Explained | The U.S. student loan crisis and Joe Biden’s new cancellation plan

The story so far: United States President Joe Biden has already released a new plan to cancel billions in student loan debt after the conservative majority Supreme Court of the U.S. (SCOTUS) in a 6-3 decision on June 30 blocked his ambitious plan to cancel $430 billion in debt.

Although Mr. Biden has said the alternative plan is consistent with the Supreme Court ruling, it could still face a legal challenge, while the fate of millions of American borrowers — who may have to start repaying their loans once a pause on repayment lifts — hangs in the balance.

How big is the U.S. student loan debt?

As per the latest Federal Reserve figures, more than 45 million Americans owe a total of $1.77 trillion in student debt to the U.S. government. As per the Congressional Research Service (CRS), approximately 63% of the U.S. population over the age of 25 has at some time enrolled in some level of higher education and roughly 17% of the country’s population aged 18 or above has federal student loans. Meanwhile, the median student loan debt is just above $17,000.

Research by the nonprofit College Board suggests that over the past three decades, the cost of higher education has risen sharply in the U.S., doubling at private four-year colleges and universities and rising even further at public four-year schools. Between 2006 and 2019, the outstanding balance of student loans has nearly quadrupled.

In the U.S., the federal government is the primary source of student loans, running several loan programmes to help students and their families finance higher education.

These loans are authorised under Title IV of the Higher Education Act of 1965 (HEA). Under primary loan programmes, the U.S. government makes loans using federal capital, meaning funds from the U.S. Treasury Department, after which the outstanding loans become assets of the federal government.

What are repayment options for borrowers?

Once a student borrows a federal loan, they enter into a contractual obligation to repay the loan with interest. They can sign up for specific repayment plans, with repayment periods spanning a decade or more. Under a standard 10-year repayment plan, a borrower has to make 120 equal payments of principal and interest spread over a decade.

Then there are Income-driven repayment (IDR) plans, the kind that President Biden wanted to alter in order to cancel student debt. Such plans cap the monthly payment installments at a share of the borrower’s discretionary income, say 10%- 15%; extend the repayment period over a span of 20 or 25 years, and forgive or write off any unpaid principal and interest remaining after that period.

What was Mr. Biden’s original student debt cancellation plan?

The plan, announced in August 2022, was supposed to cancel $10,000 in federal student loan debt for those making less than $125,000 a year or households making less than $250,000. The recipients of the government’s Pell Grant, who usually need more financial assistance, were to get an additional $10,000 worth of their debt forgiven.

College students qualified if their loans were disbursed before July 1. The plan made 43 million borrowers eligible for some debt forgiveness, with 20 million possibly having their debt erased entirely, according to the Biden administration.

The White House said 26 million people had applied for debt relief, and 16 million people already had their relief approved. As per the Congressional Budget Office, the program would cost about $400 billion over the next three decades.

The Education Department also proposed to improve the existing income-driven plan mentioned above, capping monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, down from the current 10%. The administration claimed that the plan would mean lowering of the average annual student loan payment by more than $1,000 for both current and future borrowers.

Why did the plan run into trouble?

There were two legal challenges to the plan which landed in the Supreme Court—one involving six Republican-led States and the other filed by two students.

In the case filed by the students, they argued, among other things, that the Biden administration didn’t go through the proper process in enacting the plan. Texas-based U.S. District Judge Mark Pittman, appointed by former President Donald Trump, opined that Mr. Biden overstepped his authority. To cancel the debt, the Biden government relied on the Higher Education Relief Opportunities for Students Act, commonly known as the HEROES Act, which was enacted in the aftermath of the 9/11 attack and allows the Secretary of Education to waive or modify terms of federal student loans during times of war or national emergency. The White House cited the COVID-19 pandemic as a national emergency.

The ruling, however, argued that the HEROES Act did not accord the Secretary the authority for mass debt cancellation. The judge said it only granted flexibility during national emergencies, adding that it was unclear whether debt cancellation was a necessary response to the COVID-19 pandemic, which Mr. Biden had by then declared as over.

As for the suit by the six States— Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina— a lower court dismissed it, ruling that the States could not challenge the programme as they were unable to show that they wereharmed by it.

However, the case went to a panel in the U.S. Court of Appeals for the 8th Circuit, where all judges Republican President appointees, which put the programme on hold the next day. After this, the Supreme Court agreed to weigh in.

On June 30, SCOTUS held that the administration needs Congress’ endorsement before undertaking such a costly programme. The majority rejected arguments that the bipartisan 2003 HEROES Act gave Mr. Biden the power he claimed.

“Six States sued, arguing that the HEROES Act does not authorize the loan cancellation plan. We agree,” Chief Justice John Roberts wrote for the court.

Justice Elena Kagan dissented, joined by the court’s two other liberal judges, writing that the majority of the court “overrides the combined judgment of the Legislative and Executive Branches, with the consequence of eliminating loan forgiveness for 43 million Americans.”

What is the Biden administration’s new plan and what’s next for borrowers?

The president announced on the day of the Court ruling that the Education Secretary had initiated a new rulemaking process for the alternative plan, this time using the Secretary’s authority under the Higher Education Act, 1965, the law governing most federal student loan programmes, as mentioned above.

“I’m announcing today a new path consistent with today’s ruling to provide student debt relief to as many borrowers as possible as quickly as possible,” Biden said. “We will ground this new approach in a different law than my original plan, with the so-called Higher Education Ac,” the President said. The plan is also going to take longer as the actual process of negotiated rule making could take as far as fall this year.

While the President contends the new path is consistent with the Court’s opinion, legal scrutiny could be expected. Meanwhile, advocate and legal scholar Luke Herrine, an assistant professor of law at the University of Alabama, wrote in a 2019 paper that the “compromise and settlement” authority, a clause in the HEA, empowers the Secretary of Education with the broad authority to “compromise, waive, or release’’ federal student debt.

Instead of the current Revised Pay as You Earn (REPAYE) plan, the income-driven plan Mr. Biden’s original programme sought to alter, the administration has proposed the new Saving on a Valuable Education (SAVE) plan. “This income-driven repayment plan will cut borrowers’ monthly payments in half, allow many borrowers to make $0 monthly payments, and save all other borrowers at least $1,000 per year,” says the factsheet on the plan. 

The specifics remain the same— requiring borrowers to pay half the current share of discretionary income at 5%. Instead of forgiving loan balances after 20 years of annual payments, this plan also forgivesoutstanding principal after 10 years. Additionally, the plan seeks to raise the amount of income that is considered non-discretionary and therefore is protected from repayment. As for borrowers currently facing uncertainty, the President says they will be able to enroll for SAVE later this summer, “before any monthly payments are due.” Borrowers who sign up or are already signed up for the REPAYE plan will be automatically enrolled.

Mr. Biden also announced an alternative to the pause on student loan repayments scheduled to restart at the end of the summer: a temporary 12-month “on-ramp” for repayment, from October 1, 2023 to September 30, 2024, during which missed loan payments will not harm borrowers’ credit and the threat of default will be temporarily removed.

What are the arguments for and against broad loan cancellation?

Numerous federal student loan repayment and forgiveness programmes providing targeted relief to individuals in certain circumstances currently exist. However, proposals for broader-scale student loan debt relief—including cancellation of all or a portion of federal student loan debt—have gained considerable attention in recent years.

As the cost of education increases while wages stagnate, it has become harder for students to pay off their loans. Studies also point out how federal grants and scholarships have not kept pace with the increasing cost of education and attendance.

President Biden has explained the need for loan cancellation by arguing that higher education “should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity.” A White House factsheet notes that middle-class American borrowers struggle with high monthly payments and “ballooning balances that make it harder for them to build wealth, like buying homes, putting away money for retirement, and starting small businesses.”

CRS Research also points to the composition of borrowers, of which “black students were more likely to borrow Title IV” HEA loans for undergraduate and graduate education “relative to any other racial or ethnic subgroup”. It also finds that certain groups of borrowers (Black, American Indian, and lower-income borrowers) have made less progress in paying down the original principal of debt when compared with other borrowers.

The government also noted how student debt burden falls disproportionately on Black borrowers. “Twenty years after first enrolling in school, the typical Black borrower who started college in the 1995-96 school year still owed 95% of their original student debt,” the White House factsheet on student debt reads.

On the other hand, critics of broad-based cancellation of loans point out how one-time loan cancellation may fail to address the underlying causes of crushing loan debt. One major cause is the skyrocketing cost of education and the need for an overhaul of the system. Another factor flagged by studies is the increasing availability and utilization of loan repayment plans that allow borrowers to make monthly payments lower than the interest accruing on their loans, meaning negative amortization ​​which may result in a larger outstanding loan balance over time.

Analysts have highlighted that policies providing across-the-board loan cancellation may result in higher-income households receiving more cancellation benefits compared to lower-income households when the total dollar amounts cancelled or the savings in annual debt service payments are looked at. Besides, large cancellation plans may also significantly impact federal budgets and debt.

(With inputs from Reuters, Associated Press)

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Here’s Joe Biden’s Student Debt Forgiveness Backup Plan … And His Other Debt Relief Plans, Too!

Joe Biden went on TV yesterday to say that he thinks the Supreme Court got it wrong when it nuked his plan for up to $20,000 in student loan forgiveness in a very dubious 6-3 ruling. He was obviously pretty cheesed about the decision, especially the fact that so may Republicans are just fine with doling out corporate loans, tax cuts, and subsidies but suddenly care very much about the national debt if a struggling family gets a little help from the government, to give them some breathing room. But it wasn’t just condemnation of the Court and the greedheads; Biden also highlighted what he intends to do now to help families with student debt.

Previously!

Supreme Court: You Owe Your Soul To The Student Debt Store

Joe Biden’s Here With A Few Choice Words About The Supreme Court’s Student Debt Decision

Here’s the video; we have so much to get to in this post that we’re only barely going to mention the assholish question at the end from Jacqui Heinrich — of Fox News, of course — who accused Biden of giving “false hope” to millions with his debt forgiveness plan, because presumably he should have known in advance the Supremes would act lawlessly. Kudos to Joe for not letting that foolishness stand, and for pointing out that “Republicans snatched away the hope” borrowers had been given by the plan. Also, that brief flash of anger in his eyes before his fairly measured reply. I like this guy.

youtu.be


Biden said that since the Court ruled — stupidly, we’ll add — that the loan forgiveness plan wasn’t authorized by the 2003 HEROES Act, his administration would pursue a new path to loan forgiveness, using the Education Department’s authority under the 1965 Higher Education Act (HEA), which established low-interest federal student loans in the first place. It was signed into law by Lyndon Johnson and has been reauthorized nine times, with revisions to update it, like the establishment of Pell grants in 1972.

The law authorizes the secretary of Education to “compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption,” and that clause was what Democrats like Elizabeth Warren and Chuck Schumer had in mind when they called on Biden to forgive student debt. Real policy nerds can dive into this 7-page analysis that Sen. Warren requested in 2020 from Harvard Law School’s Legal Service Center, which concludes that the HEA gives the secretary the power to grant “broad or categorical debt cancellation.”

Biden said he had already directed Education Secretary Miguel Cardona to start the process of using the HEA to bring back debt forgiveness; because of the lengthy federal rulemaking process, it will likely take months to reach a final rule, which of course would then be subject to challenge in the same Court that decided the HEROES Act’s authorization for the secretary to issue “waivers and modifications” of student loans in national emergencies wasn’t good enough. To be sure, the HEA language is more expansive, but we suspect that still might not be enough for the Roberts Court because it doesn’t also say “including cancelling up to $10,000 of debt for most borrowers, or $20,000 for those who received Pell grants. P.S.: Alito’s a tool.”

In addition to the second try at loan forgiveness, Biden also said that when the pandemic loan payback and interest pause ends on October 1 and loan payments are again due, the Education Department will allow a 12-month “ramp up” period through September 30, 2024. That’s to make sure that

financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

In addition, Biden called attention to the Education Department’s proposed revisions to the Income Driven Repayment (IDR) plan for student loans, which were announced in January and are still moving through the federal rulemaking process. Once that revision goes into effect, many borrowers in the most popular income-based repayment plan will qualify for far lower monthly payments, and many financially challenged borrowers will actually see their monthly payments go to zero. At the end of 20 to 25 years, depending on the type of loan, their remaining debt will be discharged. Folks who initially borrowed $12,000 or less will have their loans forgiven after 10 years of payments. More on that program here.

More! Here!

Did Joe Biden Just Fix Student Loan Debt Going Forward? Mayyyyybe!

I Got My Student Loans Ready For Joe Biden’s Big Income-Based Forgive-A-Thon And You Should Too

Also too, while Biden didn’t mention it in his remarks yesterday, keep in mind that, in another administrative action the Education Department announced last year, millions of borrowers in IDR plans of all sorts will qualify for a special, one-time adjustment that could dramatically reduce the number of payments they need to get their loans discharged. More on that here; I still plan on doing an update to that next week, too.

Finally, Biden also touted other measures his administration has taken, like increasing the size of Pell Grants; fixing processing roadblocks that had kept participants in the Public Service Loan Forgiveness program from actually getting their loans forgiven (Biden too-graciously didn’t name Trump’s Ed Secretary, Betsy DeVos, who made the problem worse); and cancelling more than $66 billion in student debt for those eligible public service workers, as well as for students who were defrauded by the grifty for-profit colleges that were DeVos’s very special darlings.

The more I look at how the Education Department is fixing what’s been wrong with student loans, the more impressed I am.

Now, if we could just tackle the many factors that have made college so expensive in the first place — first among them states’ abandonment of adequate tax support — we’d really have something to crow about.

[CBS News / NYT / Harvard Law School / Income Driven Repayment at Studentaid.gov / One-Time IDR Adjustment at Studentaid.gov]

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Supreme Court ‘Skeptical’ Of Student Debt Relief, If You Can Believe That!

The Supreme Court heard oral arguments yesterday in two cases challenging President Joe Biden’s student debt relief plan, and dear readers, we hope you are sitting down for this: The Court’s rightwing majority didn’t sound very open to the idea that the administration has the authority to forgive student loans, even under the 2003 law that the administration says is designed to allow exactly that. We won’t know for sure until the Court rules in the case, probably in June.

If there’s any chance for the policy to escape being overturned, it probably hinges on whether the Court decides that the plaintiffs in the two cases have standing to sue at all. If the Court decides they don’t, then it won’t address the legality of the program either way.

Of course, this being the Alito Court, it’s also possible the Supremes will just make shit up and decide that even if the plaintiffs lack standing, some obscure principle pulled from Brett Kavanaugh’s beer cooler — if you know what we mean and we’re not sure we do — makes it OK to address the merits of the case anyway.


Under the Biden plan, borrowers could have up to $10,000 of federal student debt forgiven; borrowers who received Pell Grants for low income families qualified for up to $20,000 in debt cancelled. The vast majority of debt relief was targeted at middle and lower-income borrowers.

Solicitor General Elizabeth Prelogar argued that the 2003 HEROES Act gives the Education Department all the authority it needs to make changes to student loan programs in a time of national emergency, since the law says the Education secretary has power to “waive or modify any statutory or regulatory provision” to keep borrowers from being wiped out financially during “a war or other military operation or national emergency.” And here we are, in a public health emergency so severe that most federal student loan payments have already been put on hold for almost three years.

Justice Elena Kagan agreed, saying that “Congress could not have made this much more clear,” and saying that compared to a lot of other cases, this was a slam dunk: “We deal with congressional statutes every day that are really confusing. This one is not.”

But of course nothing is clear if you don’t want it to be, so Chief Justice John Roberts kept insisting that whatever the plain text of the HEROES Act says, the total estimated cost of the debt relief program — about $400 billion over the next decade — was so big that it would need a specific extra double supersecret authorization from Congress, because of the “major questions doctrine” the Court pulled out of its ass in earlier cases under Roberts. To help make his point, Roberts repeatedly rounded that cost up by another hundred billion dollars, calling it a “half trillion dollar” program again and again.

Prelogar pointed out that the Education secretaries under both Donald Trump and Joe Biden have already used their authority under the HEROES Act to put federal student loans in forbearance, with no interest accruing, since March of 2020. Pausing loan payments, she said, means the federal government has lost roughly $100 billion a year, according to the Government Accountability Office.

“That has been an economically significant program,” Ms. Prelogar said of the pause. “It’s currently costing the federal government more per year than this loan forgiveness plan would cost the government annually.

What’s more, Prelogar said, ending that pause without also relieving debt would mean that scads of borrowers would default on their loans altogether, which could result in a shock to the economy at large. She didn’t even get into the fact that if hundreds of thousands of people default, that’s going to cost the federal government a lot, plus the knock-on effects of those people being ruined financially.

Justice Sonia Sotomayor echoed that argument, pointing out that the stakes for low-income borrowers could be pretty darn catastrophic:

There’s 50 million students who are – who will benefit from this. Who today will struggle. Many of them don’t have assets sufficient to bail them out after the pandemic. They don’t have friends or families or others who can help them make these payments. […]

And what you’re saying is now we’re going to give judges the right to decide how much aid to give them instead of the person with the expertise and the experience, the secretary of Education who’s been dealing with educational issues and the problems surrounding student loans.

We thought it was a pretty good argument, but then we’re liberal simps who think the government is there to help people, so we don’t count.

The question of whether the challengers to the policy have standing may be the best hope for the loan forgiveness program, since some of the rightwing justices seemed more skeptical of their claims that they’ll be harmed by student debt relief. We’ll just go with the CNN summary here:

In Biden v. Nebraska, a group of Republican-led states argued the administration exceeded its authority by using the pandemic as a pretext to mask the true goal of fulfilling a campaign promise to erase student loan debt.

The second case is Department of Education v. Brown, which was initially brought by two individuals who did not qualify for the full benefits of the forgiveness program and argue the government failed to follow the proper rulemaking process when putting it in place.

In the case involving the states, much of the argument involved how many angels can dance on the head of Missouri’s nonprofit agency what processes student loans, the “Missouri Higher Education Loan Authority,” aka MOHELA. It was set up to insulate the state itself from having to process loans, but the state is arguing that, for the purpose of standing, it may as well be the state.

But as Justice Kagan pointed out, MOHELA is a legally separate entity, and it didn’t choose to sue:

“Usually we don’t allow one person to step into another’s shoes and say, ‘I think that that person suffered a harm,’ even if the harm is very great,” she said.

If Missouri really controlled the loan authority, Justice Amy Coney Barrett asked James A. Campbell, Nebraska’s solicitor general, who represented the states, “why didn’t the state just make MOHELA come then?”

Campbell explained that was “a question of state politics,” which sounds to us like some bullshit, although we are not a lawyer.

Prelogar hammered on that point, saying that MOHELA would definitely have standing if it had sued, but it hadn’t, now had it? Justice Ketanji Brown Jackson chimed in too, saying that MOHELA’s

financial interests are totally disentangled from the state, it stands alone, it’s incorporated separately, the state is not liable for anything that happens to MOHELA. […] I don’t know how that could possibly be a reason to say that an injury to MOHELA should count as an injury to the state.

In the other case, the plaintiffs argued that the program isn’t fair, because their own loans don’t qualify for forgiveness. One plaintiff, Myra Brown, has private student loans that aren’t held by the government, and the other, Alexander Taylor, only qualifies for $10,000 in loan relief because he didn’t get a Pell grant in college, so his case claims he was cheated out of $10K in debt relief.

No, it doesn’t make a damn bit of sense that they think the solution to their woes is to eliminate all debt relief for 40 million other people. But there we go, thinking like a blogger instead of a Supreme Court justice. The New York Times notes that

Justices across the ideological spectrum seemed unpersuaded by the borrowers’ position.

“Talk about ways in which courts can interfere with the processes of government through two individuals in one state who don’t like the program can seek and obtain a universal relief barring it for anybody anywhere,” Justice Neil M. Gorsuch said.

Even so, some justices were really excited about the supposed “unfairness” of targeting debt relief to people who had the most to lose, and not to everyone who might conceivably get help. Roberts even wondered why it would be fair to relieve debt for student loans during the pandemic but not for, say a loan taken out by a hypothetical owner of a lawn care business.

Sotomayor had a pretty quick reply to that, pointing out that “everybody suffered in the pandemic, but different people got different benefits because they qualified under different programs.” Hello, PPP loans, for freaking instance (this is us cheerleading, not Sotomayor). (Also, your Wonkette got a PPP loan, and it was forgiven, which is the first time we’ve ever been part of the “so rich the government gives you money” crew.)

Justice Kagan reminded Roberts that the case is actually about student loans, not anything else, mister strict constructionist:

Congress passed a statute that dealt with loan repayment for colleges, and it didn’t pass a statute that dealt with loan repayment for lawn businesses… [Us, butting in again: PPP loans! We already said PPP loans, Elena.] And so Congress made a choice, and that may have been the right choice or it may have been the wrong choice, but that’s Congress’s choice.

The Court will rule in June, and even if the debt forgiveness program is thrown out, many borrowers should at least be able to get some relief under the Biden administrations’ revamped income-based repayment program, which everyone with federal student loans should at least look into.

DO THIS NOW!

Did Joe Biden Just Fix Student Loan Debt Going Forward? Mayyyyybe!

I Got My Student Loans Ready For Joe Biden’s Big Income-Based Forgive-A-Thon And You Should Too

Until of course conservative states and the SCOTUS fuck that over too, the end.

[NYT / CNN / AP]

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