The student debt relief plan for next year is expected to help over 40 million borrowers through loan forgiveness and give them time to prepare for payments that will resume in January.
09/22/2022 12:45 P.M.
3.5 minute read
The Biden administration and U.S. Department of Education (DOE) have released new details on the targeted student debt relief plan and student loan payments set to resume in January 2023, including state-by-state data on the impact for borrowers.
President Joe Biden announced his latest student loan forgiveness plans in August as well as an extension of the student loan payment and interest relief through Dec. 31, 2022, ACA International previously reported.
Borrowers earning less than $125,000 per year will see loan forgiveness of up to $10,000 and the Biden administration will forgive up to $20,000 for Pell Grant recipients, making it the largest federal student loan forgiveness to date.
Over 40 million borrowers are expected to be eligible for the student debt relief plan, and nearly 20 million borrowers could see their remaining student loans discharged, according to a fact sheet from the Biden administration and DOE.
It says that nearly 90% of relief dollars are earmarked for those earning less than $75,000 per year—and no relief will go to any individual or household in the top 5% of incomes in the U.S.
“By targeting relief to borrowers with the highest economic need, the administration’s actions are also likely to help narrow the racial wealth gap. Nearly 71% of Black undergraduate borrowers are Pell Grant recipients, and 65% of Latino undergraduate borrowers are Pell Grant recipients,” according to the fact sheet.
It further outlines state-by-state data on the estimated number of consumers eligible for student debt relief, and the estimated number of Pell Grant borrowers eligible for up to $20,000 of relief within each state.
California, Texas and New York are among the states with borrowers expected to see the most relief, followed by Florida and Georgia, Illinois, Michigan, Ohio and Pennsylvania.
Plan Costs in Question
Meanwhile, the student debt relief plan has ignited other discussions on the impact of student loan forgiveness and payment relief on borrowers, taxpayers, the economy and inflation, ACA previously reported.
In fact, a lawsuit in an Oregon District Court is challenging the DOE and Secretary of Education Miguel Cardona’s authority to discharge or forgive student loan debt on a mass basis under the Higher Education Relief Opportunities for Students (HEREOS) Act of 2003.
The plaintiff, Daniel Laschober, representing himself in the case in the U.S. District Court, District of Oregon—Portland Division, filed a complaint for a temporary restraining order and preliminary injunction arguing the language of the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES) Act does not give Cardona the “wide-ranging authority to discharge or forgive student loan debt on a mass or blanket basis” as claimed in August memorandums from the Assistant Attorney General’s Office of Legal Counsel and the Department of Education’s Office of the General Counsel.
The complaint also calls into question the costs and impact on the economy from the student loan forgiveness and payment pauses.
An analysis released by the Penn Wharton Budget Model in August said the forgiveness plan could total about $300 billion in costs initially and reach as much as $330 billion if the effort continues for new borrowers and others who would be eligible for forgiveness in the future.
Lawrence Summers, the former director of the National Economic Council and Treasury Secretary for President Barack Obama, said the student debt relief is linked to increasing inflation, according to a report from Yahoo Finance. Summers said in several Tweets that “the best way to relieve student debt would be to allow it to be discharged in bankruptcy.”
Research and budget reports also say the student loan forgiveness plan will undermine the Inflation Reduction Act (IRA), another key piece of Biden’s agenda this year.
According to a report from the Committee for a Responsible Budget released Aug. 16—before Biden’s official announcement on the forgiveness plans—extending the repayment pause through the end of the year would cost $20 billion more, which equals the total deficit reduction planned in the first six years of the IRA.
When combined, these policies would consume nearly 10 years of deficit reduction from the IRA, the Committee for a Responsible Budget says.
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