December 5, 2023


President Joe Biden and U.S. Secretary of Education Miguel Cardona, June 30, 2023.

Demetrius Freeman/The Washington Post via Getty Images

How do these two loan forgiveness actions differ?

The latest action differs from the broad debt cancellation plan the White House initially sought, which a Supreme Court justice ruled against It was rejected by a 6-3 vote on June 30. This action will forgive up to $20,000 in student debt for tens of millions of borrowers with federal loans. Its cost is estimated at $400 billion.

Friday’s announcement involved borrowers Income-driven repayment plan. Among them are four programs designed to make loans more affordable for low-income earners.

IDR plans place a cap on monthly payments, usually 10% or 20% of a household’s discretionary income, depending on the plan. The U.S. Department of Education is trying to create a new plan capped at 5%.

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Importantly, borrowers who make regular payments (usually 20 or 25 years) will then have their remaining loan balance wiped out.

However, the Biden administration says that, due to administrative errors, forgiveness has not occurred in many cases — even though borrowers have won forgiveness.

Debts of beneficiaries of the new policy will be automatically forgiven in the coming weeks, the Ministry of Education said.

“For too long, borrowers have been caught in the cracks of a broken system that fails to accurately track their progress toward forgiveness,” U.S. Education Secretary Miguel Cardona said in a report. ” statement Declare action.

Recent plans have different legal precedent

Several lawmakers issued a statement last week questioning the legal basis for the latest clemency move.

For example, Rep. Virginia Foxx, RN, Chair of the House Education and Workforce Committee, explain The Biden administration is “trampling on the rule of law” and trying to “circumvent” the recent Supreme Court ruling on loan forgiveness.

However, experts say the two actions are based on different legal precedents.

“These two programs have nothing to do with each other,” said attorney Abby Shafroth, co-director of advocacy and director of the Student Loan Borrower Assistance Program at the National Consumer Law Center.

President Joe Biden’s (now defunct) sweeping forgiveness program announced in August 2022 builds on the 2003 Heroes Act. The bill gives the president the authority to modify student loan programs during a national emergency.

The program is specifically aimed at people who have been repaying for decades.

Abby Shafroth

Co-Director of Advocacy and Director of the Student Loan Borrower Assistance Program, National Consumer Law Center

The White House considers the Covid-19 pandemic to be one such emergency. The Trump administration used the Heroes Act to suspend student loan payments amid the outbreak of the Covid-19 pandemic. That suspension remains in place today but will end in the fall.

The Supreme Court disagrees with the Biden administration. The justices said the Education Department would need authorization from Congress to cancel such a large amount of consumer debt.

However, Congress has authorized loan forgiveness associated with income-driven repayment plans dating back to when Congress created them. 1990s.

“This program is tailor-made for people who have been paying back for decades,” Shavroth said. plan.”

She added that the plan “has a very sound legal basis”. In fact, she said, the Department of Education is almost legally compelled to correct past wrongs or accept lawsuits from borrowers.

The Education Department also said the program was not vulnerable to legal challenges.

“Congress passed a law expressly directing the department to create income-driven repayment plans and use those plans to provide forgiveness to eligible borrowers,” a department spokesman said in an emailed statement. “The department has a responsibility to ensure these programs work and that’s what we’ve done with the account adjustment fix.”

Kantrowitz said the new policy will primarily benefit people who are or have been in a defined-income-determined repayment plan, the only one of the four IDR programs that has been around long enough to achieve debt relief. The average loan balance for borrowers in the program is $48,000, he said.

Roots of IDR clemency predate Supreme Court ruling

Still, Kantrowitz said, the Biden administration still has some leeway in determining the extent of the clemency.

To a large extent, this leeway relates to whether certain loan payments should count toward a borrower’s overall payment total and, ultimately, whether they meet the criteria for loan forgiveness (i.e., through twenty years of regular payments).

Kantrowitz said the Department of Education looked at three broad areas in this regard: financial hardship deferrals, loan deferrals, and partial or delayed payments. Here, he said, the Department of Education appears to have “complete” authority to decide which payments are valid and which are not.

“The courts are likely to have a high degree of deference to federal agencies on these issues,” he said.

The Ministry of Education said last year that under review information of all IDR registrants and make a one-time adjustment to their accounts. The latest action is a result of that review, announced in April 2022, followed by Biden’s August 2022 unveiling of his sweeping plan to forgive up to $20,000 for all borrowers.

In other words, experts say Friday’s announcement of $39 billion in debt forgiveness has its roots predating the Supreme Court ruling and the court’s initial policy announcement.

Moreover, Kantrowitz said, for borrowers who get relief before any kind of litigation arrives, legality issues are largely moot. “The court will not take back (your) forgiveness.”