SFA economics professor helps break down the student loan relief plan

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The Biden Administration’s student loan relief plan announced on Aug. 24 recently went live this October via the Federal Student Aid website of the U.S. Department of Education. Stephen F. Austin economics professor Mark Scanlan breaks down the goals and the effects of this three-part plan.

The plan, which offers $10,000 to $20,000 in loan relief depending on Pell grant eligibility, also offers the reduction of monthly loan payments and improvements to the Public Service Loan Forgiveness program.

Scanlan said the plan should not have a large impact on the overall economy.

“At its core, the plan should stimulate the economy through increased spending since many people will have more money available to spend after their debt is forgiven,” he said. “Though the impact should not be large, the concern is that the stimulating nature of this plan will only worsen the inflation we are currently struggling to contain.”

According to the U.S. Department of Education, an undergraduate will on average, graduate with a debt of almost $25,000 in loans. Pell Grants, which were worth $6,495 at most during the 2021-2022 school year, have not risen in coverage as quickly as the average cost of college attendance. About 66% of Pell Grant recipients come from households with incomes of less than $30,000.

“The cutoffs in this plan reflect the fact that 33% of all student loan borrowers owe less than $10,000 while over 50% owe $20,000 or less,” Scanlan said.

He said that forgiving up to $10,000 would benefit a significant portion of borrowers at a relatively low cost.

“The ability to get up to $20,000 forgiven is restricted to Pell Grant recipients who often come from lower income households, which makes the additional forgiveness more targeted to this disadvantaged group,” Scanlan said.

According to the Office of Federal Student Aid, all loans such as those in the William D. Ford Loan Program, Federal Family Education and Federal Perkins Loans held by the Department of Education and Defaulted Loans qualify for this plan. However, the loans must have been disbursed on or before June 30, 2022.

“A good general rule of thumb is that if your loan qualified for the federal student loan payment pause during the pandemic, then it likely qualifies for forgiveness as well,” Scanlan said. “Also, if students had loans that qualified for the payment pause but still made payments on their loan, or completely paid off their loan during this period, they may apply for reimbursement of this amount.”

Although the form to apply for this loan forgiveness is still open, the Biden Administration has faced lawsuits regarding the plan.

“Many people believe the president does not have the authority to unilaterally forgive student loans. Biden is claiming the ability to forgive these loans through Emergency Powers that were established in the 2003 Heroes Act which allowed the executive branch to modify student loans in war times or during national emergencies,” Scanlan said.

The one-time loan forgiveness application is available to fill out through the Federal Student Aid website. The application will be open until Dec. 31. The Department of Education also intends to make a paper version of the application for borrowers who are unable to complete the form online.

 

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