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Student loan forgiveness: pitfalls and opportunities

Kyle Thompson
Policy Associate
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May 1, 2023
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In our previous examination of student debt, we outlined extensive coverage of President Biden’s Student Loan Forgiveness Plan. A lot has happened since then, including an abrupt pause of the program. In the current student debt landscape, what has changed? Let’s review what’s happened since the pause, and what opportunities for student loan forgiveness might be coming.

What has changed in the student loan policy landscape?

In 2019, the Project on Predatory Student Lending filed a lawsuit (Sweet v. Cardona) on behalf of students that borrowed federal student loans to attend for-profit colleges. What followed were three years of litigation that eventually resulted in a decision by the Supreme Court to forgive debts for over 200,000 borrowers. This would result in $6 billion dollars of student loan forgiveness.  

Recently, Ohio Attorney General Dave Yost filed a brief with the U.S. Supreme Court along with 19 other states[1] arguing that the plan to wipe away $6 billion in student loan forgiveness would be an unacceptable power grab. Yost writes: “The executive branch cannot extend its authority as it sees fit.” The argument is that the Secretary of Education does not have power to forgive debt. Yost signing his name onto the brief is important to the student debt landscape because it is part of a national conflict in the student debt landscape. In early April, the Supreme Court responded to this lawsuit by choosing to not block this settlement. The court did not provide much explanation as to why they did not block it, but the ruling will allow the plan for debt relief to move forward.

 The Supreme Court isn’t set to release any ruling until June. Since then, Republican lawmakers have pushed for ending the payment pause in addition to repealing Biden’s plan altogether.

The Biden Administration’s debt forgiveness plan is still blocked by orders under courts, after a class action lawsuit was filed by six states, and a separate lawsuit in Texas. The Texas lawsuit alleged that the plan was making a decision without allowing any agencies to provide public feedback to a proposed rule; more context here. In February, the Supreme Court held oral arguments on two cases challenging the Biden Administration’s plan to forgive student loan debt. The Supreme Court isn’t set to release any ruling until June. Since then, Republican lawmakers have pushed for ending the payment pause in addition to repealing Biden’s plan altogether.

What if the decision is repealed?

The implications of repealing Biden’s loan forgiveness plan and the repayment pause would be economically harmful for borrowers. This is because the pandemic’s impact on household finances and existing wealth disparities would magnify existing disparities. Worst case scenario, the decision would affect more than 37 million people (about twice the population of New York), and push millions of borrowers into unplanned repayment, and rapidly accruing interest onto loans.

What avenues are possible for debt relief?

Many individuals working in public service have faced confusion when enrolling in forgiveness programs. This has resulted in a lot of miscommunication and uncertainty among employers. To counter this, some have suggested creating a state ombudsman service that would offer direct assistance for borrowers. The ombudsman would not act as a mechanism for debt relief; they would simply connect borrowers to services to manage their loans easily. Several states already have an ombudsman in place to service student loans and provide resources to resolve complaints related to federal student aid programs. Additional services include resolving issues with loan balances and payments, and explaining how loan interest accrues on loans. A state ombudsman would assist in streamlining services and loan repayment options for borrowers across the state. They also resolve any disputes regarding loans payments. Check out the links below for more information on state ombudsmen, and how to get aid.  

Another avenue for debt relief is using an income-driven repayment plan. Previous research highlights the efforts by the Biden Administration to make the student loan system more manageable. This plan would reduce payments from 10% to 5% of discretionary income, reducing monthly payments. This would be done through a revision proposed by the Department of Education. The legal repayment plan would become a permanent inclusion to the student loan infrastructure. The program is called REPAYE, which stands for Revised Pay As You Earn. The new REPAYE plan could go into effect in July 1, 2024.

 Ohio ranks third in prevalence of student loan debt.

How much education debt do Ohioans Have?

Ohio ranks third in prevalence of student loan debt. There are over 1.8 student loan borrowers in Ohio. This debt collectively adds up to approximately $62.3 billion according to the U.S. Department of Education. Ohioans are also most likely to have student debt. 22.2 percent of borrowers owe between $20,000 to $40,000, with an average of $28,600. Ohioans aged between 35 to 49 make up the largest percentage (38 percent) of federal student loan borrowers. Ohioans aged 62 and older make up the smallest percentage (5.5 percent).

What can I do now?

In the meantime, borrowers should remain up to date with their loans by keeping track with program deadlines and loan borrower updates. Be sure to note any changes that have occurred during the payment pause, and what your loan accrual rate will be following the end of the payment pause.

Resources

How to get help from loan ombudsman  

Department of Federal Student Aid resource outlining how ombudsmen work  

How to resolve a dispute for student loans  

Information on REPAYE  

[1] The states that signed onto the brief are: Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, North Dakota, South Carolina, Tennessee, Texas, Utah, West Virginia and Wyoming.

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