Legal action taken over Biden’s student debt relief

18/11/2022

America's debt forgiveness policy, designed to benefit students following the pandemic, has been met with controversy

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Image by Edwin J. Torres

By Raphael Henry

On 24 August, Joe Biden unveiled his administration’s new ‘Student Debt Relief Plan’, a sprawling package of reforms designed to reshape student finance in the United States after years of Covid-19 disruption. Despite a court order to delay the scheme, Biden remains optimistic that graduates will be able to reap the promised rewards by the end of the year.

The debt forgiveness plan, just one element of this package, could see graduates who earn less than $125,000 (£108,000) have up to $10,000 (£8,700) of their student debt written off. This can be increased to $20,000 (£17,000) for those who have received the federal ‘Pell Grant’, which provides targeted funds for students in “exceptional financial need.” According to the US Department of Education, 43 million borrowers will qualify for some debt relief, with 20 million of those having their debt forgiven entirely.

The plan aims to smooth the transition back to student loan repayments, which were paused during the pandemic. According to the Department of Education, no one with a federal loan has paid “a single dollar” since Biden took office. This pause will extend until January 2023, after which monthly repayments will restart.

The Biden administration has also announced the creation of a new “income-driven repayment plan,” similar to the one currently used for student loans in the UK. This will see reduced monthly loan repayments for lower- and middle-income graduate borrowers, as well as bringing forward the date after which a borrower’s debt is automatically written off from 20 years after the start of repayment to 10 years after.

Additionally, the plan aims to ensure that no one’s debt will grow larger due to interest, so long as the borrower continues to make their monthly repayments. In the current system, a student’s debt can grow faster than they could pay it off.

More recently, on 31 October the Department of Education announced “sweeping” changes to the federal student loan system, which aim to introduce stronger borrower protections.

The US Secretary of Education, Miguel Cardona, said that this package “is a monumental step forwards in the Biden-Harris team’s efforts to fix a broken student loan system and build one that’s simpler, fairer, and more accountable to borrowers.” The Department of Education is confident that most borrowers can expect relief “within six weeks” of submitting an application.

The student loan forgiveness plan is currently on hold, however, after a US federal appeals court granted the request of six Republican-led states to temporarily halt the program and consider their legal challenge. The representatives of these states are attempting to sue the federal government, on the grounds that the president is over-stepping his authority.

This came just days after the US Supreme Court dismissed a separate legal challenge against the debt plan from the Brown County Taxpayers Association, a collection of individuals and businesses which describe themselves as “dedicated to conservative economic policies.” This group argued similarly that Biden was overstepping in creating the program through ‘executive order’, meaning that the plan was not subject to congressional approval.

They also claimed that the program went against the constitution’s guarantee of equal protection in the eyes of the law, because it was designed to assist Black graduates and “narrow the racial wealth gap.” They considered this to be an “improper racial motive.”

In contrast, some observers have commented that the scheme in fact does not do enough for marginalised groups, especially for Black women, who were found in the recent non-profit Hechinger Report to be “uniquely burdened” by student debt.

The Taxpayers Association’s legal challenge was dismissed by both a senior US district judge and Supreme Court Justice Amy Coney Barrett, the final Justice appointed to the Supreme Court by former president Donald Trump before he left office last year.

Despite the court-mandated pause, the Biden administration is continuing to encourage borrowers to apply for the scheme. White House press secretary Karine Jean-Pierre said that the administration “will continue to move full speed ahead in our preparations,” whilst respecting the court order by not issuing any loan forgiveness until the appeal has been resolved.

The announcement of student finance reforms has prompted a renewed discussion about the debt burden on graduates in Britain. Biden’s reforms have renewed discussion about the UK student debt burden, where a high proportion of students take out loans and to a larger value. 95 percent of UK students take out student debt, compared to 70 percent in the US, allowing Biden to create a more targeted system for those most in need. Indeed, the average UK undergraduate leaves university with a student debt of £43,650, far higher than that of their US counterparts.

Yet the UK already implements many of these measures, such as a progressive income-based repayment system, which reduces the monthly financial burden of student debt on low earners. The message is clear, however: although the UK’s student loan system may indeed need reform, implementing the same set of policies as the US would ultimately prove needlessly costly.