Changes to President Biden’s Student Debt Relief Plan

Diana Polson |

Pennsylvanians who are riddled with student debt have been celebrating President Biden’s announcement that $10,000 or $20,000 in student debt will be forgiven for most federal loan holders. However, just last week the US Department of Education revised eligibility guidelines, saying that Federal Family Education (FFEL) program loans, which are held by private institutions, and Perkins loans are no longer eligible for relief. Previously the guidance said holders of these loans would be eligible for relief if they consolidated their loans into the Direct Loan program. The change came with notice that only if these loan holders had applied to consolidate these loans by September 29, 2022, would they qualify for debt relief. The Education Department is assessing whether there are alternative pathways to provide debt relief to these loan holders.

This eligibility change comes as lawsuits have begun to roll in against the administration. A group of six Republican-led states (Arkansas, Iowa, Kansas, Missouri, Nebraska, South Carolina) filed a suit against the president arguing that he does not have the executive authority to cancel loans and such cancellation would harm states financially. Another lawsuit from an Indiana lawyer is suing the Biden administration arguing that loan forgiveness will result in him having to pay $1,000 in taxes since his state treats forgiven loans as income. [Note that Governor Wolf has assured Pennsylvania borrowers that the state would not tax those who have their student loan debt canceled.] The change in student loan relief eligibility is likely due to the administration’s concerns over being sued by private lenders who would lose profit if these loans are forgiven.

An estimated 34,000 Pennsylvanians, or about 2% of those who would have qualified under previous eligibility criteria, will no longer qualify for relief. [We calculated this by taking Pennsylvania’s estimated share of the total 770,000 borrowers nationwide that administration officials reported would be directly affected by this change.] Politico reports that while federal data from June 30 shows there were 4.1 million federal borrowers with more than $108 billion in loans that were held by private lenders, administration officials said not that many of these loan holders will be impacted. About 1.6 million of these borrowers also have direct loans that qualify for forgiveness: 1.5 million have a certain type of privately held federal loans (FFEL consolidation loan) and would already have faced difficulty in making their loans eligible for relief; and some of these loan holders won’t qualify due to income restrictions. So, administration officials predict that nationally 770,000 loan holders no longer qualify for loan forgiveness.

Although it won’t be as widespread as originally feared, this change in eligibility will have an impact on real people who would very much benefit from this much-needed relief. The shift shows the Biden administration’s timidity around standing up to lawsuits regarding loans that are federally guaranteed but privately held. It is also likely a response to Republicans’ ruthlessness in leading the charge on lawsuits and to other critics of the plan, including private lenders who are obviously concerned more about their bottom line than the well-being of their loan holders.

Student debt forgiveness is critical for Pennsylvanians. Even with the change in eligibility, an estimated 1.7 million Pennsylvanians will see some debt relief, lifting an incredible burden that has been weighing down former students in our state. Pennsylvanians owe a total of $69 billion in federal loans and could see close to one-third of this relieved with Biden’s plan.

The student debt crisis also exposes an enormous problem in our state that must be addressed to curb our student debt crisis moving forward: the incredibly high cost of college. Because of our state’s high tuition, Pennsylvania graduates in 2020 had the third-highest student loan debt in the nation with an average debt of $39,375. High college costs limit our future, locking out some who would benefit from higher education, creating great and increasing hardships on families who try to help their children afford college, and weighing down college students themselves, who so often must begin their careers with enormous amounts of debt. We know there are large benefits to a college education—for individuals, families, communities, and our economy as a whole. Pennsylvania is a leader in the nation in underfunding higher education. We can—and must—do better by increasing state funding for higher ed.