Is Biden's latest plan to cancel student debt vulnerable to legal challenges?
Nat Malkus, who studies higher education at the American Enterprise Institute, said the White House anticipates that people in the SAVE plan will repay only about 71 cents for every dollar that they borrow. “That doesn’t sound like a loan. It sounds like a quasi-grant program,” Malkus said. Image from Shutterstock.
President Joe Biden’s latest plan to cancel some student debt is based on a different law than the one before the U.S. Supreme Court, when it struck down a loan forgiveness program in June.
The plan struck down by the Supreme Court in Biden v. Nebraska was based on a law known as the HEROES Act, which is shorthand for the Health and Economic Recovery Omnibus Emergency Solutions Act, which allows waivers and modifications of student-aid programs in connection with national emergencies.
The Biden administration said the COVID-19 pandemic was a qualifying emergency. But the Supreme Court said in Biden v. Nebraska the text of the HEROES Act did not give the U.S. Department of Education the authority to rewrite the Education Act “from the ground up.”
The issue in any challenge to the latest plan will be whether it will “actually transform the student loan system into something that Congress would never have authorized,” said Nat Malkus, who studies higher education at the American Enterprise Institute, in an interview with NPR.
The plan announced Friday automatically cancels $39 billion in student debt for more than 804,000 borrowers in income-driven repayment plans and the Public Service Loan Forgiveness program, according to a July 14 press release, a fact sheet and coverage by the New York Times and Forbes.
The changes apply to borrowers with at least one direct loan or one Federal Family Education Loan held by Department of Education.
The plan implements a payment account adjustment announced in April 2022. As a result of inaccuracies, some borrowers have lost “hard-earned progress toward loan forgiveness,” according to the press release. The new plan addresses the problems and will count some months toward loan forgiveness that did not previously qualify, including payments that were late or partial.
The Education Department will inform eligible borrowers if they have reached the threshold for forgiveness, which is 20 or 25 years.
The Biden administration is pursuing a second aspect of debt relief by publishing final regulations for its Saving on a Valuable Education plan, known as the SAVE plan, according to the press release, the fact sheet, a government summary and Forbes. The program will create “the most affordable payment plan ever,” according to the press release.
The SAVE plan automatically replaces the Revised Pay As You Earn plan, known as the REPAYE plan. It affects student borrowers with federally held loans.
The SAVE plan raises the amount of income exempted from the payment calculation from 150% to 225% of the poverty line. The SAVE plan will also lower the share of monthly income that must be made toward monthly payments to between 5% and 10% of adjusted gross income above the poverty exemption, compared to 10% to 20% under the old plan.
The SAVE plan also accelerates loan forgiveness for some borrowers and waives unpaid interest above the monthly payment amount.
Malkus told NPR that the White House anticipates that people in the SAVE plan will repay only about 71 cents for every dollar that they borrow.
“That doesn’t sound like a loan. It sounds like a quasi-grant program,” Malkus said.
Preston Cooper, a senior fellow in higher education policy with the Foundation for Research on Equal Opportunity, told the Washington Post that the Biden administration has fairly broad authority to set the terms of income-driven repayment plans.
But there could be an argument that changes announced Friday go far beyond what Congress intended, Cooper said.