Biden Pushes Additional $4.28B Student Debt Relief For Public Workers While Scrapping Plans To Cancel Debt For 38 Million – Financial Freedom Countdown
On Friday, the Biden administration approved an additional $4.28 billion in student loan forgiveness for around 55,000 public service workers.
The administration also scrapped plans for broader student debt relief for 38 million people after realizing the proposed regulations were designed as a contingency plan following the Supreme Court’s decision last year, which ruled that the Biden administration had exceeded its authority with its attempt to eliminate over $400 billion in student debt.
Nearly $55,000 Borrowers Receive Forgiveness in Final Push
On Friday , the Biden-Harris Administration announced the approval of $4.28 billion in student loan forgiveness for 54,900 public service workers across the nation, bringing total debt relief under the current administration to approximately $180 billion for nearly five million borrowers.
This initiative, primarily targeting participants in the Public Service Loan Forgiveness (PSLF) Program, is being touted as a transformative fix to a program once riddled with inefficiencies.
U.S. Secretary of Education Miguel Cardona reflected on the progress, stating, “Four years ago, the Biden-Harris Administration made a pledge to fix the broken Public Service Loan Forgiveness Program, and we delivered.” He emphasized that this marks an essential step in fulfilling promises made to America’s teachers, first responders, and other public servants.
A Focus on Fixing the Public Service Loan Forgiveness Program
The PSLF Program offers loan forgiveness to borrowers who commit to careers in education, healthcare, law enforcement, and other vital public service roles after completing 120 qualifying payments. Friday’s announced relief includes borrowers who took advantage of the limited PSLF waiver, which ended in October 2022, and recent regulatory improvements aimed at simplifying participation in the program.
Recent changes include transferring the program’s management from a single loan servicer to StudentAid.gov, allowing borrowers to more efficiently track their progress toward forgiveness. As of July 2024, this shift has reduced barriers and improved access for public servants striving to qualify for loan relief.
Since taking office, the Biden-Harris Administration has implemented historic student debt relief measures, distributing nearly $180 billion across various programs.
#1 Income-Driven Repayment Adjustments
$56.5 billion granted to more than 1.4 million borrowers through revised repayment plans like the SAVE plan. This includes administrative adjustments to income-driven repayment that brought borrowers closer to forgiveness and addressed longstanding problems due to past inaccuracies and the misuse of forbearance by loan servicers.
#2 Borrower Defense and Institutional Closures
$28.7 billion for 1.6 million individuals who experienced fraud or institutional failures. The program targeted individuals who saw their institutions precipitously close, or are covered by related court settlements.
#3 Permanent Disability Discharges
$16.2 billion provided for nearly 572,000 borrowers unable to repay due to permanent disability.
Missed Opportunity for Broader Relief
While these targeted efforts are noteworthy, the administration recently abandoned two unfinished regulations that aimed to provide sweeping student loan forgiveness for up to 38 million borrowers. Critics argue that this decision leaves a significant gap in addressing the student debt crisis.
Forgiveness for Financial Hardship Borrowers Withdrawn
The first abandoned proposal, introduced in October, aimed to provide relief to borrowers facing significant financial hardship. This plan would have extended forgiveness to individuals whose financial circumstances rendered paying off their student loans nearly impossible.
Broad Authority For Student Loan Cancellation Scrapped
The more ambitious of the two scrapped proposals, unveiled in April, sought to grant the education secretary broad authority to cancel student loan balances in specific cases. This included scenarios where interest had significantly inflated borrowers’ loans or where individuals had been making consistent payments for over 20 years without fully repaying their debt.
The administration had projected that nearly 30 million borrowers could have benefited from this regulation, potentially offering a transformative solution for those trapped in long-term debt cycles. However, with the plan now shelved, many borrowers are left without the relief they had hoped for.
Bypassing Legal Obstacles on the SAVE Plan
Since August, millions of borrowers have been left in limbo due to legal challenges against the SAVE plan—one of the administration’s cornerstone initiatives for reducing student debt.
The SAVE plan, the latest income-driven repayment (IDR) option, offers reduced monthly payments, waived excess interest, and loan forgiveness after 10 to 25 years, depending on loan type and balance. It also qualifies borrowers for Public Service Loan Forgiveness (PSLF), which forgives debt after 10 years for those in qualifying nonprofit or government careers.
Student Loan Forgiveness and Payment Reductions on Hold for SAVE Plan
In August, the 8th Circuit Court of Appeals issued an injunction that halted the Education Department’s ability to implement key provisions of the SAVE plan.
This includes pausing any student loan forgiveness, interest subsidies, or reduced payments under the SAVE plan’s formula. As a result, millions of borrowers have been placed into forbearance.
Millions of Borrowers Stuck as Student Loan Forgiveness Plans Are Paused
During the forbearance period, borrowers aren’t required to make payments, and no interest accrues. However, this forbearance period does not count toward student loan forgiveness under IDR or PSLF.
Additionally, the Education Department had to pause all processing of IDR applications, including those for other IDR plans, to comply with the 8th Circuit’s injunction. As a result, millions of borrowers have found themselves effectively stuck.
Biden-Harris Administration Were Counting on Income-Based Repayment Avoiding Legal Challenges
The Income-Based Repayment (IBR) plan, established by Congress in 2007 and expanded in 2010, is not affected by the same legal challenges that have stalled the SAVE plan and other Biden administration debt relief efforts.
Like all Income-Driven Repayment (IDR) plans, IBR uses a formula based on the borrower’s income and family size, with any remaining balance eligible for loan forgiveness after 20 or 25 years. Additionally, IBR qualifies for Public Service Loan Forgiveness (PSLF).
Drawbacks of Income-Based Repayment Plan
However, IBR can be significantly more expensive than SAVE, offering minimal interest benefits. Additionally, IBR includes a “partial financial hardship” requirement, which can restrict new enrollments for borrowers with higher incomes. This means that borrowers who were previously enrolled in other IDR plans and switched to SAVE may now be unable to continue pursuing loan forgiveness if their income is too high to qualify for IBR.
Biden-Harris Administration Had Avoided Legal Roadblocks in the Past
One week before the elections, the Biden administration unveiled a long-awaited proposal aimed at providing student loan forgiveness to approximately eight million Americans facing “financially devastating hardships.”
The proposal included two main provisions: one allows debt cancellation for those deemed by the Department as having at least an 80% likelihood of defaulting within two years, while the other defines hardship through 17 “non-exclusive factors.”
Student Loan Payment Moratorium for Six Months
The Biden administration on October 20th, announced that it will continue the moratorium on federal student loan repayments while legal challenges against the debt cancellation plan unfold.
Approximately 8 million borrowers enrolled in the administration’s Saving on a Valuable Education (SAVE) plan will not have to make monthly payments for at least another six months.
President Biden’s $475 billion loan forgiveness initiative was temporarily halted by the 8th U.S. Circuit Court of Appeals in St. Louis in July, following earlier rulings from federal judges in Kansas and Missouri, amid a lawsuit brought by seven Republican-led states.
Status of Broader Student Loan Forgiveness
Biden campaigned on a promise to cancel widespread student loan debt, but the Supreme Court blocked his plan last year, which aimed to forgive up to $20,000 for 40 million Americans.
In response, Biden directed his Education Department to pursue a new approach with different legal grounds, but the plan was temporarily halted by a judge in Missouri after being challenged by several Republican-led states, shutting down hopes for progress just as another judge’s pause had expired.
Seven States Had Filed Suit Against Third Biden-Harris Student Loan Forgiveness Scheme Days After SCOTUS Sides With Missouri
Judge J. Randal Hall had issued a temporary restraining order after Republican state attorneys general filed a lawsuit challenging a rule proposed by the Education Department in April.
The rule would provide full or partial debt relief to certain borrowers, affecting an estimated 30 million people.
Although the rule has not yet been finalized, the state attorneys general claimed they had obtained documents showing the department instructed federal loan servicers to begin canceling loans as soon as this week, which could unlawfully forgive $73 billion in debt overnight.
Led by Missouri, the states argue that the Education Department lacks the authority for such large-scale debt forgiveness. While the administration estimates the policy’s cost at $146.9 billion, the states suggest it could reach into the hundreds of billions.
Judge Hall stated that he “hastily” issued the restraining order to maintain the status quo until a Sept. 18 hearing. This order was again extended for 14 days and was vacated on 3rd October.
This legal action adds to the growing list of challenges against President Joe Biden’s student loan policies and could further delay his most recent attempt to provide debt relief ahead of the November election.
Supreme Court Rejected Biden Administration’s Desperate Appeal to Revive Student Loan Forgiveness Plan
In August, the Supreme Court rejected a Biden administration plea to revive its latest multibillion-dollar student loan forgiveness plan, as lawsuits continue to move through lower courts.
In an unsigned order with no noted dissents, the court urged the appeals court to issue a more detailed ruling on the plan “with appropriate dispatch.”
Two Lower Court Rulings Jeopardize Biden’s Student Loan Forgiveness Plan
Litigation in two separate cases concerning the SAVE (Saving on a Valuable Education) plan jeopardizes one of the Biden administration’s key student loan policies just months before the November election.
The plan was initially blocked in June by U.S. District Judge John Ross in St. Louis, who issued a preliminary injunction preventing the administration from implementing the forgiveness provision of the SAVE plan. The 8th U.S. Circuit Court of Appeals in St. Louis further blocked the entire debt relief plan on August 9, prompting the administration’s emergency appeal to the Supreme Court.
Meanwhile, a separate challenge by another group of Republican-led states is pending in the 10th U.S. Circuit Court of Appeals in Denver.
This marks the second emergency appeal regarding the SAVE Plan submitted to the Supreme Court this summer. Last month, three other Republican-led states asked the court to maintain a partial block on the plan as their lawsuit proceeds in lower courts.
$180 Billion in Loans Forgiven So Far
Including the latest forgiveness action, the administration has now cancelled over $180 billion in debt for almost 4.9 million borrowers which amounts to 10% of all outstanding student loan debt and an average of $34,783 per student.
Biden’s New Student Loan Forgiveness Plan Was Estimated To Cost $84 Billion, Adding To The Already Massive $475 Billion
A recent analysis by the Penn Wharton Budget Model (PWBM) suggests that Biden’s new student debt relief plan could incur approximately $84 billion in costs if put into action. This amount is in addition to the $475 billion previously estimated for Biden’s prior SAVE plan.
The report states “We estimate that the New Plans will cost $84 billion in addition to the $475 billion that we estimated for President Biden’s SAVE plan, for a total cost of about $559 billion across both plans.”
The New Plans contain 5 main provisions
#1 Waived Accrued and Capitalized Interest
Up to $20,000 in interest will be waived, irrespective of borrower’s income levels. Single individuals earning under $120,000 or couples earning under $240,000 annually are eligible for a complete waiver of all balances exceeding the initial balance under any Income-Driven-repayment (IDR) plan. No application is necessary as automatic relief will be applied.
Estimated cost of $57.75 billion
#2 Forgiving Student Debt For Borrowers In Repayment For 20 Years
Those who began repaying loans on or before July 1, 2005 (or July 1, 2000 for those with graduate debt) will have all undergraduate debt eliminated. No enrollment in IDR plans is necessary for this relief, although other application requirements for borrowers are yet to be clarified.
Estimated cost of $19.07 billion
#3 Automatic Debt Relief
Automatically relieving debt for eligible borrowers not enrolled in specific forgiveness programs. Those who meet forgiveness criteria but aren’t enrolled will benefit from favorable repayment rules, including those of the SAVE plan or closed school discharge. No application is required as automatic relief will be applied.
Costs already included as part of the prior SAVE loan forgiveness.
#4 Assisting Borrowers From Low Value Programs or Institutions
Debt relief will be extended to those who accrued debt from programs or institutions that did not provide “sufficient value” in terms of post-graduation earnings.
Not enough details have been provided by the administration to calculate the cost.
#5 Loan Repayment Hardships
Relief will be tailored to each borrower’s situation, though whether it will cover partial or full debt is unspecified. The department’s hardship proposal aims to provide loan cancellation to borrowers facing a high risk of loan default. Additional details are pending on this proposal.
Breakdown of the Budget Cost Estimates
The Penn Wharton Budget Model breaks down the budgetary impact of each of the 5 provisions including the number of individuals benefitting along with their average household income.
One of the biggest criticisms of the New Plan is the benefit provided for about 750,000 households making over $312,000 in average household income.
Ranking Member Cassidy Slams Biden’s Student Loan Scheme
Sen. Bill Cassidy, R-La., the ranking member of the Senate Health, Education, Labor and Pensions Committee said in a statement Friday “With today’s latest withdrawal, they are admitting these schemes were nothing more than a dishonest attempt to buy votes by transferring debt onto taxpayers who never went to college or worked to pay off their loans.”
Public Opinion Did Not Favor Biden On Student Loan Debt
A new poll from the University of Chicago Harris School of Public Policy and The Associated Press-NORC Center for Public Affairs Research reveals that three in ten U.S. adults approve of how President Biden has handled student loan debt, while four in ten disapprove, with the remaining respondents either neutral or uncertain.
The outlook is similarly bleak among those with unpaid student loans, whether for themselves or a family member.
Monthly Student Loan Forgiveness Announcements
Prior to the November election, the administration was keen to highlight its progress in debt cancellation programs, making similar announcements almost monthly.
In April, the administration announced another round of cancellations totaling $7.4 billion for 277,000 borrowers.
On May 1st, the Biden administration has announced the cancellation of $6.1 billion in student loans for 317,000 borrowers who attended The Art Institutes.
On 22nd May, the cancellation of an additional $7.7 billion in student loans was announced.
Education Department officials dedicated years to navigating bureaucratic hurdles to advance the regulations. After extensive public debate, a panel of federal negotiators approved the sweeping proposals in February. The department unveiled one plan in April, promising borrowers debt relief as early as fall 2024, while the second plan was introduced just 11 days before the November election.
However, according to Friday’s announcement, both plans are now being scrapped.
Questions Remain on the Timing of the Announcement
To date, under the Biden administration has delivered $180 billion in student loan forgiveness to approximately 5 million individuals.
The withdrawal of the final two proposal leaves millions of struggling borrowers without a pathway to manage their debt burdens, raising questions about the administration’s ability to address the broader student debt crisis effectively.
With only weeks left in Biden’s presidency, the focus on public service loan forgiveness signals a narrowing of the administration’s broader student debt relief ambitions, leaving many questioning what could have been achieved with a comprehensive approach.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
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