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Last Monday, President Joe Biden announced his new plan to forgive federal student loans. Despite the Supreme Court’s ruling that struck down his prior attempt at mass forgiveness, this new plan covers a wide group of people albeit in a more targeted fashion. His new and improved plan comes just in time for the 2024 election. So how should voters with student loans react to this announcement?
His proposal would provide loan forgiveness to five groups of borrowers.
First, his plan would cancel accrued interest of up to $20,000 for those already on repayment plans regardless of income. Lower and middle-income borrowers enrolled in an income-based repayment plan would be eligible to have their entire accrued interest forgiven.
The plan would also automatically cancel debt for borrowers eligible for relief through the SAVE plan, Public Service Loan Forgiveness, or other forgiveness opportunities like closed school loan discharges who have not successfully applied for that assistance.
Borrowers with only undergraduate debt who entered repayment before July 1, 2005 and borrowers with graduate school debt who entered repayment before July 1, 2000 would be eligible to have their entire loan balances forgiven.
The plan would cancel student debt for loans associated with schools that lost their eligibility to participate in the Federal student aid program because they took advantage of students. Also, borrowers who attended institutions that closed and failed to provide sufficient value — for example that leave graduates with unaffordable loan payments or earnings no better than what someone with a high school diploma earns — would be eligible for relief under this proposal.
And lastly, the plan may cancel student debt for borrowers experiencing hardship in their daily lives that prevents them from fully paying back their loans now or in the future. Examples of hardship include borrowers who are at high risk of defaulting on their student loans, who could be eligible for automatic relief, or families who are burdened with other expenses like medical debt or child care.
The Biden-Harris administration plans to release proposed rules on these plans over the coming months. If these plans are finalized as proposed, loans could be cancelled this fall.
Republican states have already filed lawsuits challenging this proposal citing last year’s Supreme Court decision as precedent.
The proposals appear to be a mixed bag that tries to include as many people as possible while cutting out those who can easily pay their loans. Some of the proposals seem sensible and fair while others encourage a moral hazard as they appear to discourage repayment. Some of the administration’s proposals have clear requirements while others are vague, perhaps intentionally so. A few seem to be extensions of existing forgiveness programs.
So how will voters react to this proposal? It will certainly interest younger voters most of whom have or will have student loans as well as their parents. A number of polls suggest that Biden is losing support among younger voters, and a few polls show Trump leading Biden by anywhere between two and 18 points.
Student loan forgiveness is still a divided issue among voters, likely based on self-interest. Most who obtain loan forgiveness are likely to vote for Biden while most who do not meet the criteria may see this as unfair and may consider staying home or voting for Trump.
Some may see this as an attempt to gain votes, especially due to Biden’s recent low polling numbers from a traditionally reliable demographic. His initial student loan forgiveness plan may have been a political stunt because he knew that Republicans would challenge it in court and lose the youth vote.
Republicans made it fairly clear that they are against wholesale loan forgiveness. But Democrats have had chances to forgive student loans but failed to do so. The last time was in March 2021 when Democrats had the White House and a narrow majority in both the House and Senate. Representative Al Lawson introduced the Income-Driven Student Loan Forgiveness Act which would have forgiven all student loans for people making under $100,000 per year. That bill died in committee.
While people with student loans are likely to disagree with the Supreme Court’s decision to block Biden’s student loan bill, sooner or later they will get tired of Democrats blaming the courts. Borrowers could hold off on voting until the student loan forgiveness shows up on their loan statement. This can reduce the turnout of mail voters who tend to vote Democrat.
Those who meet the criteria mentioned above should apply for loan forgiveness as soon as possible, even if they might qualify automatically. Between now and January, the people reviewing the forgiveness applications at the Department of Education are likely to be given wide latitude on the meanings of “hardship” or “closed school that failed to provide sufficient value.” Any borderline cases will probably favor the borrower. But if Trump is re-elected in January, there is a good chance that this proposal will be revoked as soon as he takes office or rules will be changed to the point where it will be very difficult to obtain forgiveness.
The Biden administration needs an incentive to get his loan forgiveness proposal through the rule-making process as quickly as possible. If enough people make it known that they will not vote until they see a reduction in their loan balances, the administration will find a way to fast track this.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
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