Whether a wide swath of federal student loan borrowers will have some debt canceled remains to be seen, but some students have already received a different kind of debt forgiveness.
In 2021, more than 1,400 higher education institutions discharged nearly $1.5 billion in money students owed to their schools, the Biden administration announced Wednesday. The forgiveness comes after years of concern from advocates about the ways that this so-called institutional debt can hold students back from completing their degrees.
The $1.5 billion in debt relief indicates that at least for some colleges, one of the major obstacles to relieving students of this debt was money. In the spring of 2021, the Biden administration announced that colleges could use funds they received as part of the American Rescue Plan — a pandemic-era relief package passed by Congress — to wipe away students’ outstanding balances.
The next day, officials at Delaware State University, an HBCU, announced that it would cancel debt owed to the school by students who had recently graduated. In the weeks and months that followed, dozens of Historically Black Colleges and Universities, community colleges and regional public colleges said they would use the funds to cancel debt owed to them. Delaware State also announced another round of debt relief for its students.
In many cases, the American Rescue Plan funds allowed Delaware State to “remove those barriers so our students could walk across that graduation stage and start their careers,” Tony Allen, the president of the school said on a conference call with reporters Wednesday.
The nearly $1.5 billion colleges like Delaware State wiped away in 2021 is different from the $1.7 trillion of outstanding federal government student loans. Students can wind up on the hook to their school because of an outstanding library fine, parking bill or because they’re struggling to pay tuition. This debt can prevent students from making progress towards their degrees. It often prevents students from signing up for classes at the institution where they owe the money and in some cases, colleges won’t release students’ transcripts unless they pay the funds — making it nearly impossible for students to continue their education elsewhere.
In 2020, Ithaka S&R, a nonprofit focused on educational research, estimated that across the country students owed up to $15 billion to their schools.
Nearly 13 million students received $19.5 billion in emergency relief
The debt relief was just one way colleges deployed funds from the government to keep students in school during the pandemic. In 2021, colleges handed out $19.5 billion in emergency financial help to nearly 13 million students — the money went towards things like food, housing and child care, according to the Department of Education.
About 7% of the pandemic relief funds colleges spent in 2021 went towards discharging money owed to schools. Colleges typically went about this in one of two ways, the Department of Education said; either they awarded students with an emergency financial aid grant they could apply to their unpaid balance or they used funds from the government to cover revenue they lost by discharging the debt.
In some cases, schools used their forgiveness programs to push students who had left school during the pandemic to re-enroll. For example, California State University-San Bernardino required students whose debts the school canceled to take two free classes during the summer and sign up for classes in the fall. Through the program, which discharged $130,000 in unpaid balances, the school brought back 823 students of which 85% were Black and Latino.
At colleges that have historically been underfunded, like community colleges, HBCUs and Tribally Controlled Colleges and Universities, a higher share of revenue lost during the pandemic was a result of the schools’ decision to cover unpaid balances, according to the Department of Education. About 77% of HBCUs spent more than $254 million discharging debt owed to those schools.
Meanwhile, some colleges with endowments topping $1 billion continued to sue students over unpaid debts during the pandemic. A MarketWatch investigation published last year found that Philadelphia-area colleges, including the University of Pennsylvania and Drexel filed more than 100 lawsuits in 2021 seeking to recoup unpaid funds from students.
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