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Could Biden’s student loan freeze argue for bigger debt relief? | Debt News

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Thanks to vagaries of the accounting world, Donald Trump’s administration had a chance in the final weeks of the presidential race to cancel more than $200 billion of student loans with no immediate hit to the Department of Education’s massive portfolio. Yet it didn’t do it.

Now, perhaps Joe Biden will.

For years, bean counters at the department have been writing down the value of its $1.4 trillion portfolio of student debt as they adopted ever-more-pessimistic views of how much borrowers will repay. In September, the analysts made their biggest adjustment yet, valuing loans at just 82 cents on every dollar owed, down from 104 cents in 2015, records show. The debt is now worth $258 billion less than the amount outstanding.

Had officials under Education Secretary Betsy DeVos decided to identify some of the borrowers least likely to repay, and then forgiven those debts, it wouldn’t have put a major dent in the remaining portfolio’s value. Such losses were, theoretically, already reflected anyway.

By Wall Street standards, the government’s loan writedowns are gigantic, amounting to $98 billion in September alone. While they have gone virtually unnoticed in the political realm so far, they are almost sure to attract attention now, as consumer advocates urge Biden’s new administration to ease the burden on young professionals and jump-start the pandemic-stricken economy.

Some are starting to ask: If the government doesn’t expect to collect hundreds of billions of dollars from borrowers, why not try to erase it now?

“Betsy DeVos has already decided that a bunch of this debt is not going to be paid back,” said Mike Pierce, director of policy at the nonprofit Student Borrower Protection Center and a former official at the federal Consumer Financial Protection Bureau. “That makes it much easier for the Biden administration to justify canceling.”

The Education Department didn’t respond to messages seeking comment both before and after the change in administration.

Loans or Rent

Shortly after his inauguration as U.S. president on Wednesday, Biden asked the department to extend his predecessor’s pandemic policy of waiving interest and to continue letting borrowers skip monthly payments on government-owned student loans until at least the end of September. About 24 million borrowers have stopped payments, department data show.

Biden has expressed sympathy for borrowers but suggested he’s reluctant to wipe away debt without an act of Congress. In November, he said student-loan burdens are “holding people up. They’re in real trouble. They’re having to make choices between paying their student loan and paying their rent.”

While Wall Street often values its debt holdings based on the prices they would fetch in the market, the government’s markdowns mainly reflect “amounts not expected to be recovered.” From a valuation perspective, that means there wouldn’t be much immediate difference between forgiving doomed loans and waiting for borrowers to turn out their empty pockets.

Still, there’s the issue of moral hazard: If authorities offer relief to struggling borrowers, it could create an incentive for others to stop repaying too, causing more of the portfolio to sour.

Rush for Relief

Much of the gap between what is owed and what the government reckons will be repaid stems from loan programs that cap monthly payments relative to borrowers’ incomes. Income-based repayment plans promise the possibility of loan forgiveness after two decades of steady payment, or one decade for public-service workers. As annual borrower defaults climbed past 1 million, Barack Obama’s administration made the repayment plans increasingly generous. Enrollment has tripled since 2014.

The anticipated cost of income-based plans has risen, too. The Education Department recently realized borrowers in the plans were earning “substantially” less than it had forecast. So the government cut its projections of borrowers’ future income by 35%, boosting the estimated tab to be forgiven in later years.

“There already is significant loan forgiveness,” said Constantine Yannelis, who researches student debt and teaches finance at the University of Chicago’s Booth School of Business. “We’re just talking about moving it up or giving it to borrowers who wouldn’t qualify for it under current rules.”

Yannelis said he recently found that debt owed by lower-income borrowers had a lower present value to the federal government than debt owed by high-income borrowers.

Rising Odds

Across-the-board loan cancellations make little sense, but the government has all the information it needs to target forgiveness, said Adam Looney, a finance professor at the University of Utah whose research on student loans dates to his time as a tax official at the U.S. Treasury Department. In fact, he said, the Education Department’s own valuation reflects a belief the government will eventually cancel large amounts owed by people earning little or at least too little relative to their debts.

Forgiving loans could encourage future students to over-borrow on the hope that their debts will be wiped away, advisers to the federal consumer bureau warned in a report this month. And that could, in turn, remove some of the pressure on colleges to lower their costs.

But there is a growing expectation in the public anyway that relief is coming. In a December survey by the Federal Reserve Bank of New York, respondents estimated there is a 39% chance – more than ever in five years of polling – that the federal government will cancel some amount of student loans over the next year.



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Iran and world powers hint at talks over nuclear deal | Nuclear Energy News

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Tehran, Iran – Unofficial talks between Iran and world powers that signed an ailing 2015 nuclear deal appear to be the only way forward as neither side seems willing to take the first step.

Iran says the United States, which in 2018 unilaterally abandoned the Joint Comprehensive Plan of Action (JCPOA), must first return to full compliance under the accord by lifting all economic sanctions it imposed.

President Joe Biden has said former US leader Donald Trump’s “maximum pressure” campaign has failed, but nevertheless insists Iran must first reverse steps to reduce its commitments under the deal in response to the sanctions.

This week, Iran said it is considering an offer by the European Union’s foreign policy chief Josep Borrell to hold unofficial talks with the P4+1 – China, Russia, the United Kingdom, France and Germany minus the US – that would also include the US as a “guest”.

Ali Vaez, director of the Iran Project at the International Crisis Group, said it is likely officials from Tehran and Washington would sit together at an informal meeting hosted by the EU in the coming weeks.

“There, they are likely to agree to an interim set of measures to buy more time for negotiating a timetable for a mutual return to full compliance with the JCPOA,” he told Al Jazeera.

The meeting was called in light of Iran’s latest move on Tuesday to stop voluntarily implementing the Additional Protocol – a document that gives the International Atomic Energy Agency (IAEA) broad inspection authorities of Iranian nuclear sites.

In a statement after Iran stopped providing the United Nations’s nuclear watchdog with short-notice inspection capabilities, the three European signatories of the nuclear deal called the move “dangerous”.

“It will significantly constrain the IAEA’s access to sites and to safeguards-relevant information,” the E3 foreign ministers said. “It will also constrain the IAEA’s ability to monitor and verify Iran’s nuclear programme and nuclear-related activities.”

Three-month window

But an agreement Iran’s government reached with the IAEA on Sunday seems to have bought more time for diplomacy.

After IAEA General Director Rafael Grossi travelled to Tehran, the two sides agreed Iran would continue monitoring activities of its nuclear sites, but would not hand over the camera tapes.

The Atomic Energy Organization of Iran announced that if the US fails to lift sanctions on Iran within those three months, the data would be permanently deleted, leaving a gap in the IAEA’s monitoring of the country’s nuclear activities.

Iran’s Foreign Minister Mohammad Javad Zarif said earlier this week the US has imposed 1,600 sanctions on Iran, all of which need to be lifted to restore the nuclear deal.

Supreme Leader Ayatollah Ali Khamenei also said this week Iran could boost its uranium enrichment to a purity of 60 percent from the current 20 percent if the country needs to, but stressed his nation does not seek nuclear weapons.

On Wednesday, Iran’s ambassador in Geneva told the UN-sponsored Conference on Disarmament it is up to the United States to make the first move.

“The onus is on the offending party to return, restart, and compensate for the damages as well as to reassure that they would not renege again,” Ambassador Esmaeil Baghaei Hamaneh said.

‘Increasing suspicions’

Vaez said the IAEA agreement “deferred a crisis that could have derailed diplomacy before it even had a chance of getting off the ground”.

Barbara Slavin, director of the Future of Iran Initiative at the Atlantic Council, said the time bought by the deal could open the way for all sides to negotiate – and implement – a road map back to JCPOA compliance.

She told Al Jazeera “it won’t be the end of the world but it won’t be good” if the nuclear deal signatories fail to come to an agreement in those three months.

“Iran will continue to take steps out of the JCPOA and to reduce cooperation with the IAEA, increasing suspicions that it is working on weapons,” Slavin said of the ramifications of a no-deal scenario.

“Iranians will continue to suffer from the impact of sanctions. Iranian politicians opposed to the deal and to any relaxation of tensions with the West will get stronger, and Iran will likely also be more difficult to deal with in Iraq, Yemen, Afghanistan, et cetera.”

Presidential elections loom

The fact that the June presidential elections in Iran are fast approaching only adds to the pressure to find a solution to the nuclear deal dilemma.

President Hassan Rouhani, who won his office by promising to engage with the West and improve Iran’s economy by ending isolation, is nearing the end of his second term.

It is widely believed a conservative or a hardliner – who could come from a military background – will emerge victorious in the elections.

Iran’s last large-scale elections came in February 2020 when the lowest voter turnout in the f40-year history of the country gave way to the current hardline parliament whose December law obliged Rouhani’s administration to boost uranium enrichment and restrict IAEA inspections.

“It is obviously much easier to negotiate a return to the nuclear deal with individuals who negotiated it in the first place than to work with a new cast of characters – or old ones from the Ahmadinejad days – who are much more antagonistic to the United States,” Slavin said in reference to former president Mahmoud Ahmadinejad.

Vaez concurred saying: “It will be a risky gambit for Washington not to restore the JCPOA fully before its key proponents in Iran leave power.”

But he added it would be unlikely for the next Iranian president to undo what has been state policy as the supreme leader is always the ultimate decision-maker.

Meantime, however, Rouhani’s opponents are likely to mount more opposition to his dealings with international stakeholders.

On Monday, angry legislators said Iran’s agreement with the IAEA is “illegal” and called for the president to be handed over to the judiciary for legal punishment.

The heated confrontation even prompted the supreme leader to intervene, saying they must resolve their differences so a single voice would be communicated from Iran to the world.



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