October 5 – Our Economy: Federal Student Loans

The Plan for Student Loan Forgiveness

Vital Sign Religious Freedom

President Biden announced a plan that calls for $10,000 in federal student loan forgiveness for borrowers earning up to $125,000, with $10,000 additional loan relief for borrowers who received a Pell grant while in college. Individuals who make more than $125,000 are not eligible for the relief. If the plan goes through, which seemed questionable in mid-September, borrowers will still need to be prepared to file an application and attest they meet the income qualifications. Application forms are not yet available, although they could be coming out in early October, and the administration said that borrowers should fill out the form by November 15 if they want their debt canceled before payments are scheduled to resume at the start of the coming year. 

The program has received both accolades and challenges from many sources. Some are trying to stop the plan from being implemented at all. 

There are members of Congress concerned that the federal student loan forgiveness plan will disincentivize Americans from joining the military. The military enlistment benefit of a free education may no longer be enough to attract new recruits. 

In mid-September, nearly half of the nation’s governors signed off on a letter to President Biden asking him to withdraw his student loan forgiveness plan. “As governors, we support making higher education more affordable and accessible for students in our states, but we fundamentally oppose your plan to force American taxpayers to pay off the student loan debt of an elite few…,” they wrote. 

“College may not be the right decision for every American, but for the students who took out loans, it was their decision: able adults and willing borrowers who knowingly agreed to the terms of the loan and consented to taking on debt in exchange for taking classes,” the governors’ letter stated. “A high-cost degree is not the key to unlocking the American Dream—hard work and personal responsibility is.” 

An article by the American Action Forum published on August 25, 2022, stated, “Blanket loan forgiveness in any amount does nothing to increase educational attainment or lower costs. It simply shifts costs to taxpayers. Blanket loan forgiveness also introduces a new set of disincentives for future borrowers to pay back what they owe, presenting a clear moral hazard. What’s more, the administration’s blanket loan forgiveness plan will be expensive and does nothing to reverse, and only delay, historical trends in outstanding federal student loan debt: By 2026, the total amount of federal student loan debt will likely bounce back to present levels.” 

Public opinion surveys illustrate the strengths and vulnerabilities of the president’s plan. Among registered voters, 15 percent could have their loans reduced or completely forgiven, 25 percent have family members eligible to participate in the plan, and 18 percent say they have close friends who would benefit. 

A majority of voters, two-thirds, believe that there are compelling reasons for the president to act on federal student loan debt. More than 60 percent say student loan debt prevents young people from buying homes and starting families. Sixty-three percent see the debt relief as lightening financial burdens, especially on low-income households. 

Despite broad support for federal student loan relief, Americans have a range of reservations about the president’s plan. They are evenly divided on the threshold question of whether the president has the legal authority to cancel student loan debt. More than half believe debt cancellation will cause inflation to increase. More than half also believe that it is unfair to Americans who did not attend college, and to Americans who have already paid off their student loans. 

An article in The College Investor says President Biden does not have the legal authority to forgive federal student loans on his own. Only Congress has the power of the purse. Executive action can be used only when it has been specifically authorized by Congress. The administration’s claims that the president has the authority are reportedly based on a misreading of the Higher Education Act of 1965. The student loan matter is already being challenged in the courts. In 2001, the Supreme Court ruled in Whitman v. American Trucking Assns, Inc. that Congress does not “hide elephants in mouseholes.” Either they have granted the authority to the president, or they have not. And at this point, they have not. 

There are also other federal regulations that would prevent the president from forgiving the federal student loan debt of borrowers who are able to repay their student loans within a reasonable period of time. In the midst of the pandemic, the president issued a pause on loan payments, which has been extended to January. Authority to implement the payment pause and waive interest is provided by the HEROES Act of 2003, but not the forgiveness of the loans. 

The University of Pennsylvania Wharton School has estimated that the proposed federal student loan debt cancellation alone will cost between $469 billion to $519 billion over the ten-year budget window, depending on whether or not existing and new students are included. Loan forbearance for 2022 is costing an additional $16 billion. The Heritage Foundation, on the other hand, has estimated that the plan could cost close to $600 billion in the first year alone. 

With billions at stake, a legal confrontation between President Biden’s administration and the legislators, governors, and others who oppose federal student debt cancellation is likely to occur ahead of the November midterm elections.  

While forgiveness is a biblical principle, so is honoring one’s debts. Romans 13:7 says, “Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.” Scripture also cautions about borrowing. “It is better that you should not vow than that you should vow and not pay” (Ecclesiastes 5:5). 

How then should we pray? 

  • For discernment for U.S. officials as they evaluate the costs and legalities of federal student loan forgiveness.
  • For Chief Operating Officer Richard Cordray as he heads the U.S. Federal Student Aid office.
  • For Education Secretary Miguel Cardona to seek the Lord’s direction as he collaborates with the president on federal education policies.
  • For members of Congress to have wisdom as they propose and discuss alternative legislation to address federal student loan defaults.
  • For American borrowers who have experienced relief from the federal student loan payment pause during the pandemic.
  • For judges who will be hearing legal challenges to the federal student loan forgiveness plan. 

See previous Pray 7 daily featured readings.

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