of President Joe Biden student loan forgiveness plan promises to write off a collective $400 billion in debt nationwide. But will his administration be able to keep his promises?
Biden’s plan is currently on hold as the 8th U.S. Circuit Court of Appeals considers lawsuits from six conservative states: Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. These states claim that canceling student loans would hurt their tax revenues or state-based lending agencies. While some lawsuits have already been dismissed, the question of legality is still pending.
But borrowers shouldn’t give up hope or stop asking for forgiveness, says Aaron Smith, co-founder of Savi, a student loan servicer.
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“There are different arguments against the Biden program, ranging from it not being fair to those who have already paid off their student loans to a misuse of taxpayer dollars,” Smith said. “But it will help the majority of student borrowers, so we encourage people to view the online form and apply.”
The Biden administration plans to forgive up to $20,000 in federal student loan debt for Pell Grant recipients and $10,000 for non-recipients, as long as annual income is below $125,000 for a individual or less than $250,000 for married couples. Smith advises any qualified person to submit the application sooner rather than later.
But as the federal court decides whether Biden abused his executive power by canceling student loan debt, there is reason to be uncertain. With the skyrocketing cost of housing, groceries and gas over the past year, Millennials and Gen Z are particularly vulnerable to additional economic hardship when they enter the workforce with a average debt of $30,000.
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For Jan Perry, debt relief is an essential element in making the United States a livable country for the majority of Americans. Perry is the executive director of the Infrastructure Funding Alliance, an organization that advocates for environmental and fiscally sustainable projects in Los Angeles, as well as a congressional candidate for California Congress District 37.
“Millennials have gone to college and done everything adults tell them to do, but they still can’t find jobs that make enough money to live on their own,” Perry says. “They have to go home as if the university never existed because of the lack of prize money.”
In addition to existing concerns, the impact of the midterm elections will soon become clear, however, Smith is confident the changes in Congress will not seriously affect Biden’s pardon plan.
“The debt relief proposal was made directly by the Biden administration — it was not made through legislation,” he says. “But with each new Congress and administration, there may be new reforms made to the overall student loan system.”
This can take the form of new repayment or forgiveness programs that borrowers qualify for based on their income and occupation, such as the Civil Service Loan Forgiveness Program. Yet with every reform, education becomes necessary to ensure borrowers save money, Smith says.
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This is where employers can make a difference. Smith points out that monthly loan repayments have been suspended since March 2020, with the average borrower contributing nearly $400 a month to their loans before the pandemic. Now, from January, borrowers will have to completely revamp their budgets amid record inflation and talk of a recession.
“That $400 has to come from other things that people need, which creates significant challenges for employees,” Smith says. “It’s a very confusing environment for borrowers, and they’ll need all the help they can get to navigate these changes and make their payments manageable.”
Perry remembers hearing his daughter’s friend say she was paying $900 in student loans every month. She decided not to go to medical school, knowing the loans would only get worse. For Perry, it’s clear that student loan assistance is much needed.
“Relief could allow [younger] generations to generate more income, live independently from their parents and spend more money in our economy,” she says. “Why wouldn’t you want that?”
Smith advises employers to recognize and act on student loan management as an essential part of financial well-being. This means giving employees the tools to choose relevant reimbursement and rebate programs, keeping employees informed of any reforms or additional programs, and offering financial contributions. Whether or not Biden is able to provide relief, employers and employees cannot escape the additional financial stress that comes into play once loan payments resume – but the worst thing employers could do is ignore, says Smith.
“One of the big fears is that once payments resume, borrowers will fall behind or default on their loans, which will have implications for their overall financial health,” Smith says. “That’s why it’s critical that employers provide employees with the right information and the right benefits.”