Biden’s Student Loan Forgiveness Plan: What It Entails and Why We Need It
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Why do Americans need student debt forgiveness?
Over the past few decades, an American college education has become inordinately costly. From 1980 to 2019, after adjusting for inflation, the average earnings for an American in their mid-20s has risen approximately 20%. Over that same timeframe, the average cost of American college has increased by over 160%. For low-income Americans, Federal Pell Grants have stagnated. They used to cover about 75% of the cost of a four-year public school education; now, the maximum Pell Grant covers only about 25% of that cost. These unreasonably high costs leave many American college students with only one option: loans.
These loans which so many American students rely upon are incredibly difficult to pay off. About 16% of borrowers are currently in default – almost a third of which are senior citizens still crushed by the weight of their student debt. Traits like race can disproportionately make certain borrowers more vulnerable to remaining in debt for longer periods. A study done by Brandeis University cited by the White House revealed that twenty years after enrolling in higher education, “the typical Black borrower who started college in the 1995-96 school year…still owed 95% of their original student debt.” Current American student loan practices are clearly predatory, taking advantage of the desperate situation so many students find themselves in when beginning their post-high school education, hitting certain students harder than others.
At a school like Wesleyan, it can be easy to forget how pervasive this problem is. Only about ⅓ of the current freshman class has taken out loans to finance their college education. Nationally, over half of students take out student loans. Considering that Wesleyan has such a disproportionately wealthy student population (for the class of 2013, almost half of the student population came from families with incomes in the top 5% nationally), it makes sense that the percentage of students taking out loans is so much lower than the national average. It is important to remember this context when considering the significance of student loan forgiveness – even though it may not feel like a pressing issue to the majority of students here, it is an issue for the majority of students nationwide.
What does Biden’s plan entail?
What has President Biden promised? The White House has released a 3-part plan which includes short- long-term fixes.
Part 1: Debt Relief
The first part of Biden’s plan is to alleviate the immediate strain the pandemic has placed on borrowers by directly canceling up to $10,000 of student debt for non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Any borrower who earns less than $125,000 individually or $250,000 as a married couple is eligible to apply for this debt relief. To facilitate this step, a temporary pause on student loan payments instituted by the Trump administration was extended.
Part 2: Student loan system reform
This next part of Biden’s plan focuses on longer-term structural issues with the American student loan system. First, Biden plans to cap monthly payments at 5% of the borrower’s discretionary income. This could save borrowers thousands in payments annually. Second, Biden wants to expand upon the temporary pandemic-era changes to the Public Service Loan Forgiveness (PSLF) program. This would ultimately enable more public servants to access loan forgiveness for their public service.
Part 3: Reducing the cost of college education:
Getting to the root of the problem is the most sustainable approach to addressing the student loan crisis. Biden plans to do so by doubling the maximum Pell Grant from $6,495 to $12,990 so that low-income students pay less for college in the first place. He also plans to make community college free and to hold private and public universities accountable for price increases. Exactly how educational institutions would be held accountable for their prices is not yet clear.
What’s stopping Biden’s plan?
The White House has attempted to put the first part of its plan – direct debt relief – into motion. Americans have been able to apply for debt relief and student loan payments are still currently paused nationally. That’s it. Why has so little of this plan been executed after Biden has already been in office for two years?
Opponents of Biden’s plan argue that the administration’s actions are illegal, and overextend executive power. . After Biden officially announced the debt relief portion of the plan in August of 2022, at least six legal challenges piled up. As of December 1, 2022, the student loan forgiveness plan has officially been halted by two separate court orders. The only remaining part of the plan in action is the student loan payment pause, which has been extended to June 30, 2023, or until 60 days after the program has become implemented (whichever comes first).
The U.S. Supreme Court plans to hear the oral arguments regarding the legality of this plan in February of 2023. This means we likely won’t have a concrete answer until June of 2023; however, it is clear that the conservative majority is leaning towards rejecting the plan.
Where do we go from here?
Biden’s Student Loan Relief plan is far from perfect, but the short-term tangible effects of direct deb-relief are urgently necessary. While the longer-term parts of his plan may be vague and underwhelming in their concrete applications, getting at least the first phase secured through executive action would be one of many necessary steps in the right direction for the average American student.
Unfortunately, at this point, the power largely rests in the hands of the Supreme Court. Hopefully, even if this iteration of the plan fails, constituents and legislators can rally to have parts of the plan implemented in other ways, perhaps through Congress.
References
“Economic diversity and student outcomes at Wesleyan University,” New York Times (New York Times, 2017) https://www.nytimes.com/interactive/projects/college-mobility/wesleyan-university
“FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most,” the White House (August 24 2022) https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/
Hahn, Alicia and Tarver, Jordan. “2022 Student Loan Debt Statistics: Average Student Loan Debt” (Forbes, September 19 2022) https://www.forbes.com/advisor/student-loans/average-student-loan-statistics/
Iannucci, Lisa and Williams, Ward “Supreme Court Will Review Legality of Biden’s Student Loan Forgiveness Plan,” Investopedia (December 1 2022) https://www.investopedia.com/supreme-court-review-student-loan-forgiveness-6834844
Johnson Hess, Abigail. “College costs have increased by 169% since 1980—but pay for young workers is up by just 19%: Georgetown report,” CNBC (CNBC, November 2 2021) https://www.cnbc.com/2021/11/02/the-gap-in-college-costs-and-earnings-for-young-workers-since-1980.html
Nova, Annie “Supreme Court likely to rule that Biden student loan plan is illegal, experts say. Here’s what that means for borrowers,” CNBC (CNBC, December 5 2022) https://www.cnbc.com/2022/12/05/supreme-court-tackles-biden-student-loan-plan.html
“2021-2022 Common Data Set,” Wesleyan University (July 20, 2022) https://www.wesleyan.edu/ir/data-sets/CDS_2021-2022.pdf