Written by: Chiara Espinal
Edited by: Michael Shalonov
In August of 2022, President Biden first introduced his plans for a loan forgiveness program that would relieve millions of Americans from the financial hindrances brought on by student loan debt. According to a piece released by the White House, the cost of both four-year public and four-year private college has “nearly tripled” since 1980 – a reality that has only been exacerbated by the COVID-19 pandemic. Americans with college degrees from public and private universities are often left with crippling debt after graduation, and Biden’s student loan relief program proposes a temporary solution to this problem. However, Biden’s campaign promise does not go without its share of controversy.
According to a study conducted by the Department of Education, the average undergraduate student who takes out student loans graduates with around $25,000 in debt. Students from low-income and middle class families are more likely to borrow to cover the cost of school than are students from high-earning households. As the current total federal student loan debt amount continues to grow, America’s middle class feels the brunt of this debt burden. Middle-class borrowers are typically met with high interest rates and even higher monthly payments that make it difficult to build wealth and accomplish financial goals such as buying a home. More concerningly, an estimated 16% of borrowers are in default, meaning that the government can garnish the borrower’s wages and leave a lasting dent in their credit score, making the pay-off process all the more difficult.
Biden’s three-part solution offers “targeted debt relief” to America’s working families through the Department of Education, which will provide up to “$20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients” (“FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most”). Borrowers are only eligible for this relief program if their individual income is under $125,000, or $250,000 for married couples. The proposed pause on federal student loan repayment is also anticipated to be extended one final time through December 31, 2022, with payments expected to resume beginning in the new year.
The second part of Biden’s plan aims to make the student loan system more borrower-friendly in the coming years. The Department of Education has proposed an “income-driven repayment plan” that will protect low-income borrowers from making any payments and will limit monthly payments for undergraduate loans to just “5% of a borrower’s discretionary income” (“FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most”). This plan may lower the average annual loan repayment amount by up to $1,000 for current and future borrowers. President Biden has since spearheaded the largest increase to Pell Grants in nearly a decade and has also insisted on plans to double the maximum Pell Grant amount for future college students.
However, in September 2022, the Congressional Budget Office estimated that Biden’s debt forgiveness proposals would cost the government about $400 billion. Several states have challenged Biden’s policies under the claim that the debt cancellation plan “intrudes upon congressional authority and threatens future state revenues and money earned by state entities that invest in or service student loans” (Chung). In the past week, six states have asked the U.S. Supreme Court to halt Biden’s bid to reinstate the original relief plan that would cancel billions in student loan debt, claiming that Biden’s plan exceeds his administration’s authority. The six states who have challenged the plan include Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. Five of the six states are Republican-governed with the exception of Kansas. In their filing, the states claimed that Biden's administration is attempting to "assert power far beyond anything Congress could have conceived" (Chung). On November 14th, the Biden administration countered by stating that the Supreme Court decision to block the plan would leave millions of “economically vulnerable borrowers in limbo” (Chung). Biden has expressed confidence in the legality of his plan and has since extended an official pause on student loan repayments in the hopes that the Supreme Court will reach a decision on the matter before June 2023, which is when the pause will expire.
[The views expressed in this article are those of the author and the author alone; they do not necessarily represent the views of all members of the RULR Editorial Board and Rutgers University]
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