DemDaily: Slashing Student Debt. Explained

August 30, 2022 

President Joe Biden has delivered on his campaign promise to reduce student debt, unveiling an unprecedented plan to provide up to $20,000 in federal student loan cancellation for millions of low-to-middle-income borrowers.

More than 43 million Americans have federal student debt, totaling over $1.6 trillion. According to federal data, almost a third owe less than $10,000 and more than half owe less than $20,000.

The plan is expected to eliminate student debt entirely for an estimated 20 million people and wipe away at least half for millions more.

The Student Loan Debt Relief Plan, announced last Wednesday, will be eligible to borrowers who make less than $125,000, annually caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, and extends the current debt pause to the end of the year.

Release of the long-debated plan comes with some political risk following a string of legislative accomplishments for Biden which have breathed life, if not momentum, back into his policy agenda.

Republicans are criticizing the fairness of the broad debt forgiveness and claim the plan will benefit those with higher take-home pay.

But close to 40% of borrowers burdened by student loans never completed their degrees. That means they also don't get the income boost of a bachelor's degree or skilled training program. According to the DOE, nearly 90% of relief will go to those earning $75,000 a year or less.

The Roosevelt Institute also argues that canceling student debt would not be inflationary, particularly because higher wealth is unlikely to drive spending.

The Biden Administration's Student Loan Debt Relief Plan
The three-part plan, administered by the Department of Education will:

"Provide targeted debt relief to address the financial harms of the pandemic."
* Up to $20,000 in federal debt cancellation to Pell Grant recipients (a type of aid available to low-income undergraduate students), and up to $10,000 in debt cancellation to non-Pell Grant recipients.

* Eligible borrowers are those whose individual income is less than $125,000 ($250,000 for married couples). No high-income individual or household in the top 5% will benefit.

Among the number of estimated borrowers eligible for the relief, 21% are 25 years and under and 44% are aged 26-39. More than a third are borrowers age 40 and up, including 5% of borrowers who are senior citizens.

* Targeting relief to borrowers with the highest economic need will also help advance racial equity. Black students are more likely to have to borrow for school and more likely to take out larger loans. They are also twice as likely to have received Pell Grants compared to their white peers.

* Extend the pause on federal student loan repayment for one final time through December 31, 2022. Payment will resume in January 2023.

"Make the student loan system more manageable for current and future borrowers" by:
Capping monthly payments for undergraduate loans at 5% of a borrower’s monthly income. That is estimated to cut monthly payments in half for undergraduate loans.

Since 1980, the total cost of both four-year public and four-year private college has nearly tripled. According to DOE, the typical undergraduate student with loans now graduates with nearly $25,000 in debt.

* Repairing the Public Service Loan Forgiveness (PSLF) program, which provides a path to loan forgiveness for those working full-time in public service. Biden's plan will ensure borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.

The improvements build on temporary DOE changes to the PSLF, under which more than 175,000 public servants have already had more than $10 billion in loan forgiveness approved.

"Protect future students and taxpayers by reducing the cost of college and holding schools accountable when they hike up prices."
* The Biden Administration has already taken key steps to strengthen accountability, including reversing some of the policies weakened under the Trump Administration. The President championed the largest increase in Pell Grants in over a decade, and one of the largest one-time financial aid packages to colleges and universities through the American Rescue Plan. Part of the $40 billion in assistance was used for emergency student financial aid.

* DOE has re-established the enforcement unit in the Office of Federal Student Aid to hold accreditors’ feet to the fire. A new rule will hold career programs accountable for leaving their graduates with mountains of debt they cannot repay, a rule the previous Administration repealed.

* DOE will also publish an annual watch list of the programs with the worst debt levels in the country, and will request institutional improvement plans from the colleges with the most concerning debt on how they intend to bring down debt levels.

The White House has also said it is prepared for legal challenges, releasing a legal opinion last Tuesday in defense of the executive action, citing the HEROES Act.

The Act, passed in 2003 with bipartisan support, gives the Education Secretary broad authority to waive debt obligations amid a war or national emergency -- such as the ongoing COVID-19 pandemic. It has been utilized in the past by both Biden and Trump when he was in office.

Some question whether Biden's plan could survive Supreme Court scrutiny. In June, the High Court's conservative majority ruled against an Environmental Protection Agency action, citing the "major questions doctrine" which requires Congress to explicitly grant agencies the authority to employ extraordinary actions.

DemList will keep you informed.

Are You Eligible? Resources!
White House Fact Sheet: Student Loan Relief Program
DOE Federal Student Loan Borrower Updates: Sign Up
DOE Federal Student Aid: Information & FAQs
PSLF eligibility and requirements: White House/PSLF
(Note: October 31, 2022 Deadline)
WashPo: 10 Other Ways to Get Your Student Loan Forgiven

"I believe my plan is responsible and fair. It focuses the benefit on middle-class and working families, it helps both current and future borrowers, and it will fix a badly broken system...these actions build on my administration’s effort to make college more affordable in the first place...It’s about opportunity. It’s about giving people a fair shot. It’s about the one word America can be defined by: possibilities." - President Joe Biden

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Sources: White House, DOE, Washington Post, Vox, The Hill, ABC, CBS, MSNBC

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