In an effort to provide relief to millions of student loan borrowers, President Joe Biden, early this week, announced a second attempt at widespread federal student loan forgiveness. Differing considerably from his ambitious 2022 idea, this new plan is anchored on expanding existing forgiveness programs with a primary focus on borrowers bearing high balances as a result of compounded interest.
The first attempt at large-scale student loan forgiveness, proposed by the president in 2022, was aimed at granting up to $20,000 in federal student loan forgiveness for individuals earning under $125,000 yearly and couples earning less than $250,000 per year. However, it met a roadblock when the Supreme Court ruled the program unconstitutional in Biden v. Nebraska. The court found, in a 6-3 decision, that the HEROES Act, utilized to justify the loan forgiveness, did not empower the Education Department to forgive over $400 billion in federal student loans.
This new approach by the Education department, though less ambitious, is estimated to cost taxpayers several billions of dollars. The propositions in the new scheme have been outlined in five major provisions. Firstly, the plan takes aim at borrowers whose balances have increased due to unpaid interest, proposing to forgive up to $20K of accrued interest. Also noteworthy is an automatic debt cancellation for individuals eligible for loan forgiveness under an existing plan but yet to register.
Furthermore, the plan includes an effort by the Education Department to erase loan balances for individuals who have repaid undergraduate loans for more than 20 years, and 25 years for graduate loans. There’s also targeted forgiveness for students who took loans to pay for low-value degrees at schools that lost eligibility to partake in the Federal student aid program or were denied recertification due to fraudulent practices. Finally, it seeks to provide debt alleviation for borrowers under “hardship.”
The impact of this plan on the taxpayer is yet unclear, but considering the intended positive effect on millions of Americans, the plan is estimated to cost over $100 billion in the next decade. This new strategy seems to be aimed to avert another Supreme Court challenge by primarily expanding the already successful forgiveness schemes of the Education Department, though at a smaller scale.
However, critics argue that while the Biden administration conveys that this round of student loan forgiveness will “make sure higher education is a ticket to the middle class — not a barrier to opportunity,” the program only inflates issues it proposes to resolve.
Major Aspects of the New Plan:
- Loan forgiveness for borrowers with high balances due to interest
- Automatic debt cancellation for individuals eligible but yet to enroll in loan forgiveness
- Clearing loan balances for long-term borrowers
- Loan forgiveness for students who paid for low-value degrees at fraudulent schools
- Debt cancellation for borrowers experiencing “hardship”
References:
Reference 1: Reason.com – STUDENT LOANS
Reference 2: NPR.org – Student loan proposal targets accrued interest; Israel and Hamas war hits six months