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What's happening with student loan debt?

Alan Cohen

Staff Writer

Photo from Vanity Fair

According to the Education Data Initiative, 42.8 million borrowers have federal student loan debt, which sums up to 1.617 trillion dollars in total. Borrowers are often saddled with debt for decades, many times risking their financial stability and quality of life to repay the cost of their education. President Biden has presented student debt relief plans, some of which are currently blocked by the Supreme Court and are pending further litigation. These controversial plans come with important implications in the short and long term. Among these are both positive and negative macroeconomic consequences, as well as an equity debate.

The average public university student borrows $32,880 to attain a bachelor’s degree, and the average debt of a private university student is more than double that amount. Students who attend graduate school often end up with debt of up to $200,000.

Students and families have long pressured legislators to cancel student debt to make up for the increasing cost of higher education. In fact, studies have shown that federal debt relief is a popular policy, with 55% of Americans supporting cancellation of up to $10,000 per borrower in federal student loans, and 47% supporting cancellation of up to $50,000 per borrower.

One of the main platforms President Biden ran on in 2020 was financial relief for student loan borrowers, and access to affordable higher education. On Aug. 24, 2022, the Biden-Harris administration announced new changes and proposals to student debt relief, including the pause of all federal loan payments until Dec. 31, 2022, due to the financial burdens caused by the pandemic.

In addition to the student debt repayment pause, the White House also announced amendments to the already existing Revised Pay As You Earn (REPAYE) plan. These new changes would include student debt forgiveness of up to $20,000 per borrower earning less than $125,000 annually, ensure full forgiveness after 10 years of repayments for borrowers with loan balances of $12,000 or less, and capping monthly payments at 5% of discretionary (i.e. after taxes and basic expenses) income, among other proposals. The new amendments to the plan, nonetheless, are currently blocked by the Supreme Court, and further litigation is expected to take place in the following months.

Rohan Grey, a Contracts Law professor at Willamette University College of Law, explains that Biden’s student debt forgiveness plans are currently blocked by the Supreme Court largely because of lawsuits that argue that the executive power didn’t have the statutory power to create the debt relief plan. In law, this is referred to as the ‘major question doctrine’, and it is used to challenge actions of high political or economic significance when the statutory authority is unclear or not explicitly stated. In other words, since Congress did not explicitly give the Department of Education legislative approval for the REPAYE plan, it is up to the federal court system to decide whether the plan is within statutory limits.

According to Grey, the outcome of this litigation depends on the interpretation of the text. Grey is afraid that ideological values, as opposed to an impartial decision, might influence the decision that the highly conservative court will make about Biden’s student debt relief plans. “I don’t think this is a question about principles. The question is about how many votes you have in a very small electoral body that happens to call itself a court,” Grey stated. “President Biden certainly didn't make it easy for himself to win because he left this issue until very late in his term. In their attempts to be more incremental and mild, they actually ended up being weak.”

Photo from Time

In addition to President Biden’s proposals, many members of congress have worked on proposing legislation regarding federal student debt, and overall higher education cost. Among them are the Student Loan Relief Act, which would cancel up to $50,000 for each borrower, and HR.9558, which would expand student debt relief for Medicare recipients. Grey concluded by explaining that the major questions doctrine wouldn’t apply to proposals in Congress because they are legislative actions, and Congress, within constitutional limits, has unlimited power to cancel student debt. Congress, nonetheless, most likely would not get enough votes to cancel student debt via legislative bills.

Laura Taylor is the Associate Provost for Academic Finance, and an Economics professor at Willamette University. “The general consensus is that we have a student debt problem,” she stated. Taylor added that the main positive benefit of student debt relief is that individuals with canceled or reduced student debt can spend more resources on buying assets, such as houses or cars, as well as being able to save money more easily. “It really does allow a generation of graduates to be able to spend that money in other, better ways,” she stated.

In addition, debt can have negative effects on a person’s mental health, and the lack of financial stability can increase the risk of untreated mental health issues or suicidal ideation. Taylor mentioned that another positive aspect of student debt relief is reducing the psychological and emotional pressure on those whose mental health is directly impacted by their financial situation.

On the other hand, there are several arguments against canceling or reducing student debt. Among them, according to Taylor, is the potential spike in prices and inflation. Taylor points out that if a substantial part of the population is forgiven their student debt, they will demand products at much higher rates, potentially driving up prices, and negatively affecting those with less resources or other debts that have not been forgiven. In addition, the federal government would not receive back many of the funds it lent to students, which, according to Taylor, could impact macroeconomic stability. That is, if the federal government does not receive back part of the funds that it gave students in the past, there could be a lack of public revenue or an increase in money printing, which would hence also increase inflation.

In addition, Taylor points out that this issue comes with a fairness debate. “Not everyone gets an equal chance to benefit from this particular initiative,” she stated. For example, president Biden’s initiatives only affect federal loans, so those who borrowed from private firms, or friends and family cannot have their debt forgiven. Nonetheless, she does not find this to be a persuasive argument, since public policy cannot affect everybody equally, and that the fact that not everybody can directly benefit from this initiative doesn’t mean that it inherently outweighs the benefits.

Students at Willamette University, as well as other higher education institutions in the country, remain attentive about the outcome of this plan, which will come with very important consequences for our country, our economy, and many people’s futures. It is up to the Supreme Court to decide whether Biden will be able to fulfill his campaign promise and forgive federal student debt to eligible graduates.

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