After nearly 3 years of postponed payments for over 45 million Americans who carry $1.6 trillion in outstanding federally held student loans, the CARES Act has continued to allow the U.S. Department of Education to postpone their repayment obligation, extending the repayment date to August 31, 2023. The Biden Administration’s plan to wipe away up to $20,000 of student loan debt per borrower has been a controversial topic since the White House initially announced it on August 24, 2022. However, due to several lawsuits and injunctions, courts have since issued orders to block the plan, and the Supreme Court is due to hear arguments later this month. A decision is expected by June.
After the administration announced its massive one-time student loan forgiveness initiative, several lawsuits and injunctions prevented the plan from moving forward. In September 2022, 6 Republican-led states (Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina) filed a lawsuit claiming that “Biden violated federal law, the constitutional principle of separation of powers, and the Administrative Procedure Act when he skirted congressional authority to implement this policy.” According to the Congressional Budgeting Office, the plan will cost $400 billion over the next 30 years. An attorney for the Nebraska attorney general’s office claims this type of relief will cost the states millions of dollars. The district judge threw out the states’ lawsuit for failure to establish legal standing. Still, the attorneys general for the 6 states have appealed the decision, followed by an injunction to inhibit the execution of the debt relief plan until the appeals process plays out. In the meantime, the Department of Education’s website has announced that they are currently not accepting applications for the forgiveness plan while they seek to overturn the courts’ orders.
Could The Pause Be Extended Indefinitely?
The date to resume student loan payments has been extended NINE times thus far (through September 2020, December 2020, January 2021, September 2021, May 2022, August 2022, December 2022, January 2023, and now August 2023). Although the federal court has temporarily halted Biden’s plan, the President has continued to push out the repayment pause, which is now extended to August 31, 2023. Much speculation can be made regarding further extensions by the President. However, regardless of whether or not the date continues to extend, the multitude of extensions have already offered a benefit to many borrowers, bringing them closer to loan forgiveness.
The benefit to each borrower is that with each month of a pause, payments and interest are suspended, but it still counts as a month of payment, even though a payment has not been made. That means that even after almost 3 years of never having made a payment toward their loans, borrowers will have received that much credit toward their student loan forgiveness term. Under current Income Driven Repayment (IDR) plans, that term is 20 or 25 years; under Public Service Loan Forgiveness (PSLF), it is 10 years with specific qualifications. The longer the pause remains in place, the more borrowers could reach their student loan forgiveness threshold under IDR and PSLF. Even though the Biden Administration has claimed that they would not be issuing an indefinite extension, the same was said in the past for subsequent extension dates. Additionally, with there is a possibility that congressional Republicans will challenge any further extensions.
Perpetual Borrowing and Forgiveness.
The arguments still remain that student debt forgiveness encourages more reckless borrowing. There are many contributing factors to our country’s student debt crisis, such as the rising cost of tuition and the student loan industry’s trend of handing out loans regardless of the borrower’s ability to pay them back. While many are fighting for an increase in accountability and the prevention of unchecked borrowing, many student loan borrowers have banded together and are committed to fighting until all student debt has been canceled. There is an ongoing fear that Biden’s plan lacks long-term solutions to address the issues that have long plagued the federal student loan system. Debt cancelation may bring immediate relief to borrowers today, but the Committee for a Responsible Federal Budget has projected that within 5 years, the overall amount of federal student loan debt will return to $1.6 trillion.