URBAN AGENDA: The governor’s budget includes funding for consumer assistance for student debt
Hidden in Gov. Kathy Hochul’s massive executive budget for 2022-23, her first as the state’s chief executive officer, is an item on page 538 that provides funding for the “operation of consumer assistance programs for educational debt.”
To some, that amount of funding — $3 million annually — may seem like small potatoes in a $214 billion federal budget. But it’s a lifesaver for many New Yorkers whose student loan debt keeps them from participating fully in the state economy, saving for retirement, buying a home and building wealth.
By providing these funds, Gov. Hochul is recognizing that the state needs to do more to assist borrowers struggling with student loan debt. Why? Because the credit services sector has a proven track record of providing incomplete and erroneous information to borrowers, resulting in missed opportunities to reduce or eliminate debt. In fact, a 2019 USDOE Inspector General report found that loan servicers failed to inform borrowers of all their repayment options and miscalculated payments for people participating in income-based repayment plans, among other fraudulent business practices.
Increased demand for student debt help
Governor’s action on student loan debt could not come at a more critical time. The current moratorium on federal student loan repayments, imposed due to the pandemic, expires on May 1, 2022. President Biden has clarified that there will be no further “pauses” in payments and interest. The resumption of student loan payments is sure to spark increased demand for assistance as borrowers continue to grapple with COVID-related pressure on their incomes.
Borrowers are also preparing for changes in the list of companies servicing loans. FedLoan, one of the largest companies servicing state student loans, will exit the state lending services business in 2022. Navient, another large service provider, stopped administering “direct” state student loans last fall. These changes will surely cause confusion and financial problems for borrowers as their accounts will be transferred to other companies.
The federal Public Service Loan Forgiveness (PSFL) program, plagued by loan servicer misconduct and criticized for its high PSFL application rejection rate, was recently amended to ensure more borrowers receive the promised public service career easements . However, loanholders only have until October 31, 2022 to take the necessary steps to receive relief under new program changes. Tens of thousands of New York state employees could be excused under this program. It is crucial that we ensure that all the relief available to consumers is realized and that borrowers can benefit from it. But if they can’t navigate the system, they can’t benefit from it either.
Older adults, low-income people, and black women bear the greatest financial burden from college debt
Student loan debt affects borrowers of all backgrounds, in both urban and rural communities. But it has been particularly distressing for low-income borrowers, first-generation college students, older adults and women, especially black women. After California ($147.2 billion) and Texas ($114 billion), New York has the highest outstanding student loan debt at nearly $99 billion. For the state’s 2.4 million borrowers, the average debt burden is $41,429. And of those 2.4 million borrowers, 279,433 are in default, meaning they have missed loan payments and are at risk of defaulting on their loans.
Many older borrowers fear they will never repay their debt. Edward Smith, 71, placed himself in this category. He has more than $64,000 in student loan debt based on loans he took out to earn bachelor’s and master’s degrees in social sciences. Until 2019, he worked as a social worker for a nonprofit in the Bronx, helping clients with addictions access services and treatment programs. Prior to that, he worked at the NYC Department of Education for 12 years.
After defaulting on his loan a few years ago, Mr Smith said the federal government had begun to balance his wages and, after his retirement, his Social Security income. “It’s impacted my entire lifestyle,” said the Harlem resident, who currently lives in transitional housing. “It has become clear to me that I have to live with it because, in my opinion, there is no way to reduce this mountain of debt monetarily.”
Luckily, a friend told Mr. Smith about EDCAP, an educational debt consumer assistance program my organization created in 2019 with the support of state legislatures to help both federal and personal borrowers manage their debt. EDCAP is a one-stop shop for student loan debt, providing free, unbiased, one-to-one consumer support and case management. Mr. Smith met with an EDCAP advisor who consolidated his loans and helped him place him on an income-based repayment plan. Its loans are now in good standing and EDCAP is evaluating its eligibility for loan forgiveness programs. “Without this program, I would be in dire straits,” Smith said.
With new funding from Gov. Hochul and ongoing support from the state Legislature, we will expand EDCAP services statewide to help more New Yorkers like Mr. Smith get the help they need to effectively pay off their debt manage and, if possible, eliminate.
David R. Jones, Esq., is President and CEO of the Community Service Society of New York (CSS), which has been the leading voice for low-income New Yorkers for more than 175 years. The views expressed in this column are solely those of the author. The City Agenda is available on the CSS website: www.cssny.org.