Washington D.C. – President Joe Biden announced back in late August a proposal to forgive up to $20,000 in student loan debt (assuming one received the Pell Grant – $10,000 if one did not receive the grant). This proposal originally included forgiving student loans held by private corporations, as well as those loaned by the Federal Government. However, President Biden’s administration was forced to walk back this proposal after the U.S. Department of Education put out a Press Release stating that the estimation for this would result in reduced cash flow to the government over the ten-year period to the tune of $305 Billion, which is estimated to be roughly $379 Billion in 2022 dollars, though this estimate is based on highly unknowable economics and market value.
The Department of Education makes the assumption that 81% of borrowers (through Federal Student Loans) will take the necessary steps to get their (up to $20,000 for those having received the Pell Grant) relief.
As a result of Student Debt Relief, millions of borrowers will no longer have to make repayments on their loans and millions more will be able to substantially reduce their repayments. The Department estimates that, over the next 10 years, the program will cost on average $30 billion annually. The ten-year cost in terms of reduced cash flows into the government will be roughly $305 billion.
Information taken from the U.S. Department of Education – 2022
So, what exactly happened? The initial publication of articles failed to state a difference between Federally held, and privately held federally backed (Federal Family Education Loan program) loans. This, however, is no longer the case, as borrowers who have federal student loans which are backed by the government, but are owned by private lenders will now be excluded from this one-time relief. This is expected to effect some 770,000 people.
Some however, are unhappy with the decision to forgive up to $20,000 in student loans. Six states have filed lawsuits against the Biden administration over the legality of the mass forgiveness. According to the Associated Press, “The states of Iowa, Kansas, Missouri, Nebraska and South Carolina joined Arkansas in filing the lawsuit. Iowa has a Democratic attorney general, but the state’s Republican governor, Kim Reynolds, signed on the state’s behalf. The states argue that Missouri’s loan servicer is facing a “number of ongoing financial harms” because of Biden’s decision to cancel loans. Other states that joined the lawsuit argue that Biden’s forgiveness plan will ultimately disrupt revenue to state coffers.”
“It’s patently unfair to saddle hard-working Americans with the loan debt of those who chose to go to college.
The Department of Education is required, under the law, to collect the balance due on loans. And President Biden does not have the authority to override that.”
Leslie Rutledge – Attorney General of Arkansas, 2022
The one-time student loan forgiveness is also facing legal pressure from the Job Creators Network Foundation. They argue that “the Biden administration violated federal procedures by failing to seek public input on the program“. The main argument is one that has been seen before – that President Biden does not have the legal authority to overrule what should be an act of Congress. Another objection to the forgiveness is that it would disproportionately help individuals of colour, rather than helping everyone equally.
“This bailout is going to affect everyone in this country because of the mass size of the program,” she said. “And everyone should have the opportunity to provide their views to the government.” She added: “These universities need to be held accountable for this student debt crisis.”
ELAINE PARKER – PRESIDENT OF JOB CREATORS NETWORK FOUNDATION, 2022
President Biden’s administration claims to have used an act passed after the events of September 11, 2001, which gives the administration “sweeping authority” “to reduce or eliminate student debt during times of national emergency, the Justice Department said in an August legal opinion. The administration cited the COVID-19 pandemic as its emergency.”
