Following the U.S. Supreme Court’s rejection of the Biden administration’s plan to eliminate over $400 billion in federal student loan debt, both Democrats and Republicans are proposing alternative solutions to address the impending student loan default crisis.
President Joe Biden remains committed to fulfilling his campaign promise of blanket student debt cancellation but intends to pursue a different legal authority to achieve it. Republicans, on the other hand, are advocating for a “fiscally responsible, targeted alternative” to Biden’s plan that focuses on facilitating borrowers’ transition back into repayment.
Biden’s alternative plan, known as Plan B, initially relied on the HEROES Act, a law enacted after the September 11 terrorist attacks. The HEROES Act allowed the education secretary to modify federal student loan rules for individuals affected by the attack. The Biden administration argued that this authority could be used to cancel student loans in response to the COVID-19 public health emergency. However, the Supreme Court ruled that the HEROES Act did not grant the necessary authority to implement such a comprehensive loan forgiveness program.
In response to the Supreme Court ruling, Biden announced that he would seek a new legal basis for debt cancellation under the Higher Education Act (HEA) of 1965. This act includes provisions that allow the education secretary to compromise, waive, or release loans under certain circumstances. While the HEA has been deemed constitutionally sound for debt relief, the cancellation process under this older law requires extensive public input and involvement in the form of public hearings and comment periods.
On July 5, the Education Department initiated the “negotiated rule-making” process to establish a new student loan cancellation plan under the HEA. The department will accept public comments and convene a committee to develop proposed loan modification, waiver, or compromise regulations.
Meanwhile, Republican lawmakers, in an effort to curtail Biden, have proposed their plan called the Federal Assistance to Initiate Repayment (FAIR) Act. This plan aims to ensure a smooth transition back into repayment while providing targeted relief to those most in need. The FAIR Act focuses on adjusting income-driven repayment (IDR) plans, consolidating them into one predictable and affordable plan, requiring income recertification, and phasing out repayment assistance as borrowers’ incomes increase. It also eliminates the time-based discharge of remaining loan balances and offers a second chance for defaulted borrowers to reenroll in repayment plans.
A group of Republican Senators has presented the Lowering Education Costs and Debt Act to the Senate. It consists of five bills aimed at offering students and their families more comprehensive information to help them make informed borrowing decisions. These bills aim to streamline repayment options, enhance loan counseling, improve transparency about college programs, standardize student aid offers, and limit borrowing for graduate school programs with limited earning potential.
As of the first quarter of 2023, the federal student loan debt in the U.S. has exceeded $1.6 trillion. Around 44 million borrowers hold this debt, and interestingly, the U.S. Department of Education holds the largest loan portfolio in the country – even larger than major financial institutions like Bank of America, JPMorgan Chase, and Capital One.