analysis essential when we think about US higher education and student loan debt from a People's perspective.

In a previous article we said Best and Best's classic The Student Loan Mess needed to be updated and reexamined. Although the book was an exceptional chronicle of the student loan industry from 1958 to 2013, it missed at least one key event, the 2008-2010 bailout of Sallie Mae and a number of banks who made questionable private loans guaranteed by the US government. This lesson is especially important if the US government decides to get out of the student loan business or reduce government oversight of student loans.

From 1965 to 2010, the federal government was a backstop for private student loans, Guaranteed Student Loans, also known as the FFEL loans. Annual volume of private loans skyrocketed, from $5B in 2001 to over $20B in 2008, when 14 percent of all undergraduates had one. A secondary market for private student loan debt (student loan asset-backed securities) also began to flourish. An industry group, America's Student Loan Providers (ASLP), provided political cover for private lenders.

In 2007, President George W. Bush signed the College Cost Reduction and Access Act of 2007 (HR 2669) which cut subsidies to lenders and increasing grants to students. But this did little to contain the growing mountain of student loan debt. A mountain of unrecoverable debt that was crushing millions of consumers as the US was facing an enormous economic crisis, the Great Recession.

In rereading The Student Loan Mess, we also discovered that these private entities had not only made questionable loans, some private lenders had also bribed university officials to become preferred lenders. How commonplace this student loan grift was has not been adequately explored.

In 2008, the Bush government began a bailout of these private lenders, the Ensuring Continued Access to Student Loans Act (ECASLA), which amounted to $110B. This event occurred largely without notice. And because a larger Great Recession was happening, the ECASLA never received much media attention.

As part of Health Care and Education Reconciliation Act of 2010, President Obama's takeover of the Guaranteed Student Loan program in 2010, did get attention. Ending the Guaranteed Student Loan program was supposed to save the US government $66B over an 11-year period. This rosy projection never materialized. The FFEL loans acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program are now part of the Direct Loan portfolio. The U.S. Department of Education (ED) acquired an additional $20.4 billion in face amount of FFEL loans from lenders during the transition from the FFEL program to the Direct Loan program.

The FFEL loans that were not acquired by the U.S. Department of Education (ED) during the transition to the Direct Loan program remained with the original private lenders. These loans continue to be serviced by the private lenders that issued them.

For-profit colleges, the engine for much of this bad debt, did get scrutiny, and from 2010 to 2023, their presence was reduced. But overpriced education and edugrift continued in many forms. And after a short respite from 2020 to 2024, the mountain of bad student loan debt continues to grow.

Related links:

A Report on the Loan Purchase Programs Created by ECASLA

Student Loan Debt Clock

America's Student Loan Providers | C-SPAN.org

Student Loan History (New America)

Trump 2024 and the Student Loan Portfolio

The US Department of Education (ED) handles the student loans of about 40 million US citizens, holding on to about $1.6 Trillion in debt--which is considered an asset to the US government.  And ED-FSA (Federal Student Aid) hires tens of thousands of workers, mostly contractors, to service the debt. But that could change in a few years. If Donald Trump is elected President.  

Under President Trump, debtors might expect that their loans to be transferred over to large corporations--at some point--with the sale being used to reduce the federal deficit, and to cut labor at ED. This would aid in the effort to eliminate the US Department of Education, as Trump has promised on the campaign trail.

Selling off the student loan debt portfolio may or may not require approval from anyone outside of the President. At least one study, by McKinsey & Company, has already been conducted regarding this possibility. 

In 2019, the Trump administration hired McKinsey to analyze the $1.5 trillion federal student loan portfolio. This analysis was part of a broader effort to explore options for managing the portfolio, including potentially selling off some of the debt. Results were never published. The analysis was conducted alongside a study by FI Consulting, which focused on the economic value of the portfolio, noting that the valuation could vary depending on future default rates, prepayment rates, and economic conditions.

The new owners of the sold off debt would most likely be big banks and other large companies, both domestic and foreign, that find value in the debt. There would be political and social resistance.  And many questions would need to be answered, in detail.

Would large banks or other large corporations be better stewards of the debt?

Would the bidding be transparent?  

Would consumers be able to challenge loan repayments or ask for forgiveness?  

What would happen to the contracts of the existing debt servicers?  

Will this expand the existing Student Loan Asset-Backed Securities market? 

Related link:

The Student Loan Mess Updated: Debt as a Form of Social Control and Political Action

Capital One-Discover Merger: Another Blow to the Educated Underclass

Capital One and Discover Financial Services have publicly announced plans to merge. The deal worth a reported $35B would give this new entity greater power, competing (or colluding) on a higher level with JP Morgan Chase, Visa, and Mastercard.  

For working people who know anything about finance and debt, and have debt themselves, this should be frightening. Together, both banks hold about 400 million credit cards.  

Capital One and Discover are both banks and high-interest credit card lenders. That means they are issued cheap money from the US Federal Reserve and lend it to naive and desperate consumers. 

Discover student loans are used by college students who have used up their Pell Grants and federal loans and are working (and borrowing) to graduate or extend their education. The interest rates can exceed 12 percent.  

Nelnet is the student loan servicer for Discover private student loans, but their $10.4 Billion portfolio is for sale.

Discover also bundles student loans and sells them as securities, student loan asset-backed securities or SLABS. Institutional investors, like retirement and investment funds, buy the debt up as stable investments.  

Capital One does not have student loans, but college students use credit cards from both of these companies to make their way through school, paying the price later. 

While there may be regulatory challenges for the Capital One-Discover deal, it's not likely that the merger, or any other financial consolidation, will be prevented--no matter how onerous it is to consumers.  

Related links:

"Let's all pretend we couldn't see it coming" (The US Working-Class Depression)

One Fascism or Two?: The Reemergence of "Fascism(s)" in US Higher Education

The Student Loan Mess Updated: Debt as a Form of Social Control and Political Action

SLABS: The Soylent Green of US Higher Education

Fraud Claims Against University of Phoenix Continue to Grow

The Higher Education Inquirer received a FOIA response today from the US Department of Education stating that 73,740 consumer fraud claims have been filed against the University of Phoenix. These claims have been made through the Department of Education's Borrower Defense to Repayment program.

The Sweet v Cardona lawsuit, concluded earlier in 2023, allowed for about 19,000 claims to be settled immediately--in favor of student debtors and against the University of Phoenix. Another 15,000 or so cases are supposed to be expedited as a result of the federal ruling.  

23-02373-F Final Response

We estimate that the potential liability of these immediate claims to be $200M-$600M with another $500M-$1.5B for the remaining cases. The higher estimates are based on the median federal loan debt among borrowers who completed their undergraduate degree ($32,421) and a study by Adam Looney and Constantine Yannelis that indicated University of Phoenix debtors, on average, paid off almost nothing of their principal. The authors also estimated that total student loan debt from more than a million University of Phoenix debtors was $35B. 

The Department of Education has not presented any estimates on the total debt by University of Phoenix students or its costs to the US government.  

Thousands of new cases continue to be filed. From January 2015 through January 1, 2022, there were 32,040 Borrower Defense claims made against the University of Phoenix. An additional 41,700 claims were filed between 2022 and August 2023. 

Idaho Sale

University of Phoenix's current owners are Apollo Global Management and Vistria Group, who have been trying to unload the online robocollege for years. The University of Idaho has been the most recent target, but the sale is far from being consummated.  The entire deal is expected to cost $685M. Idaho Attorney General Raul Labrador has filed a lawsuit to stop or at least slow down the acquisition. And members of the Idaho Legislature continue to have questions.

In order to shield itself from liability the University of Idaho created a non-profit organization called 43 Education. But the state university may be responsible if the non-profit fails to make enough money to repay the bondholders of the new non-profit. 

The liability of these Borrower Defense claims to the current or future owners of the University of Phoenix seems possible in light of a recent statement by Department of Education Undersecretary James Kvaal. Kvaal said the University of Arizona Global Campus may be liable for the misdeeds of Ashford University (UAGC's former name). The University of Arizona purchased Ashford in 2020 for one dollar. 

Related articles:

Feds Cancel Loans for 2,300 Students Scammed by Ashford U. So Why Does the School Still Get Tax Dollars? (David Halperin)

University of Phoenix and the Ash Heap of Higher Ed History

Borrower Defense Claims Surpass 750,000. Consumers Empowered. Subprime Colleges and Programs Threatened.

The Growth of "RoboColleges" and "Robostudents"

More Transparency About the Student Debt Portfolio Is Needed: Student Debt By Institution

 

University of Phoenix and the Ash Heap of Higher Ed History

 (Updated September 14, 2023)

The University of Phoenix (or at least its name) may soon enter the ash heap of US higher education history--and rise again as a state-run robocollege.  But it shouldn't--at least not yet. Once hailed as the leader in affordable adult education for workers entering middle management, it is a shell of its former self--in an economy less certain for workers and consumers. 

With the school's wreckage are approximately one million people buried alive in an estimated $14B-$35B in student loan debt.  

Pattern of Fraud

As of January 2023, more than 69,000 of these student loan debtors have filed Borrower Defense to Repayment fraud claims with the US Department of Education against the University of Phoenix (UoPX). Many more could file claims when they become aware of their rights to debt relief. In the partial FOIA response below, the US Department of Education reported that 69,180 Borrower Defense claims had been made against the school.

In a recent federal case, Sweet v Cardona, most if not all of the 19,860 "denied" cases were overturned in favor of the student loan debtors.  We estimate the smaller number of fraud claims alone to amount to hundreds of millions of dollars.  

Through a FOIA request, we also discovered 6,265 consumer complaints in the FTC database. In 2019, the FTC and the University of Phoenix settled a claim for $191M for deceptive employment claims.  Based on the consumer complaints, we have no reason to believe that Phoenix has changed its behavior as a bad actor. 

On May 3, 2023, six US Senators (Warren, Brown, Blumenthal, Durbin, Merkley, Hassan) called for the US Department of Education, Department of Veterans Affairs, and Department of Defense to investigate the University of Phoenix for launching a new program suggesting that it was a public university.  The letter stated that the school "has long preyed on veterans, low-income students, and students of color."

Wolves in Sheep's Clothing

University of Phoenix's owners could potentially be liable for refunding the US government for the fraud. But as a state-related organization, it may be more politically difficult to claw back funds, no matter how predatory the school is.  

Purdue University Global and University of Arizona Global set a precedence in state-related organizations acquiring subprime schools (Kaplan University and Ashford University) and rebranding them as something better. Whether they are better for consumers is questionable. Phoenix will have to cut costs, largely by reducing labor. Using Indian labor (like Purdue Global) and AI could be profitable strategies.  It's likely that this deal, even if profitable, will add fuel to the growing skepticism of higher education in the US. 

University of Phoenix's Finances

Apollo Global Management and Vistria Group currently own University of Phoenix but have been trying (unsuccessfully) to unload the subprime college for more than two years. Little is publicly known about the school's finances. What is known is that UoPX gets about $800M every year from the federal government, through federal student loans, Pell Grants, GI Bill funds, and DOD Tuition Assistance.

Despite this government funding, US Department of Education data show the school's equity value for the Arizona segment declined significantly, from $361M in FY 2018 to $187M in FY 2021. 

$347M of the University of Phoenix's $518M in assets are intangible assets. Intangible assets typically include intellectual property and brand reputation. The school has $348M in liabilities.  

The University of Phoenix has been reducing expenses by cutting instructional costs, from $70M in FY 2020 to $60M in FY 2021. UoPX spends about 8 percent of its revenues on instruction.

Marketing and advertising expenses are not available, but Phoenix has been visible on the Discovery Channel's Shark Week, CBS' Big Brother, and other television events. ISpot.tv reports that University of Phoenix spends millions of dollars each year on television ads.  On one ad alone, the ad spend from February 2023 to July 2023 was an estimated $3.5M. 

Attempts to Sell UoPX

There have been two known potential buyers for the University of Phoenix: the University of Arkansas System and the University of Idaho. In both cases, the owners required the potential buyers to keep the deal secret until the sale was imminent.  

Fear of the impending higher education enrollment cliff appears to be an important pitch to potential buyers. 

Arkansas, the first target, was in the process of making the deal, and it might have gone through if nit for the voice of one whistleblower and one outstanding investigative reporter, Debra Hale Shelton of the Arkansas Times.

In the case of Idaho, news of the potential deal was publicly noted just one day before the preliminary agreement was made with the Idaho Board of Education. Two other secret meetings were held before that.  

A number of journalists including Kevin Richert (Idaho EdNews), Laura Guido (The Idaho Press), Troy Oppie (Boise State Public Radio), and Noble Brigham (Idaho Statesman) have exposed some of the problems and potential problems with the deal.  In June, Idaho legislators began questioning the acquisition.  

More recently, the opinion editor at the Idaho Statesman argued that the deal may actually be worthwhile. 

Particulars about the finances are sketchy at best and misleading at worst.  The University of Phoenix is said to include $200M in cash in the deal, but they have not said how much of that sum is required by law as "restricted cash"--money the school needs if the Department of Education needs to claw back funds.  Phoenix also claims to be highly profitable, but without showing any evidence.  

What is known about the deal is that the University of Idaho will have to borrow $685M and put its (bond) credit rating at risk. The school has not identified important information how the bonds would be sold (underwriters, bond raters, date to maturity, interest rate). 

The University of Idaho has created an FAQ to answer questions about the sale, but HEI has identified a number of misleading statements about University of Phoenix's present finances (failure to report the school's equity), potential liability (cost of tens of thousands of Borrower Defense claims), and leadership (lack of background information about Chris Lynne, the President of the University of Phoenix).  These deficiencies have been reported to the University of Idaho and to the Representative Horman. 

On June 20, Idaho Attorney General Raul Labrador filed a lawsuit to halt, or at least slow down the deal. 

The University of Idaho submitted a Pre-Acquisition Review from the US Department of Education, and it may take up to three months before the application is completed. 

As of September 2023, the deal is far from done.  Since this article was first published there have been a number of developments:

On September 11,  US Senators Elizabeth Warren, Dick Durbin, and Richard Blumenthal called on University of Idaho President Green to abandon the sale.  The Senators also asked Green if he had a plan to pay for the Borrower Defense claims, noting that University of Arizona may be on the hook for thousands of claims against Ashford University (aka University of Arizona Global campus).

In November, the Joint Finance-Appropriations Committee of the Idaho Legislature is expected to discuss the issue again.

*The Higher Education Inquirer has made a FOIA request for more up-to-date numbers from the US Department of Education. We have also filed FOIA requests with the FTC. 

Related link: 

How University of Phoenix Failed. It's a Long Story. But It's Important for the Future of Higher Education.

The Growth of "RoboColleges" and "Robostudents"

More Transparency About the Student Debt Portfolio Is Needed: Student Debt By Institution

Borrower Defense Claims Surpass 750,000. Consumers Empowered. Subprime Colleges and Programs Threatened.

Higher Education Inquirer Selected Archive (2016-2023)

In order to streamline the Higher Education Inquirer, we have removed the HEI archive from the right panel of the blog; information that could only be seen in the non-mobile format.   

The HEI archive has included a list of important books and other sources, articles on academic labor, worker movements, and labor actions, student loan debt, debt forgiveness, borrower defense to repayment and student loan asset-backed securities, robocolleges, online program managers, lead generators, and the edtech meltdown, enrollment trends at for-profit colleges, community colleges, and small public and private universities, layoffs and closings of public and private institutions, consumer awareness and organizational transparency and accountability, neoliberalism, neo-conservativism, neo-fascism and structural racism in higher education, and strategic corporate research.  

HEI Resources  
Rutgers University Workers Waging Historic Strike For Economic Justice (Hank Kalet)Borrower Defense Claims Surpass 750,000. Consumers Empowered. Subprime Colleges and Programs Threatened.I Went on Strike to Cancel My Student Debt and Won. Every Debtor Deserves the Same. (Ann Bowers)
Erica Gallagher Speaks Out About 2U's Shady Practices at Department of Education Virtual Listening Meeting
An Email of Concern to the People of Arkansas about the University of Phoenix (Tarah Gramza)
University of California Academic Workers Strike for Economic Justice
The Power of Recognizing Higher Ed Faculty as Working-Class (Helena Worthen)
More Transparency About the Student Debt Portfolio Is Needed: Student Debt By Institution
Is Your Private College Financially Healthy? (Gary Stocker)
The College Dream is Over (Gary Roth)
"Edugrift": Observations of a Subprime College Lead Generator (by J.D. Suenram)
The Tragedy of Human Capital Theory in Higher Education (Glen McGhee)
Let's all pretend we couldn't see it coming (US Working Class Depression)
A preliminary list of private colleges at risk
The Growth of Robocolleges and Robostudents
A Letter to the US Department of Education and Student Loan Servicers on Behalf of Student X (Heidi Weber)
The Higher Education Assembly Line
College Meltdown Expands to Elite Universities
The Slow-Motion Collapse of America’s Largest University
What happens when Big 10 college grads think college is bullsh*t?
Coronavirus and the College Meltdown
Academic Capitalism and the next phase of the College Meltdown
When College Choice is a Fraud
Charlie Kirk's Turning Point Empire Takes Advantage of Failing Federal Agencies As Right-Wing Assault on Division I College Campuses Continues
Navient and the Zombie SLABS Meltdown (Bill Harrington)
College Meltdown at a Turning Point
Charting the College Meltdown
Colleges Are Outsourcing Their Teaching Mission to For-Profit Companies. Is That A Good Thing? (Richard Fossey)
Rebuilding the Purpose of the GI Bill (Garrett Fitzgerald)
Paying the Poorly Educated (Jack Metzger)
Forecasting the US College Meltdown
College Meltdown 2.0
State Universities and the College Meltdown
"20-20": Many US States Have Seen Enrollment Drops of More Than 20 Percent (Glen McGhee and Dahn Shaulis)
Visual Documentation of the College Meltdown Needed