Biden Administration Still Kicking Around Student Loan Debt Solutions

Over the past 19 months, I've written seven times for GoCertify on the topic of student loan forgiveness, which has turned into a major ongoing tussle over the future of the U.S. government-backed Federal Student Aid program. Here's a list:

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1) Revisiting Student Loan Forgiveness (April 8, 2022)
2) Would Income Limits Help Sell Student Loan Forgiveness? (April 29, 2022)
3) White House Raises the Curtain on Student Loan Forgiveness (August 26, 2022)
4) An Update on U.S. Federal Student Loan Forgiveness (June 17, 2022)
5) U.S. Supreme Court Says No to Biden Loan Forgiveness Plan (July 14, 2023)
6) Storm Brewing Over Possibly Stillborn Student Loan Forgiveness Plan (November 18, 2022)
7) Student Loan Forgiveness Stalled, But Consider the Benefits (March 24, 2023)

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As I hope you can tell, this is a subject of considerable interest and importance. And I don't emphasize that on my own behalf: I repaid my own student loans in the early 1990s. Rather, this topic is of considerable import to the more than 40 million Americans of all ages who carry some amount of student debt.

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Indeed, the average outstanding balance for participants in U.S. Federal Student Aid programs, as of June 2023, is a whopping $37,650 (source: BestColleges.com).

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Our Story So Far

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In 2022, the Biden administration put forward an executive order to forgive more than $400 billion in student loan debt, thanks to provisions still in effect after the COVID-19 pandemic. This immediately spawned numerous lawsuits, mostly at the state level where student loan benefits actually originate and are ultimately received, administered, and accounted for.

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It seems that conservative members in the legislative branch (mostly the House of Representatives, as far as I can tell) felt very strongly that giving that much money away put an undue burden on the public purse. And, as the holder of the strings of said purse, Congress was not about to let the President make such enormous disbursements without their involvement and approval (which was not forthcoming).

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This culminated in a Supreme Court ruling (see July 14 story linked above) in which the Court agreed with Congress, and negated the executive order that basically forgave all student debt, especially for debtors with low balances and/or low income situations. That program would have cancelled up to $10,000 in student debt per borrower (double that amount for Pell Grant holders), but it was ruled outside the scope of presidential mandate.

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This year, the Biden administration put forth a couple of more modest loan forgiveness programs (net cost to taxpayers: approximately $80 billion) aimed at low-income and low-balance loan holders. Also the Department of Education (the ultimate holder of student loans, so to speak) announced a 12-month on-ramp into resuming normal repayment of outstanding student loans.

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During this period, payments missed or delayed will not be reported to credit agencies, nor make negative impacts on credit ratings, as borrowers come back from the loan repayment vacation that has been in effect since April 2020 in the wake of the outbreak of the COVID-19 pandemic.

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All this said, the Biden administration is still working on more limited forms of debt forgiveness for holders of federal student loans. Here's an excellent overview from AmericanProgress.org, an education think tank. Perhaps because Mrs. Biden is a longtime community college instructor and administrator, the President seems unusually sensitive to the sometimes difficult situations in which student loan holders can find themselves.

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At this point, numerous options are being explored, with possible debt relief available to Federal Student Loan holders by late next year (2024). Right now, though, student loan holders should be ready to make their regular monthly payments as required in the terms of their loans, and to keep doing so until further notice.

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What's the Best Possible Outcome?

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I'm strongly of the opinion that forgiving student debt is a good thing, especially for borrowers whose incomes are the in the lower half of the overall income distribution. These people are most sensitive to changes in available and disposable income, and most likely to benefit from reductions in payments and expenses that come out of their pool of available monthly cashflow.

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Frankly, I think the notion of canceling all student loan debt of $10,000 or less is a great idea, but I'm OK with means-testing the people who would be eligible. If they fall in the two bottom income quartiles, then I think they should be relieved of that burden. Higher income payers should be limited to the percentage of incoming monthly cashflow that can be allocated to student loan payments, too (10 percent seems a reasonable figure, even if still a significant monthly outlay).

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The reason I support federal student loan forgiveness, especially if means-tested, is because it will benefit those for whom debt relief will do the most good. The fewer dollars one has to spend, the more one appreciates having spending requirements lowered.
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Yes, it may cost taxpayers a pretty penny. But I think it will ultimately benefit the whole country, as people coming out from under the cloud of student debt can get some leverage to pursue better-paying jobs, more learning and skilling opportunities, and a brighter future for themselves and their families. Ultimately, what helps them helps all of us.