The Supreme Court Strikes Down Biden’s Student Loan Forgiveness Plan: The President Scrambles to Appease College Debtors

 To no one's surprise, the Supreme Court struck down President Biden’s student loan forgiveness plan. The president should have seen it coming. He said himself that he doubted whether he had the authority to forgive student loans. Nevertheless, like a child in a temper tantrum, Biden blames the debacle on Republicans.

In a recent public statement, President Biden said he would “stop at nothing to find other ways to deliver relief to hard-working middle-class families.” The White House announced that the Department of Education is rolling out a new income-based repayment plan so generous that most college borrowers enrolled in the new program will pay little or nothing on their undergraduate federal loans.

Due to the COVID crisis, the Department of Education allowed 40 million student loan debtors to skip their loan payments for the past three years without accruing penalties. The Supreme Court’s decision means these borrowers must resume making monthly loan payments later this summer.

In typical govspeak, The White House said yesterday it will construct a bureaucratic “on ramp” to make it easier for student borrowers to repay their loans. As a practical matter, this on-ramp will encourage most debtors to delay making loan payments for another year.

 Why all this sturm and drang? Why all this turmoil? Why is the federal government constructing elaborate workarounds to the Supreme Court's decision?

If President Biden really means it when he says he will stop at nothing to deliver relief to middle-class families, he can do one simple thing. He can encourage Congress to amend the Bankruptcy Code to allow distressed student debtors to discharge their student loans in the bankruptcy courts. All Congress needs to do is delete two words from the Code: “undue hardship.”    

This solution to the student loan crisis is so simple that even a child can understand it. Why then has President Biden yet to endorse bankruptcy reform? Why didn't Democrats enact this reform when they had control of Congress? Why don't Republicans support it now?

I'll tell you why. Important political constituencies are happy with the status quo.  Colleges and universities benefit from a system that pumps billions of dollars of federal money into their coffers without holding them accountable in any way. Colleges are free to raise tuition year after year--forcing their students to borrow more and more money--without regard to whether the students can repay their loans.

The student loan crisis will not be solved until higher education is reformed. Unfortunately, colleges and universities. have no incentive to reform themselves. Thus, the student loan crisis will not be addressed until American higher education collapses.

Is college worth what it costs?

I Got a Sweet Deal! Is Biden's new income-driven repayment plan too generous?

 College debtors definitely have a friend in President Biden.  So far, his administration has approved $25 billion in loan forgiveness. In addition, it paused student borrowers' monthly payment obligations until the end of 2022.

More relief is on the way. President Biden announced loan cancelation of up to $20,000 per student borrower.  The Congressional Budget Office predicts the program will cost $400 billion.

And that ain't all. The U.S. Department is working on a more generous income-based repayment plan (IBRP), which--for some borrowers--will amount to a free college education. 

Adam Looney, writing for the Brookings Institution, analyzed Biden's new IBRP; his findings are astonishing. As Mr. Looney explains, undergraduate borrowers can enter into an IBRP that only requires them to pay 5 percent of their annual income over $33,000.         

For example, unmarried college graduates who make $50,000 a year will only be obligated to pay about $70 per month on student loans--regardless of how much they borrowed.

What if the monthly payment isn't enough to cover accruing interest? No problem! The government will forgive the unpaid interest, so loan balances don't grow.

Now that's a sweet deal!

On average, Looney concludes, student borrowers can expect to pay back only 50 cents on every dollar borrowed, and some will never make a single loan payment. 

Looney predicts the new IBRP will lead to increased borrowing. Why? "Because when . . . students are offered a substantial discount by paying with a federal loan, they will borrow billions more each year."

As Looney pointed out in his report, students can take out student loans to cover their tuition and living expenses. Students who receive checks for living expenses can deposit them in their bank accounts, knowing they may not have to pay back their student loans.

As Looney put it, "Some people will use [student] loans like an ATM, which will be costly to taxpayers and is certainly not the intended use of the loans."

Looney also predicts that Biden's incredibly generous IBRP will lead to tuition inflation. 

He thinks the new IBRP will prompt colleges to create new and expensive programs to juice their revenues. "My fear," he wrote, "with regards to overall college costs, is that institutions will have an incentive to create valueless programs and aggressively recruit students into those programs with promises they will be free under an IDRP plan. 

I'm in favor of student-loan relief. Millions of Americans are saddled with crippling debt for college degrees that did not benefit them financially.  Let's give those folks a break.

But President Biden's new IDRP program goes too far. Adam Looney is right: Biden's poorly-designed IBRP will encourage students to borrow more and more money to attend college, knowing they will not be obligated to pay back their loans.

A  student-loan bonanza is coming soon to your hometown.