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Can a Lawsuit Kill Biden’s Canceled Student Loan Debt Costing Taxpayers Billions? How Much Effect on U.S. Economy?

student loan debt relief. Image by 3D Animation Production Company from Pixabay
Student loan debt relief. Image by 3D Animation Production Company from Pixabay

The contentious debate over student loan debt and whether Congress should have passed a bill to lower college tuition or make the cost debt-free triggered a political firestorm during presidential campaigns and the campaign for members of Congress over ten years ago. Many Americans faced a bleak future in the education system while struggling trying to pay off student loan debts, yet at worst, many quit college because they couldn’t afford the rising costs of obtaining a degree.

Now a breakthrough is here. Biden cancels $10,000 in federal student loan debt for most borrowers (cnbc.com)

This past Wednesday, President Joe Biden, making good on his campaign promise to ease the burden of exorbitant student debt, issued his long-awaited executive order that he will cancel at least $10,000 of federal student loan debt for borrowers and eliminate up to $20,000 for those who received Pell Grants. Biden’s student loan cancellation offers a life-changing opportunity to shake loose the shackles of debt. But for future generations of students determined to attend college, it doesn’t cure the underlying reason for the crisis: the rising cost of college.

Speaking at the White House, Biden focused on the high cost of higher education over the past decades.

“An entire generation is now saddled with unsustainable debt in exchange for an attempt at a college degree,” Biden announced. “The burden is so heavy that even if you graduate, you may not have access to a middle-class life that a college degree once provided.”

The anticipation of heavy debt still remains for current high school seniors and every student afterward because Biden’s debt cancellation applies only to individuals who got federal student loans before July 1, 2022. And the culprit here is the money to pay for a degree. For example, the cost for a four-year degree study at universities carries an average of $17,000 a year in tuition and mandatory fees, more than double the inflation-adjusted average extended 30 years ago., according to the federal government.

To put it more broadly, Biden is only canceling some student loan debts, but on the other hand, his student debt relief plan may disqualify millions of Americans who applied recently for loans to pay for college; also it depends on whether a person qualifies for debt relief based on the income bracket they’re in.

Critics said Biden should have tackled the rising cost of college instead of forgiving debt that people created for themselves. Senator Michael Bennet D-Colorado said the forgiveness should have been joined by action to address the “absurd cost of college.”

Cost of attending college. White House image

“We cannot continue to trap another generation of Americans in this cruel cycle,” Bennett told an Associated Press (AP) reporter. In the same AP story, Kansas high school senior Natalie Ren expressed her dissatisfaction with Biden’s debt plan by explaining how today’s college students will get relief but her class, less than a year away from college will not receive the same.

“So to me, it’s just like, Well, why are they getting the $10,000 taken off their student loan debt?” Ren stated. She continued. “Meanwhile, we’re still going to have to take on that full responsibility.”

The plan includes forgiving $10,000 for those who earn less than $125,000 per year. Biden is also planning to extend the repayment freeze of college loans until December 31, 2022. In a tweet Wednesday morning, Biden said “the amount of forgiveness will be higher for low-income students who received Pell Grants, which amounts to $20,000 in debt cancellation.” The Biden Administration realizes there may be legal challenges to what he is doing with student debt. Legality of student loan plan relies on pandemic, 2003 law | AP News. “I think it’s going to get rejected,” Republican Florida Governor Ron Desantis told reporters at a press conference on Thursday, August 25, 2022. “Clearly, it is unconstitutional to be doing that.”

North Carolina Republican Richard Burr stated in a letter sent to Fox News, “Congress never granted authority to the Executive Branch to forgive mass student debt. There is no section of the Higher Education Act that gives discretion to the Education Secretary to come up with a whole new plan to cancel debt owed on student loans.”

President Biden based his action on the HEROES ACT to pass the Student debt relief plan. Congress immediately passed The HEROES ACT in 2003 in the wake of 911 when the Afghanistan war began. Congress lawmakers at the time allowed then-president George Bush Jr. to grant financial relief to college students in any way it “Deems Necessary in connection with a war or other military operation or national emergencies.” download (justice.gov). The Justice Department officials indicated any appeals opposing Biden’s debt cancellation plan will be vigorously challenged.

Pell Grant distribution. White House chart.

Americans Owe Almost 2 Trillion in Student Loan Debt

According to statistics, approximately 45 million Americans have student debt. The Federal Reserve estimated during the second quarter of 2022, people owed more than $1.7 trillion in student loans. Student Loan Debt Statistics In 2022: A Record $1.7 Trillion (forbes.com)

The skyrocketing federal student loan debt, as stated, averages over $1.7 trillion and steadily rising for over 45 million borrowers. It is undoubtedly an overwhelming burden on America’s middle class. Middle-class borrowers struggle with high monthly payments and ballooning balances that make it extra tough for people to build wealth, purchase a home, save retirement funds, or start a small business.

For students in the lower-income bracket, the effects of debt can crush their desire to hang in there and finish college. Nearly one-third of low-income students have debt but no degree because the cost of college was too high, according to an analysis by the Department of Education.

The first student loans in America were offered exclusively to Harvard University white male Students in 1840. Public student loans emerged during the 20th century. In 1919, approximately 598,000 students were enrolled in US-based colleges and universities.

How to Qualify for Biden-Harris’ New Student Loan Forgiveness Plan: How to qualify for Biden’s new student loan forgiveness plan – CNNPolitics

Can a Lawsuit Kill Biden’s Plan to Eliminate Billions in Student Loan Debt?

Following Biden’s breaking news announcement to eliminate billions in federal student loan debt the possibility of a lawsuit loomed larger than an elephant because several Republicans oppose the relief plan. Republicans most likely will challenge the question of whether Biden wields the power to forgive federal student loan debt.

“It’s going to be a tough uphill battle because what those in opposition are going to say is ‘wait a minute this is a complete overreach of Biden’s authority and it violates what we call the question doctrine,” said Attorney and Legal Analyst Laura McNeal during an interview on NewsNation’s Rush Hour. McNeal went on to say it will likely fall on the Biden administration to show where Congress has given a president the power to make this kind of decision; if the move is challenged in court. Biden’s student loan forgiveness could face legal challenges (newsnationnow.com)

Neal McCluskey, an Education Analyst at Cato Libertarian Think Tank, provides a different insight about a potential lawsuit. “The problem that seems to exist is that it’s hard for anybody to establish standing to bring a lawsuit to show they’ve been harmed by debt cancellation,” McCluskey told WFTV reporter. “A taxpayer can’t sue the federal government and say – I don’t like how you’re spending money.”

McCluskey further explained the legality of a potential lawsuit. “The only group that had good standing was Congress, which could sue over the separation of powers, and since both chambers are in the hands of Democrats that situation is unlikely.” Another benefit for the Biden Administration is that Congress and the Department of Education have the authority to permanently cancel some loans. If somehow a federal court abolished the authority of the Department of Education to selectively cancel federal loans the results would create a vacuum within the government that shouldn’t exist.

Reality Check: Will Biden’s Student Loan Cancellation Affect U.S. Economy?

Joe Biden, White House photo.

While many appreciate repaying less money to the government in college student loans, many Americans are worried that Biden’s debt cancellation plan of so much debt will raise inflation and hurt the economy worse than it has been during the pandemic.

Kaleb McCarthy with Truvestments told ABC Action News there is a cost to student debt cancellation and that cost will be paid by taxpayers. “On the low end it’s going to cost our country and taxpayers $300 billion,” McCarthy said. The impact Biden’s student debt plan could have on economy (abcactionnews.com)

A Penn Wharton Budget Model report also indicated a one-time cancellation of $10,000 for each borrower earning less than $125,000 will cost the government around $300 billion.

Republicans slammed Biden as well for his decision to cancel student loan debt.

Texas Senator Ted Cruz disparaged the situation. “It’s not fair to people who paid off their loans.” Cruz said for Biden to “Take from truck drivers and construction workers right now, thousands of dollars in taxes to redistribute to college graduates who have student loans” Biden’s student loan forgiveness plan criticized by Republicans and a few Democrats – CBS News. Senator Richard Burr added, “This move will not solve sky-high college tuition.” Burr said Biden’s plan will “Pour fuel on the fire, increasing college prices and then accelerate inflation. It will encourage more schools to increase costs and encourage more students to take out loans they cannot pay back.” North Carolina lawmakers react to President Joe Biden’s student loan forgiveness plan (myfox8.com)

Despite increasing fears that Biden’s loan forgiveness will affect inflation in a bad way, economists told ABC Action News the impact will only result in minimal damage.

“It’s no longer the case that whoever I took the loan out from, that’s necessarily who’s going to get my payments.” Many times, “It’s going to go towards investors,” said USF Professor of Economy Mike Snipes. “The whole reason why you hear this argument that this is going to be bad for the economy; that this is going to be bad for Wall Street, is because while you’re taking $10,000 and you’re lowering the principal by $10,000, that’s going to affect the value of the investments that these investors have made but they’re the ones investing in your debt.”

Borrowers can qualify for debt forgiveness based on their incomes in either the 2020 or the 2021 tax year. To receive relief, most qualified borrowers need to apply to the Education Department. Applications will be available within the next few weeks.

The debt cancellation applies to undergraduates, graduates, and Parent Plus Loans. Enrolled college students can qualify for relief as well. But students who were claimed as dependents will be eligible based on their parent’s income, rather than their income.

Also on Wednesday, Biden declared the initiation of a new income-driven repayment plan designed to cap monthly payments for undergraduate loans at 5% of a person’s discretionary income, rather than the rate of 10% under many existing plans.

Biden’s economic analysts said over 43 million students who got federal loans will benefit and that as many as 20 million borrowers will experience the joy of having their full student loan balances eliminated under Biden’s executive order.

Pros and Cons: How Much of Biden’s Debt Cancellation Benefits Americans?

President Biden’s cancellation of certain college loans falls short of the $50,000 that Democrats valiantly pushed for. Many say the narrow scope of the cancellation will disappoint Student Debt Relief Advocates who wanted broader action. Many advocates said Biden’s order only presents more challenges.

Advocates argued that extending the payment pause for a few months would not provide sufficient time for borrowers to adjust their balances. One advocate put it this way, “While this announcement is a major win for many, it is important to stress that $10,000 will leave many others still crushed by debt, and important details will determine who has access to much-needed relief,” said Natalia Abrams, the president, and founder of the Student Debt Crisis Center, in a statement sent to news media outlets.

Biden insists that the income cap on debt cancellation would benefit the middle-and-low income Americans, not the high-dollar graduates and that approximately, 90% of people eligible earn less than $75,000.

Biden shot down concerns from Republicans and Democrats that debt cancellation could make inflation worse. The president explained that resuming student loan payments would mean more money will start flowing back into the Treasury Department.

“Independent experts agree that these actions will provide real benefits for families without meaningful effects on inflation,” Biden concluded.

College students still owing federal loans haven’t been required to make payments since March 2020, when then-President Donald Trump signed the CARES ACT. This particular Act temporarily ceased repayment loans by students through September 2020 and even stopped interest from accumulating to alleviate the economic impact of the coronavirus impact. Trump would later extend the moratorium until January 2021.

Earn Less Than $125,000? Who Gets the Biggest Pie Cut?

A study completed by The Penn Wharton Budget Model breaks down the calculations of forgiven debt by income group and indicated that if $10,000 is canceled for borrowers earning less than $125,000 per year, and households earning less than $250,000 a year, the study concluded that one-third of the canceled money would likely go into households earning less than $50,795 per year.

The study further concluded that approximately 14% of canceled dollars would fall into the hands of those earning more than $141,096 a year. Biden’s student relief plan also forgives all undergraduates from tuition-related two-and four-year public colleges and universities who are earning up to $125,000 a year.

Share of cancellation dollars. White House chart.

Debt Forgiveness Afforded to People of Color

Student Debt Advocates are skeptical over whether Biden’s plan to shave off up to $10,000 or double that amount of college debt loans would genuinely help people of color in a bigger way. That’s because they say Black students are more likely to take on heavier student debt through borrowing larger amounts and usually they take longer repaying student loans than their white peers.

Research shows Black and Latino students are likely to carry student debt at much higher rates to finance their education and eventually they wind up with even more debt years later compared to their white peers. Over 90% of Black students leave college with student debt compared to 72% of Latino students and 66 % of white students, according to the CFPB (Consumer Financial Protection Bureau).

Adam Looney, a Senior Fellow at Brookings Institution, rejects the idea, suggesting there are better ways to address the racial wealth gap because relatively few Black students attend college. According to an analysis done this year by Matthew Chingo, vice president of education data and policy at the Urban Institute 62% of the canceled student loan dollars would go to white borrowers while 25% would go to Black borrowers if Biden cancels up to 10,000 for those earning less than $125,000.

On the brighter side, a progressive think tank called the Roosevelt Institute issued a report to media outlets saying Biden’s relief plan of eliminating $10,000 of college debt would zero out student debt for approximately two million Black people.

Loan repayment examples. White House image.

Conclusion

Prominent California attorney Omar Figueroa has a message for those criticizing the underdog who reaped the benefits of having a progressive government wipe away a large portion of their student loan debt.

“I’ve paid off more than a hundred grand in student loan debt and owe tens of thousands more. I’m not eligible for loan forgiveness because I refinanced to lock in low interest rates. Do I feel sorry for myself?” Figueroa said he did not.

“I consider myself lucky to be a graduate of Yale College and Stanford Law School, and I am happy for everyone who is getting their student loan forgiven. Those who are whining about the good fortune of others are showing how petty they are.”

“Rejoice that a burden will be lifted for many!”

Americans can expect Republicans and a few Democrats to join forces and try to halt Biden’s cancellation of Billions in student loan debt by invoking the power of lawsuits. If no lawsuit is filed, Americans who have been struggling to pay their college debts will finally get a break to save money.

NewsBlaze Senior Reporter Clarence Walker can be reached at newsjournalist360@gmail.com

As an analyst and researcher for the PI industry and a business consultant, Clarence Walker is a veteran writer, crime reporter and investigative journalist. He began his writing career with New York-based True Crime Magazines in Houston Texas in 1983, publishing more than 300 feature stories. He wrote for the Houston Chronicle (This Week Neighborhood News and Op-Eds) including freelancing for Houston Forward Times.

Working as a paralegal for a reputable law firm, he wrote for National Law Journal, a publication devoted to legal issues and major court decisions. As a journalist writing for internet publishers, Walker’s work can be found at American Mafia.com, Gangster Inc., Drug War Chronicle, Drug War101 and Alternet.

His latest expansion is to News Break.

Six of Walker’s crime articles were re-published into a paperback series published by Pinnacle Books. One book titled: Crimes Of The Rich And Famous, edited by Rose Mandelsburg, garnered considerable favorable ratings. Gale Publisher also re-published a story into its paperback series that he wrote about the Mob: Is the Mafia Still a Force in America?

Meanwhile this dedicated journalist wrote criminal justice issues and crime pieces for John Walsh’s America’s Most Wanted Crime Magazine, a companion to Walsh blockbuster AMW show. If not working PI cases and providing business intelligence to business owners, Walker operates a writing service for clients, then serves as a crime historian guest for the Houston-based Channel 11TV show called the “Cold Case Murder Series” hosted by reporter Jeff McShan.

At NewsBlaze, Clarence Walker expands his writing abilities to include politics, human interest and world events.

Clarence Walker can be reached at: newswriter74@yahoo.com

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