What you need to know about Joe Biden’s student loan ‘forgiveness’ plan

One of President Biden’s key election promises during his 2020 campaign was daring student debt relief – at least in some form. It is now June 2021 and the President has not yet kept that promise. But that is not due to a lack of experimentation. Debt cancellation is a complex affair due to unclear legal issues. Will Biden stay true to his word? Some experts believe so.

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“There is certainly an opportunity,” Andre M. Perry, a senior fellow of the Brookings Metropolitan Policy Program, told CNBC.

“Student loan waiver was not included in the president’s budget proposal or in the infrastructure bill,” added college and university expert Mark Kantrowitz for CNBC. “Some people interpret this as the president turning away from lending. I don’t see it that way. “

Nearly 45 million Americans have student loan debt

Student loans in the United States have grown dramatically over the past 15 years, with total debt hitting $ 1.6 trillion in 2019 – the equivalent of 7.5% of the country’s GDP. Around 45 million Americans are currently still making payments for their student debts.

Unlike other school-related grants such as scholarships or grants, loans must be repaid. The hardest hit are minorities such as black and Latin communities. Women also share a disproportionately high toll. The number is likely to be compounded by the disproportionate negative impact of the COVID-19 pandemic on the economic security of people of color and women.

While Americans can of course choose not to take on college debt, the alternative is no more attractive. Decades ago you could start working life with just a university degree in order to earn a living wage. Today, however, undergraduate graduates are half as likely to be unemployed as their high school graduate peers, and they make an average of $ 1 million extra over their lifetime.

On an annual basis, undergraduate graduates make about $ 32,000 more than those whose highest degree is a high school diploma – and the wage gap between college graduates and those with less education is widening every year. In 2019, the median graduate income was about $ 44,000 per year for undergraduate graduates ages 22-27, while high school graduates of the same age group had a median income of $ 30,000 per year.

A petition, signed by over 415 organizations on April 13, 2021, called on President Biden and Vice President Harris to ordinance the federal student debt canceled. Most Americans support student debt relief.

But while public support for student debt relief has been overwhelming, questions remain as to whether this is legally feasible.

More than three months ago, the Biden administration asked the US Department of Education to conduct a review of whether the administration could extensively cancel student loans without further approval from Congress. Previously, the Trump administration concluded that the president did not have the legal authority to unilaterally enact such a far-reaching student loan waiver, but perhaps the Biden administration will come to a different conclusion this time around. If Biden decides to continue his student debt relief, the decision will most likely be challenged in court. Ultimately, this is where it will be decided whether the President of the United States is really capable of adopting such a policy.

Even if Biden chooses to move on, it is unlikely that all student debt will be wiped out. The most likely course of action is targeted debt relief. For example, the administration may decide to cancel all debts up to $ 50,000, which would equate to nearly 36 million American borrowers who would have their student loan debt canceled in full.

The Biden government has already canceled $ 2.3 billion in student loan debt. First, he canceled student loans for 72,000 borrowers attending colleges that engaged in fraudulent or predatory practices – particularly now non-for-profit colleges like the ITT Technical Institute and Corinthian Colleges. Then he canceled an additional $ 1 billion for 41,000 borrowers with total and permanent disabilities.

What is certain is that those with a private student loan should not expect the student loan to be terminated. Biden’s campaign promise to scrap student loan debt, supported in Congress by Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY), applies to federal student loans only. For example, parenting loans, a type of loan given to parents to finance education, are private student loans, so they are unlikely to appear on a termination proposal. However, Parent PLUS Loans are owned by the federal government and may be eligible. Parent PLUS Loans debt is approximately $ 100 billion.

Additionally, any student loan cancellation is expected to have an income cap. As proposed by Warren and Schumer, only student loan borrowers earning less than $ 125,000 per year would be eligible for cancellation of the student loan.

Obtaining student loans in the United States is a complex and difficult situation. There is still no word from the White House about the Department of Education review. Should this ever happen, debt relief will not apply to all borrowers. Furthermore, it does not mean that Americans will be able to attend college “for free” in the future.

“The idea that you go to Penn and pay a total of $ 70,000 a year and have the public pay for it? I disagree, ”Biden told the New York Times.

If the vast majority of student loans are cut but Americans still have to pay high fees to graduate, what will the future of student finance look like? Nobody knows anymore. Right now, student debt relief is pending despite the overwhelming support in its favor.