As many of you are aware, U.S. President Joe Biden has announced a level of student loan forgiveness. Many student loan borrows could have their balances shrink by as much as twenty thousand dollars, according the Biden-Harris administration’s plan. Based on the amounts of forgiveness, some borrows will see their student debt burden completely expunged.
There have been a slew of opinions about the decisive move made by the administrative branch of the U.S. government. In this article, I’m going to explore the exact makeup of the latest Student Loan Forgiveness program. I’ll cover the forgiveness benefit, the intended consequences, and student loan program changes.
I will base the overview mainly on the White House Fact Sheet on Student Loan Relief and the Federal Student Aid Debt Relief Announcement.
Here’s a quick list of questions I will cover in this article?
- How much money is offered to borrowers in the current relief package?
- What are the eligibility requirements under the current relief package?
- How can a borrower apply for the current relief package?
- How is the student loan management system changing?
- How are payments on remaining balances being modified?
- How is the government able to cancel this much debt?
WHAT A RELIEF!
The actual amount of debt forgiveness that borrowers can expect to receive will be either ten thousand dollars or twenty thousand dollars. The larger amount is reserved for those who are Pell Grant recipients with loans held by the Department of Education. The smaller amount is for those borrowers who have loans held by the Department of Education but are not Pell Grant recipients.
In order to be eligible for this targeted debt relief, borrowers must have less than $125,000.00 in annual income as a single taxpayer, or they must have less than $250,000.00 in annual income as a married couple.
GET YOUR SLICE OF THE PIE
Now that we’ve covered the “what,” we can discuss the “how.” How do eligible loan borrowers take advantage of the targeted offer that is being given by the Biden Administration?
According to the White House fact sheet, this relief is being provided as a debt cancellation. The cancellation of debt occurs when a creditor relieves a debtor from either all or a portion of the debt owed. Since the Department of Education holds the loans in question, it can cancel all relevant debt so long as they have updated income information for borrowers. For those borrowers who have not kept their income information current with the federal government, – presumably via tax filings – The U.S. Department of Education’s Federal Student Aid office reports that an application to receive debt forgiveness will be available sometime in early October 2022. See this Federal Student Aid article for these details and more.
STRETCHING THE YEAR
In addition to debt cancellation, the Biden-Harris administration is taking aim at continuing current support to borrowers as the economic after-effects of the COVID-19 pandemic linger. In response to macro-economic woes – such as inflation – the executive branch is extending the student loan repayment moratorium through December 31, 2022. Repayments are scheduled to resume in January 2023. Don’t worry about applying for this benefit. The extension will apply automatically.
CHANGING THE RULES
To further assist those burdened by student loan debt, the executive branch is proposing a rule to the Department of Education that lays out a new income-driven repayment plan. If the new rule is adopted by the Department of Education, then borrowers can expect the following subsidies:
- Borrowers pay no more than 5% of their discretionary income toward monthly payments on undergraduate loans.
- Department of Education raises the amount of income considered to be non-discretionary income. This protects more of the borrowers’ incomes from repayment. Additionally, this would cause those earning the annual equivalent of a $15/hour minimum wage to not have any monthly payment.
- Loans with both 10 years of payments and balances either at or under $12,000.00 will be forgiven.
- Borrowers’ unpaid monthly interest is covered by the government. The stated goal of this is to prevent borrowers’ loan balances from growing so long as they make monthly payments.
Keep in mind that the proposed rule is not yet in effect. To learn more about the Department of Education rulemaking process, see here.
HOW IS THIS POSSIBLE?
Forgiving this much debt represents billions of dollars. After checking the real-time U.S. Debt Clock, we see that the U.S. government currently carries more debt than the annual GDP. How is the government able to charge billions more to the national debt to fund this much debt cancellation?
Unfortunately, this section is more about questions than answers. I will explore answers to these questions in another article since this intellectual journey will take us outside of the scope of this writing. In this article, I have explored the specifics of the Biden-Harris student loan relief plan. In this section of the post, I wish to discuss questions around the efficacy of the executive branch initiating this particular regulation through the Department of Education.
While the exploration of the questions are beyond the purview of this piece, the asking of them are relevant. To date, I am unaware of any borrowers who have had their debt cancelled based on the recently announced relief plan. If the answers to these questions do not support properly authorized actions by the executive branch, then there is a possibility that either some or all of the proposed regulations may be dropped. That would mean that there is a possibility that no student loan relief will be executed on behalf of those currently indebted to the Department of Education based on the current Biden-Harris plan.
Before asking the pertinent questions, we need to set the stage for the queries.
Joe Biden is the President of the United States. This means he is the head of the executive branch of the U.S. government. Any action that either he or his administration takes must be constrained by the limits set for this branch of government. The powers attributed to the executive branch that would likely be used to enact student debt relief would be either the power of executive order or the power to sign legislation into law.
Let’s look at executive orders first. As of this writing there is no listed executive order at the Federal Register for student debt relief. Okay, we’ve eliminated that option.
The next item is the president’s power to sign legislation into law once Congress approves a bill. That would mean that Congress would have had to send a bill to Biden that included debt relief. The president could then sign that into law. However, this also has not happened.
Huh? Yes, I’m just as confused as you are, at this point.
So none of the related powers that would seemingly give the president the power to enact debt relief have been used. Why is the debt relief plan listed in this article on the website for the Department of Education?
The Department of Education is headed by the Secretary of Education. This position is part of the cabinet of the U.S. President. Presidential cabinet members are selected by the president and appointed by Congress. However, cabinet members report directly to the president.
Is it possible that the president simply ordered the Secretary of Education to push this through? Is that even possible? Wouldn’t the Department of Education have a required process to undertake such a massive action as debt relief on this scale?
As disappointing as it may be, we, as a nation, currently do not have specifics on exactly how this student debt relief was officially approved and sanctioned. Now that we have set the stage for the quizzical circumstances surrounding the student debt relief announcement, we can ask the relevant questions:
- What is the the Department of Education’s process to approve debt cancellation on this scale?
- How is this process initiated?
- Does the executive branch have the authority to initiate this process with the Department of Education?
- How does the executive branch have this authority if the country’s purse is controlled by Congress?
- What are the repercussions if the executive branch is found to not be legally able to carry out the student debt relief plan?
These questions and more lie on the lips of many in the electorate – especially those of us reporting on such matters. In a future article, I will delve into the specifics of the authorization of this student debt relief plan. Until then, it looks like borrows will somehow get a reprieve from their student loan burdens.