Exploring the Details: Key Facts About the Biden Administration's Student Loan Forgiveness Plan

Millions of Americans take out student loans to increase their earning potential. Unfortunately, however, the Biden Administration's plan to cancel $400 billion of student loan debt places them in financial jeopardy.

Conservative justices ruled 6-3 that the program was unconstitutional, prompting the Education Department to seek relief under existing law.

1. The President’s Authority to Forgive Student Loans

There's approximately $1.7 trillion of federal and private student loan debt on record, leading forgiveness advocates to refer to it as a crisis. Paybacking loans is difficult for low-income borrowers -- including Black borrowers whose loans tend to be even more costly than those of their white peers. The Supreme Court's forthcoming decisions regarding student loan forgiveness plans from the Obama administration will be of paramount importance to those in this group. Justices will determine if executive power covers an expansive debt cancellation plan. Such issues involve both administrative procedure and constitutional separation of powers restrictions that limit presidential authority.

The Supreme Court will investigate whether or not the Biden administration's HEROES Act (Heroes for Education Repayment Act) had "clear congressional authorization." If not, its implementation could violate constitutional protections against spending without explicit appropriation from Congress. In addition, justices will determine if their administration acted reasonably and responsibly when adopting this program, which would have cleared away debts of up to 43 million Americans.

The Department of Education has already embarked on a relief program based on the Higher Education Act rather than HEROES Act; but this one may face legal obstacles similar to its predecessor.

On Friday, the Department of Education made an announcement that they will forgive loan debt for nearly 804,000 borrowers totaling about $39 billion, through fixes that more accurately count monthly payments under income-driven repayment programs and by making sure borrowers who were incorrectly placed into forbearance by servicers are properly counted for.

Preston Cooper, an economist with the Foundation for Research on Equal Opportunity who studies higher education policy and equity issues, asserts that the Obama administration has broad authority to set terms of income-driven repayment plans; however, some judges will find that its new forgiveness plan goes well beyond Congress' intent, thus rendering it unjustifiable and forcing its cancellation.

2. The Plan’s Impact on Borrowers of Color

While Biden administration efforts to cancel student debt have largely failed thus far, the Education Department has made changes that will benefit many borrowers when payments resume in October. For instance, they waived payment-counting rules to make qualifying for loan forgiveness easier for many borrowers and helped defrauded borrowers get refunds from closed colleges and granted disabled borrowers relief. Furthermore, an income-driven repayment plan will reduce monthly payments by altering how discretionary income is measured - something the Biden administration failed to do successfully.

These initiatives should help reduce the number of borrowers who miss or fall behind payments when the pause in student loan repayment begins, and increase access to loans with no monthly payments altogether. Unfortunately, however, they fail to address the root issues driving debt relief measures: sky-high college costs and record inflation that has seen interest rates surge from historic lows.

As student loan repayment resumes, the Biden administration must decide whether it wishes to implement mass debt forgiveness or offer targeted relief programs instead. Targeted relief may prove more suitable in supporting minority borrowers of student loan debt.

Black borrowers with higher levels of student loan debt face additional barriers to escape poverty and reach economic security, due to wage and employment disparities within the workforce. They therefore require debt relief services most, to prevent long-term harm from ongoing payments.

The administration's new plan to address student debt relief is an important first step, yet will likely not do enough for millions of Americans who will resume paying their loans this autumn.

Legal challenges to this plan are likely from those opposed to President Trump's attempt to expand the scope of the program. A negotiated rulemaking process allows executive branches to develop federal regulations without congressional input, yet conservatives believe this new plan exceeds his authority and should be litigated upon in court.

3. The Plan’s Impact on the Economy

A divided Supreme Court struck down the Obama administration's COVID-19 debt relief program, ruling it did not receive clear authorization from Congress. This decision relies heavily on the Court's Major Questions doctrine, which holds that decisions of this magnitude must be authorized or at least made under congressional auspices. Though the Court's ruling may have dealt the administration a blow, the Department of Education remains on course with its student loan forgiveness plan and plans to implement another part of it in due time. The new plan aims to offer targeted student debt relief to borrowers who had low incomes during the pandemic and received Pell Grants, including up to $10,000 cancellation of student debt for many borrowers and double that amount for Pell recipients.

This program aims to ease the transition back to repayment after years-long COVID-19 pandemic-driven payments pause, protecting those at highest risk of delinquency and default once payments resume next year. Furthermore, interest will be charged less often and forgiven sooner compared to existing income-driven repayment plans (20 vs 10).

Loan delinquencies at higher risk will see their monthly payment reduced significantly from its current cap of 15%, to 10% of discretionary income. This will allow faster loan pay-off and save thousands in interest costs.

However, Biden's plan could backfire by cutting household spending elsewhere. Consumers will likely redirect some of their disposable income away from buying goods and services and toward student debt repayment - slowing the economy in turn. According to a Moody's analysis conducted earlier this year, Biden's debt relief and payment resumption proposals may reduce real GDP by as much as two tenths of one percentage point by 2023.

Though some progressives expected more from President Obama's plan, its results should still be applauded as offering much-needed relief to struggling student borrowers. Too many Americans rely on student debt repayment costs as their only form of postsecondary financing and this burden often prevents them from living healthy and productive lives. President Biden's efforts to reform federal student loan policies and increase debt relief represent an essential step toward creating equal playing fields for America's most disadvantaged residents.

4. The Plan’s Impact on the Debt Crisis

Student loan debt has become a burden to 44 million Americans, preventing them from buying homes, saving for retirement or starting families. Furthermore, it acts as an impediment to upward mobility - particularly among students of color who tend to borrow and accumulate larger loan balances than their counterparts. With this new debt cancellation policy in effect, those struggling to break free will finally find relief and be able to build wealth while attaining financial security.

The administration's plan also extends a payment holiday for Parent PLUS loans, which are federal student loans made directly to parents for their children's undergraduate education. Over 3.7 million families are estimated to owe $104 billion in Parent PLUS debt owed for undergraduate studies; many come from historically Black colleges; this policy will have an especially profound effect on them by increasing chances of having debt forgiven and breaking free of racial wealth inequality cycle caused by high-interest loans.

By expanding access to debt relief for millions of families with federal student loans, the Biden administration is expanding access for millions who don't have enough income to make monthly payments on their current balances. Furthermore, this policy will promote racial equity as it prioritizes relief for families with the greatest economic need; moreover, since students of color tend to incur large student loan balances more frequently, programs designed specifically to target them will help eliminate disparities in accessing higher education while simultaneously increasing economic mobility.

The new debt-forgiveness policy will build on other initiatives undertaken by the Biden administration, such as waiving payment-counting rules to make loan forgiveness eligibility easier, helping defrauded borrowers obtain refunds from closed colleges, and offering disability relief to borrowers. Furthermore, work has begun on creating an income-driven repayment plan which will significantly lower future monthly payments by changing how "discretionary income" is calculated - something the new debt forgiveness policy could do too.