FINALLY, SOME RELIEF FOR THOSE WITH STUDENT LOANS

 

…President Biden made the announcement and the explanation from the White House

Is this just the first step in having a cancellation of American’s student loans?

President Biden delivered on a controversial campaign promise to cancel a portion of the education debt held by millions of Americans.  This ended uncertainty about what they would ultimately owe.

Biden said he would cancel up to $10,000 in federal student loan debt for borrowers who earn less than $125,000 per year, or under $250,000 for married couples who file jointly. Those who receive Pell Grants, federal aid for lower-income students, could see up to $20,000 in forgiveness.

The announcement was the culmination of years of activism that pushed what was once a fringe idea into the mainstream, onto political agendas and now into actual policy. It arrives ahead of congressional midterm elections and could give Democrats a boost with some voters but also threaten their standing with those who say the amount is not enough, or too much.

Conservatives immediately assailed the move as irresponsible and patently unfair to the millions of Americans who never attended college, never borrowed or paid off their loans. Some lawmakers and activists had also called for Biden to cancel even more loans.

Biden gave a robust defense of the policy, touting that it is designed to deliver the greatest benefits to the neediest borrowers. The White House estimates that nearly 90%t of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could quickly have their debt completely canceled.

“I will never apologize for helping America’s working class, America’s middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations,” Biden said during an afternoon announcement at the White House. “The outrage over helping working people with student loans … is dead wrong.”

Biden said the policy would help Americans crawl out from underneath their debt, placing them on a stronger financial footing to get ahead on bills, save for a home or even start a family.

The president is also extending a pandemic-era pause on federal student loan payments, first implemented under the Trump administration, through Dec. 31, and proposed creating a new income-based repayment plan to lower monthly bills for undergraduate borrowers.

Here are some numbers that everyone should know:

Most student debt is in large loans, but most loan borrowers have small loans

53% of those that owe student debt owe less than $20,000. 

(33% of the loans have $10,000, or less left on their loans.)

20% of those with loans owe $10k to $20K

21% of those with loans owe $20K -$40K

18% of those with loans owe $40K-$100K

7%  of those with loans owe over $100K

Source: Department of Education

It is assumed that this is just a first step in the canceling student debt process.  More is expected for the larger loans in the future.

The debt forgiveness applies to loans that were originated on or before June 30, which could offer relief to some current college students, if their household income was under $250,000 during the last federal student aid award year, as well as borrowers with much older debt.

The announcement puts to rest months of deliberation over whether Biden would use his executive authority to forgive a portion of the $1.6 trillion federal student debt burden.

The Biden administration has already approved nearly $32 billion in loan forgiveness to 1.6 million people through targeted actions for disabled borrowers and those defrauded by their colleges.

But Biden had drawn the ire of activists and some student loan borrowers who were growing tired of waiting for a decision on broader cancellation, a pledge he first made as a candidate. Biden had previously expressed reluctance to grant forgiveness to people who attended elite universities, while moderate Democrats and Republicans derided the policy.

“With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis,” Senate Majority Leader Charles Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.) said in a statement. “No president or Congress has done more to relieve the burden of student debt and help millions of Americans make ends meet.”

Schumer and Warren had urged the administration to go much further and cancel at least $50,000 per borrower. They said reducing the burden of student loans would help stimulate the economy and close the racial wealth gap, as Black borrowers shoulder a disproportionate amount of debt.

Warren, who had also urged Biden to provide additional relief to Pell recipients, said in an interview that she will continue to push for more relief for borrowers. Still, she added: “I’m absorbing the magnitude of what just happened, and I think it is important to just keep building on it.”

The executive order will probably face legal opposition, said Lanae Erickson, who heads social policy at Third Way, a centrist Democratic think tank. She suspects the policy could be challenged on the same grounds as the West Virginia vs Environmental Protection Agency case, in which the Supreme Court ruled the federal government can’t act on policy with broad economic significance without clear congressional authorization.

Last year, House Speaker Nancy Pelosi (D-Calif.) said at a news conference that Biden did not have the authority to cancel loans on his own.

“Advocates and policymakers who pushed to take this unprecedented step are responsible for also communicating to borrowers that there is a strong chance it will never come to fruition,” Erickson said. “Given that the application may not be available until the end of the year, the strong likelihood is that courts will enjoin this action before it gets started, leaving borrowers in limbo.”

The Biden administration released a legal opinion asserting that the Higher Education Relief Opportunities for Students Act gives the education secretary the “authority to reduce or eliminate the obligation to repay the principal balance of federal student loan debt.”

The decision to add additional forgiveness for Pell Grant recipients reflects the White House’s desire to limit debt relief to Americans most in need. Pell grants are a form of aid for families typically earning less than $60,000 a year. It is the largest federal grant for higher education and a critical resource for students from lower-income households.

Seven in 10 college graduates with federal loans also received a Pell Grant, and Pell recipients have on average an additional $4,500 more debt than other college graduates, according to the Institute for College Access & Success, an advocacy organization. Many Pell recipients are racial minorities, veterans and first-generation college students.

“It’s great to see the president take action to forgive the crushing debt burdens of borrowers from the most disadvantaged backgrounds,” said Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning think tank.

The Biden administration also proposed creating a new repayment plan tied to borrowers’ earnings, capping monthly payments for undergraduate loans to 5% of a person’s discretionary income instead of 10%. It also would raise the amount of income that is considered non-discretionary and forgive balances after 10 years of payments, instead of 20 years.

Republicans have remained steadfast in their disapproval of broad cancellation, arguing that Biden would be placing the burden of the broken student loan system on the backs of taxpayers.

This month, a group of congressional Republicans, led by Rep. Virginia Foxx (N.C.), released what they called an alternative to Biden’s blanket debt-forgiveness plans. The proposal would establish new borrowing limits, reduce interest and simplify repayment options while ending popular loan-cancellation programs. It also calls for an end to the suspension of federal student loan payments.

The Government Accountability Office (GAO) says the Federal Government is not making money off of student loans.

Rep. Foxx said: “This is a slap in the face to those who never went to college, as well as borrowers who upheld their responsibility to taxpayers and paid back their loans. It’s a signal to every freshman stepping foot on campus to borrow as much as they can because taxpayers are picking up the tab.”

Biden’s extension of the payment pause means borrowers will have another four months before they must begin repaying their loans again. The moratorium, which had been set to end Aug. 31, was first instituted in 2020 because of the economic upheaval caused by the pandemic. The Trump administration twice extended it, and Biden’s White House has now done so five times.

The latest extension is as much a reprieve for the Education Department as it is for borrowers. The federal agency has a host of initiatives underway, including lifting millions of people out of default, and helping millions more move closer to loan forgiveness, and limited staff to do them.

More than 100 congressional Democrats raised those concerns in a letter to Biden last month, urging the president to maintain the suspension of payments. They argued that resuming payments would also force millions to choose between paying their loans and living expenses as consumer prices sit at record highs.

Still, the Biden administration frustrated borrowers, policymakers and its own student loan servicers by waiting to announce an extension days before payments were set to resume. The delay created confusion, as some borrowers received notices of the impending restart from their servicers in error.

Some of President Bidens future efforts will be to lower the costs for young Americans to go to college.  Today’s costs have continued to rise much more than normal inflation percentages.

Copyright G. Ater 2022