If you have student debt, the last few months may have given you a whiplash. President Joe Biden’s federal student loan forgiveness program is on hold indefinitely as legal challenges work their way through the courts.
Ellen Dickens, a finance expert, and editor from Georgia-SSBCI explains all the things borrowers in Georgia currently need to know.
First, President Joe Biden said in August 2022 that he would forgive up to $20,000 to millions of borrowers. But before the big celebration could take place, the Republicans launched numerous challenges to the policy, leaving it in jeopardy even as a bid for aid was filed. Since mid-October, 22 million Americans have petitioned for forgiveness.
About 1.5 million Georgians qualified for student loan forgiveness, most of them low-income borrowers, White House officials said previously in an effort to enhance support for the initiative.
Nearly 70% of those in Georgia who qualify for forgiveness are also Pell Grant recipients. A Pell Grant is a subsidy the U.S. federal government provides for students who need it to pay for college.
Most subsidy recipients have annual household incomes of less than $60,000, according to recent statistics.
Nationally, 40 million borrowers were expected to receive some level of forgiveness, with about half of them having their debts completely forgiven. Georgia has a very high level of student loan debt. In total, the state has $68 billion worth of student loans.
The average student loan size in Georgia is $42,000.
Federal officials said the purpose is to target lower-income, marginalized communities who are disproportionately affected by student loans, with 72% of Black undergraduates and 64% of Hispanic undergraduates being Pell Grant recipients.
However, the biggest setback for the Biden administration’s sweeping plan came on Friday, when a US appeals court temporarily blocked it.
Here’s what Georgia borrowers need to know about the student loan forgiveness update.
Why is student loan forgiveness on hold?
In September, the attorneys general of the Republican-led states of Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina sued the Biden administration in an attempt to stop its plan to write off hundreds of billions of dollars in student debt.
The lawsuit comes just two days after the Pacific Legal Foundation, a conservative group, also filed a federal lawsuit against the Department of Education to stop President Joe Biden from writing off student loans.
President Joe Biden’s plan to write off student loans was called illegal and overturned by US District Judge Mark Pittman in Texas on November 10, the press service of the court said.
At the same time, the judge called the Biden plan one of the most egregious abuses of executive power in US history. Pittman wrote that Biden’s plan violated the separation of powers stipulated in the US Constitution.
“In this country, we are not ruled by an omnipotent executive with a pen and a telephone. Instead, we are governed by a Constitution that provides for three separate and independent branches of government,” he wrote.
“The Court does not turn a blind eye to the current political division in our country. But for the survival of our republic, it is essential to maintain the separation of powers, as provided for in our Constitution,” the judge continued.
Alfredo Ortiz, president of the Job Creators Network, and one of the plaintiffs welcomed the decision. “This ruling protects the rule of law, which requires the federal government to hear the voice of all Americans,” Ortiz told Just the News.
“This attempt to illegally bail out student loans would do nothing to address the root cause of tuition inaccessibility: greedy and bloated colleges that raise tuition fees much more than inflation year after year while sitting on $700 billion in donations,” he said.
22 governors’ arguments against Biden’s loan forgiveness plan
22 Republican governors have signed a letter to President Joe Biden calling for the withdrawal of the student loan forgiveness plan. In the letter, they wrote that they “oppose as a matter of principle Biden’s plan to force American taxpayers to repay elite student loan debt.”
Republicans including Texas Gov. Greg Abbott and Florida Gov. Ron DeSantis also said Biden’s plan would harm low-income families, writing, “Hourly workers will pay for master’s and doctoral degrees from highly paid lawyers, doctors, and professors.” Simply put, your plan rewards the rich and punishes the poor.”
In response, the White House pointed to Republicans’ support for large tax cuts for the wealthy under President Donald Trump, as well as GOP politicians who have benefited from the cancellation of their debt loans from the federal paycheck protection program during the health crisis caused by COVID-19.
“These Republican governors didn’t seem to mind when their fellow Republicans in Congress passed a $2 trillion tax break for the rich or forgave hundreds of thousands of dollars of their own small business loans,” White House spokesman Abdullah Hassan wrote in an interview.
“While Republican officials are trying to keep working middle-class Americans in debt, President Biden is committed to providing relief to the borrowers who need it most,” Hassan added.
Late last month, Biden delivered on a key campaign promise by announcing that he would cancel at least $10,000 of student loan debt for millions of federal borrowers, as well as $20,000 for Pell Grant recipients.
While the governor’s letter argues that the president’s move will reward wealthy Americans, Biden emphasized that income-based eligibility for his plan aims to help those who need it most, especially middle- and low-income families.
Borrowers with incomes of less than $125,000 or families earning $250,000 or less are eligible for $10,000 forgiveness, and debt relief up to $20,000 is for people who were low-income Pell Grant recipients.
“Education is the ticket to a better life… But over time, that ticket has become too expensive for too many Americans,” Biden said on August 25.
Many hailed the president’s historic move, which is expected to help 43 million borrowers. Other activists stressed that more help is needed. Progressive Democrats, labor unions, and liberal groups called on Biden to cancel student loans of at least $50,000.
Biden’s announcement also sparked attacks from the Republican Party, with many Republicans criticizing the president for the potential impact on the economy and pointing to those who have paid off their student loans in the past.
“At a time when inflation is running high due to your unprecedented tax and spending program, your plan will encourage more student loans, encourage higher tuition rates, and drive inflation even higher, which will negatively impact every American,” the 22 governors said in a letter.
In August, Biden argued that the plan was “economically responsible,” pointing to “real benefits for families without a significant impact on inflation.”
Goldman Sachs published an analysis in August with similar findings, noting that it won’t have much of an impact on inflation in the long run.
“Debt forgiveness, which lowers monthly payments, is a bit inflationary on its own, but resuming payments likely more than makes up for it,” analysts at Goldman Sachs said.
In their letter, the Republican governors also said Biden’s plan to write off loans is estimated at $600 billion, averaging $2,000 per taxpayer.
But these estimates fluctuated with different experts. Following Biden’s August announcement, the White House said the plan would cost roughly $240 billion. The Wharton School of the University of Pennsylvania estimates that this will cost between $469 billion and $519 billion.
How likely is it that their task will be successful?
Experts say the main hurdle for those hoping to thwart the president’s actions is finding a plaintiff who can prove that the policy has harmed them.
“Such an injury is necessary to establish what the courts call “legal standing,” said Lawrence Tribe, a Harvard law professor. “No individual, business, or government would clearly suffer the way private lenders would if, for example, their loans to students were canceled.”
Legal experts say it will be difficult for GOP-led states to prove they have the required reputation.
The Department of Education, to defend its broader loan forgiveness policy, has now said borrowers with FFELs, or federal family education loans must consolidate their loans by the end of September to qualify. They can no longer make it to qualify.
This will make it harder for Republicans to prove that the president’s plan will cost private creditors a significant amount, according to higher education expert Mark Kantrowitz.
“The state attorney general’s lawsuit was the strongest of the lawsuits until the US Department of Education pulled the rug out from under their feet, depriving them of their legal status,” Kantrowitz said.
Who will be left behind?
The eligibility change announced on September 29, excludes federal student loans guaranteed by the government but held by private lenders.
Many of these loans came from the former Federal Family Education Loan Program known as FFEL and the Federal Perkins Loan Program.
In general, borrowers had no choice between applying for a federal loan from the government or from a private lender. The FFEL program ended in 2010, so borrowers who took out loans after that date are likely to have direct loans that are eligible for debt forgiveness.
Typically, FFEL and Perkins loans are serviced by the same companies as Federal Direct loans.
The federal government purchased several FFEL loans during the Great Recession. But about 4 million of the 43 million federal loan borrowers currently still have an FFEL loan from a private lender.
Initially, not all of these people were eligible for the loan cancellation plan because it also includes an income requirement.
An estimate of how many of these borrowers were eligible for assistance is based on assumptions about their income and the number of people who would apply for assistance. The Biden administration said about 700,000 people lost their eligibility.
Many borrowers with federal private loans feel they are being cheated. Their loans were also exempt from the pandemic-related pause in payments and interest payments that began in March 2020.
How far can this delay student debt forgiveness?
All the 8th U.S. Circuit Court of Appeals did Friday was freeze the president’s plan until he decides whether to suspend the plan while the state’s appeal, said Stephen Vladeck, a professor at the University of Texas Law school.
“This is not a big decision in itself,” Vladek said. The real question, he said, will be what happens later this week when the court decides “what the status quo should be while states’ appeals run their course.”
“I think it’s an uphill battle for the states, given the district court’s conclusion that it lacks standing,” Vladek said.
Borrower disappointment: “It can’t be the truth!”
Some borrowers with private federal loans may still qualify for forgiveness under the Biden plan. But to do so, they had to apply to consolidate their loans into federal direct loans by September 29, about five weeks after the program was announced.
Paulo Calderon said he immediately considered consolidating his FFEL loans to qualify for debt relief. But when he called his loan officer, it wasn’t clear whether consolidation was the best option for him.
“In fact, they told me there was no guarantee that the consolidation would make me eligible for loan forgiveness,” said Calderon, 45, who has about $26,000 in student debt.
It is true that there are risks in consolidation.
This can increase the interest rate, increasing the amount owed from month to month. In addition, the debt relief application has not yet been launched, and the Biden administration has said that borrowers will have until December 2023 to apply.
Can you still ask for student loan forgiveness?
Absolutely. The US Department of Education is urging student loan borrowers to continue seeking relief.
White House press secretary Karine Jean-Pierre said the interim order does not prevent borrowers from applying for student debt relief, nor does it prevent the Biden administration from reviewing applications and preparing them for release to loan service providers.
“We are calling on eligible borrowers to join the nearly 22 million Americans the Department of Education already has information about. It is important to note that the ruling does not reverse a trial court’s decision to dismiss a case or suggest that the case has merit.
It simply prevents the debt from being written off until the appellate court decides,” said Jean-Pierre.
Nebraska Attorney General Doug Peterson, the Republican head of the trial, welcomed the temporary delay.
“It is very important that legal issues related to the presidency be analyzed by the court before shifting more than $400 billion in debt to American taxpayers,” he said.
Updates on the program can be found at StudentAid.gov.