The Biden administration announced a new plan for broad student loan forgiveness yesterday, making good on Biden’s promise to take another whack at the issue after the Supreme Court tossed out his original plan to cancel a portion of all federal student debt last year. The new plans — there are several major components — are drawn a bit more narrowly in hopes of surviving court challenges, but the White House says they will still provide debt relief for around 30 million Americans, when combined with other debt relief actions the administration has already taken.
Biden announced the new approach yesterday during an appearance in Madison, Wisconsin, where he was introduced by a young Wisconsin couple who together have $75,000 in student loan debt. Their combined monthly loan payments went from $700 down to zero dollars, because they’re both enrolled in Biden’s SAVE income-based repayment plan, which went into effect last year.
They’re using the savings to expand their small marketing business, and they now have enough breathing room to hire their first employee. Look at those JOB CREATORS!
As you’ll recall, last June the Supremes struck down Biden’s first plan, which would have forgiven up to $10,000 in federal student debt for most borrowers (up to $20K for folks who had Pell grants) because, the Court said, it exceeded the loan forgiveness authority in the 2003 HEROES Act. (It was a crap decision, but those are the specialty of the Alito Court.)
Biden pledged he’d have the Department of Education go back to the drawing board and come up with loan forgiveness options under the Higher Education Act, and the plans announced yesterday are the outcome of that work. How will they work?
Interest Forgiveness
For starters, the plan will chop up and throw away (for compost, we hope) up to $20,000 in accrued interest (Washington Post gift link) for borrowers who owe significantly more than their original loan balance because interest piled up ( a whole crowd of Americans raise our hands here). As a result, many low- and middle-income folks could actually see their loans wiped out altogether. Qualifying borrowers must be enrolled in the SAVE income-driven repayment plan (that includes those who consolidate qualifying federal loans into a SAVE plan), and have annual income below $120,000 for an individual, or $240K for couples filing jointly.
The White House expects that this interest forgiveness alone will help about 25 million Americans, including 23 million who’ll see their interest completely forgiven.
Existing Forgiveness Programs
The Education Department estimates that there are a couple million Americans who already qualify for various debt-relief plans authorized by Congress, but who for various reasons haven’t actually applied for them. The two biggest such programs are the SAVE and other income-driven repayment (IDR) plans that SAVE has superseded, and the Public Service Loan Forgiveness (PSLF) program, which forgive a borrower’s remaining balance after they’ve made a minimum number of monthly payments.
Other folks qualify for special forgiveness programs like those designed to cancel debt from scammy for-profit colleges that went bankrupt after soaking students for all the debt they could pile up. That’s a problem that Barack Obama first took on, that Trump Education Secretary Betsy DeVos refused to address until she got sued, and that’s still getting fixed even now.
Since there’s no reason for all these folks to keep carrying debt they shouldn’t owe — by law! — the Ed Department is going to review the data it already has to find all those accounts and eliminate some or all of their debt. Just because it’s the right thing to do. (Not surprisingly, you can easily find Republicans who insist that these folks are slackers too.)
Cancelling Debt That’s Old Enough To Drink Now
This one’s almost a subset of the previous category, since it’s debt that should be gone by now but isn’t. This measure will extend the same sort of debt forgiveness that Yr Doktor Zoom received last summer, for borrowers who could have qualified for income-driven repayment plans long ago but who weren’t enrolled in an IDR plan due to shenanigans by private loan servicing companies (we still hate you, Sallie Mae), or because of massive administrative screwups by either the loan servicers or the Education Department itself, which mismanaged IDR records under administrations of both parties, again going back over 25 years.
As the White House points out, its efforts to give those borrowers some justice have already canceled debt for nearly a million Americans who didn’t get the IDR debt forgiveness they deserved, to the tune of $45.6 billion in debt relief so far. This follow-up will forgive student debt for borrowers who
first entered repayment 20 years ago (on or before July 1, 2005), and borrowers with any graduate school debt would qualify if they first entered repayment 25 or more years ago (on or before July 1, 2000). Both Direct Loans and Direct Consolidation Loans that repay only undergraduate study or graduate study for 20 or 25 years respectively are eligible for relief in this proposal. Borrowers would not need to be on an income-driven repayment plan to qualify.
As we’ve said before, this isn’t a giveaway or a gift; it’s justice.
Students In ‘Low-Financial Value’ Programs
This measure puts some additional teeth into existing Education Department rules that stripped rotten schools or particular programs of eligibility for federal student aid because they cheated students or took advantage of them by offering programs that didn’t actually provide job skills or any real education. It also applies to institutions or programs that went out of business but didn’t provide “sufficient value” to students, meaning that they left students with great big loan balances but no more earning power than a high school graduate. Students who didn’t get the education they went into debt for shouldn’t have that debt. (No, you can’t get loans forgiven if you slacked off in a program what other people got value from.)
Forgiveness For Borrowers Experiencing Hardship
For folks who may not qualify for other loan relief programs but who are undergoing hardship due to life stuff — like high medical debt or childcare costs or other financial burdens — the Ed Department will offer a way to apply for relief. Automatic relief may be available for some borrowers who are in danger of defaulting. The exact rules for hardship qualifications are still being written and will be rolled out soon when the entire debt relief package is submitted as a formal rule.
We’ll also add that permanent disability already qualifies folks for debt forgiveness, and that the administration has already forgiven debt for a large tranche of qualifying borrowers, as required by law.
In the statement announcing the new debt relief proposal, the White House preemptively shot back at Republicans who are howling about the plan, pointing out that it doesn’t make a lot of sense for them to “try every which way to block millions of their own constituents from receiving student debt cancellation.” In addition, the administration rolled out a terrific overview by the President’s Council of Economic Advisers on the economic benefits of student debt relief: not just for those having some or all of their debt erased, but for the entire damn economy, too. You know, like the new employee of that nice entrepreneurial couple who welcomed Biden onstage yesterday.
Way to go, Dark Brandon.
MANY THINGS TO READ ON THIS TOPIC!
[White House / WaPo (gift link) / NPR / Council of Economic Advisers]
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