The Biden Administration Student Loan Debt Relief Plan (“Student Loan Relief Plan”) was implemented to help working and middle-class federal student loan borrowers. On its face, the Student Loan Debt Relief Plan sounds comforting, especially to those looking to lessen their student debt. However, those opposing it are seeking to challenge it.
The plan will consist of three parts: part one will grant extensions to those who paused the repayment of their loans during the pandemic; part two will provide debt relief to low- and middle-income households; and part three will make the student loan system more manageable.[i] The extension on repayment will be the final one, setting the start date of repayment to January 2023. This will allow for a smoother transition and allow people to prepare to avoid unnecessary defaults. The targeted debt relief is to help those at high risk of delinquency or default. The U.S. Department of Education will provide up to $20,000 in relief to those students who were given a Pell Grant. Students who did not receive a Pell Grant will only receive up to $10,000 in relief. To be eligible, an individual’s income must be less than $125,000. If married, the household income must be below $250,000 to qualify for relief.
In addition, the Biden Administration has proposed to create a new income-based repayment plan for student loans, one that will reduce future monthly payments for low- and middle-class households. Under this rule, borrowers will pay no more than 5% of their monthly discretionary income. The rule will also, increase the amount of income considered non-discretionary income to $15 an hour, which means that anyone who only makes $15 an hour will not have to make monthly payments.
The current argument against the Student Loan Relief Plan is that “the policy is unfair to Americans who didn’t attend college, as well as to those who paid off their student loans already or never borrowed in the first place.”[ii] If the Republican legislators challenge this Student Loan Relief Plan, it will likely make its way to the Supreme Court. However, before reaching the Supreme Court they will need to find a suitable plaintiff that could claim a personal injury, which is needed to establish standing.
Although the Student Loan Relief Plan, sounds like a great opportunity for those looking to reduce their student debt several Republican legislators are seeking to challenge it. In an announcement released by the White House, the U.S. Department of Justice states that the debt cancellation is appropriate under the Heroes Act of 2003.[iii] The Heroes Act grants the president the broad power to revise student loan programs. Congress enacted The Heroes Act after the terrorist attacks of September 11, 2001. The Act passed to permit the executive branch to forgive student loans during national emergencies. Therefore, when the Trump administration declared Covid-19 a national emergency, it allowed the executive branch to use the Heroes Act to forgive student loans.
Moreover, the primary legal issue is whether the Heroes Act was enacted to give the president the power to forgive student loans in such a broad manner? The Heroes Act was designed to help the “‘hundreds of thousands of Army, Air Force, Marine Corps, Navy[,] and Coast Guard reservists and member of the National Guard [who] have been called to active duty or active service’ and asked to ‘put their lives on hold, leave their families, jobs, and postsecondary education in order to serve their country.’”[iv] The act was to help those who served the country, and now the Biden Administration is trying to use the same act to help those who never served. The Hero’s Act was made permanent by Congress in 2007 for unique situations that active military personnel and the affected families may face.
Therefore, the Heroes Act should not apply to the Biden-Administrations Loan Forgiveness Relief Plan. However, The Biden Administration appears to be taking advantage of an Act that is enacted to help those who serve, and not those who made the choice to take out student loans. The Heroes’ Act does not apply to all student loans and was not created to give the government a way to forgive all student loan. Allowing the Biden-Administration to apply the Heroes Act to relieve student debt, the government is creating new precedent and opening the door to forgiving other types of debt. In turn creating a downward spiral for our already crashing economy. Therefore, if/when the Supreme Court rules on the Act, they should rule against the Biden Administration Student Loan Relief Act.
In addition to the wrongful use of the Heroes act, there are two additional significant issues with forgiving student loans, (1) fairness and (2) inflation. When the federal government says they are forgiving student loans, they transfer the responsibility of the debt owed to the taxpayers. By shifting the responsibility, taxpayers who saved for school, paid off their loans, or did not attend college would now be responsible for paying the debt of other individuals who have student debt. Some may be okay with paying the debt of a social worker or teacher who is barely making $50,000 but will be less inclined to pay the debt of someone who graduated business school and potentially earning six figures. The issue becomes how does the government determine the future income of a recent graduate who, as a new associate, could be making under $75,000 but in their second year be making six figures. Thus, the current Student Loan Relief Plan is too broad and does not take this issue into account, leaving the opposing party the ability to challenge the Student Loan Relief Plan in the Supreme Court.[v]
The second issue is the risk of further inflation. “According to an early estimate by the Wharton Budget Model, forgiving up to $10,000 per borrower within Biden’s income limits would add about $300 billion to the federal deficit over the next decade; the federal government ran a deficit of $2.8 trillion in 2021.”[vi] In addition, to the increase in the federal deficit, if student loans are reduced for up to forty-three million people and completely forgiven for up to twenty million people, more money will be spent elsewhere. Further inflation opens the door to the potential risk of a rise in the living standards for many people. The increase in additional spending could cause an increase in an already struggling economy, with businesses struggling to keep up with consumer demand.
The Biden Administration Student Loan Relief Plan sounds amazing for Americans who would love student loans to just go away. However, the application of the Heroes Act of 2003 to relieve people of student loans is incorrect. Moreover, the relief of student loans will cause a world of problems for our economy. Therefore, however nice it may sound to have your student loans forgiven; the long-term effect may truly be more of a curse than a blessing.
[i] See The Biden-Harris Administration’s Student Debt Relief Plan Explained, Fed. Student Aid, (last visited Oct. 7, 2022), https://studentaid.gov/debt-relief-announcement/.
[ii] Annie Nova, Republicans may challenge student loan forgiveness. Uncertainty for borrowers is ‘considerable,’ says Harvard lawyer, CNBChttps://www.cnbc.com/2022/09/01/republicans-may-try-to-block-student-loan-forgiveness.html (Sept. 1, 2022, 1:26 pm).
[iii] See Use of the Heroes Act of 2003 to cancel the principal amounts of student loans, The United States Department of Justice, (Aug. 23, 2022) https://www.justice.gov/olc/opinion/use-heroes-act-2003-cancel-principal-amounts-student-loans.
[iv] Marc A. Thiessen, Biden’s loan forgiveness is an act of stolen valor, The Wash. Post (Aug. 30, 2022, 3:35 pm), https://www.washingtonpost.com/opinions/2022/08/31/student-debt-forgiveness-heroes-act-unamerican/.
[v] See Scott Horsley, Heard on All Things Considered, The economic arguments for and against Biden’s student debt relief plans, NPR, transcript (Aug. 25, 2022, 4:39 pm), https://www.npr.org/2022/08/25/1119480758/the-economic-arguments-for-and-against-bidens-student-debt-relief-plans.
[vi] Kelly Anne Smith, Will Student Loan Forgiveness Make Inflation Worse?, Forbes Advisor, (Aug. 25, 2022, 12:20pm) https://www.forbes.com/advisor/personal-finance/student-loan-forgiveness-inflation/
