The cost of a college degree in the United States has tripled since 1980. Since access to a college education has long been a bipartisan priority, Congress and the Executive branch have attempted to keep pace with skyrocketing tuition. Over the past half century, Congress has authorized many new programs to assist students in paying tuition.
Despite this cooperative effort, student aid programs have failed to keep pace with rising tuition because colleges just boost their tuition ever higher. College administrators are well aware that many students will simply borrow more Federal funds to attend. This invidious pricing cycle is why total Federal loan debt is now $1.62 trillion. Student financial aid programs ends up benefitting colleges rather than students.
The erosion of tuition purchasing power has induced millions of students to borrow too heavily. According to an Education Department (ED) analysis, students now graduate with an average of about $25,000 in loans. This debt impacts their lives for many years to come.
Biden’s First Student Debt Relief Plan
To relieve millions of Americans of this debt burden, the Executive branch under President Biden took prompt action to reduce it. In 2022, the Administration announced a plan to wipe out significant amounts of student loan debt for tens of millions of Americans.
To be eligible for the program, a borrower needed to be earning less than $125,000 annually as an individual or $250,000 if married. Eligible borrowers were to receive up to $10,000 in debt cancellation. In addition, borrowers who had also received Pell Grants qualified for another $10,000 in forgiveness. The projected cost of the 2022 debt relief program was estimated to be $400 billion.
Six states filed a lawsuit accusing Biden of overstepping his authority with the loan forgiveness program. Eventually, the case reached the Supreme Court in Biden vs. Nebraska.
Biden’s debt forgiveness plan was terminated in 2023 by the Supreme Court’s decision in the case.. In his majority opinion, Chief Justice John Roberts said the words “waive or modify” in the Heroes Act, upon which the plan was based, were not what Congress meant to say. He stated that these words could not be legitimately interpreted as conferring the power to cancel student debt on such a massive scale.
In supporting his position, Roberts invoked a recently articulated conservative doctrine, used only once before in 2022 to halt an EPA program. This doctrine holds that the Court should strike down agency actions that raise “major questions” if Congress did not clearly and unambiguously grant appropriate authority. Roberts opined that the Heroes Act was never meant to be used to implement a policy with such a “staggering” economic impact.
Biden’s Second Student Debt Relief Plan (SAVE)
The decision of the Court left millions of borrowers adrift. To assist them, the Administration launched the Saving on a Valuable Education (SAVE) plan, an income-driven repayment (IDR) plan with monthly payments that are equal to 5% of a borrower’s discretionary income. The plan also ties monthly payments to family size.
The SAVE program is an amended version of the previous plan known as Revised Pay as You Earn (REPAYE), which was launched on December 17, 2015. That income-driven plan forgave a borrower’s balance after 20 or 25 years of payments, but the new SAVE plan accelerates the timeline for borrowers who took out small loans of $12,000 or less. Unlike the first Biden plan, which was based on the Heroes ACT, the SAVE plan was based on the Higher Education Act of 1965.
The SAVE plan provides lower monthly payments for millions of borrowers and a faster path to cancellation. It has already wiped clear the balances of 414,000 enrollees who originally borrowed less than $12,000 and had been paying for at least 10 years. More than 8 million additional borrowers are enrolled in the SAVE plan.
The same six states that had objected to Biden’s first debt forgiveness plan filed a lawsuit accusing Biden of overstepping his authority with the creation of the SAVE program. In June, the six states had obtained an injunction from a lower court that blocked the ED from forgiving any loans through the program. U.S. District Judge John Ross halted any further loan forgiveness. He questioned whether Congress had anticipated a loan repayment plan as far-reaching as SAVE, echoing the reasoning in Biden vs. Nebraska and signaling that the SAVE program could be overturned regardless of its different legal basis.
On the same day that Ross issued his injunction, U.S. District Judge Daniel Crabtree in Kansas blocked the Administration from accepting new SAVE enrollees. Missouri Attorney General Andrew Bailey called this decision a “Huge win for every American who still believes in paying their own way. SAVE is an illegal student loan plan, which would have saddled working Americans with half-a-trillion dollars in Ivy League debt.”
The U.S. Court of Appeals for the 10th Circuit then granted the Administration’s request that both the Missouri and Kansas rulings be set aside, allowing the ED to move forward with SAVE. Within days, three other Republican-led states involved in the lawsuit, Alaska, South Carolina and Texas, petitioned the Supreme Court to intervene, which would take several months.no matter what the outcome would be. The Biden administration argued that halting SAVE amid the ongoing litigation would cause widespread harm to borrowers and operational chaos within the ED. The Supreme Court on Wednesday, August 28, refused to allow the SAVE plan to move forward after an emergency application had been by the Biden administration.
Multiple court orders from the cases have caused turmoil among students with Federal loans outstanding who want to enroll in the SAVE plan or who have signed up for it and need to know what their monthly bill will be.
On July 18, ED Secretary Miguel Cardona said the Department will place all borrowers enrolled in SAVE in interest-free forbearance while the Biden administration continues to defend the plan in court. Cardona said in a statement, “Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect.”
U.S. Solicitor General Elizabeth Prelogar wrote, “To revert to the pre-SAVE plan approach, the Department and its servicers would have to reprogram their systems, retrain their staff, and recalculate monthly payments. This process would take at least several months, during which the Department would have no choice but to place many borrowers into forbearance until servicers are able to bill them for the new amounts.” This would lower Federal revenue by billions of dollars.
Student advocates say the 8th Circuit Court of Appeals ruling will disrupt the lives of millions of borrowers who rely on the low monthly payments enabled by SAVE. Eileen Connor, Executive Director of the Project on Predatory Student Lending, said, “This decision threatens the entire Federal student loan system and will cause complete chaos and confusion. The SAVE plan was created to allow low-income borrowers a fair path to repay their Federal student loans and instead they will now have a greater risk of default and serious financial consequences.”
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