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White House warns of historic student loan defaults in court filing

Biden Student Loans
Posted at 1:51 PM, Nov 17, 2022
and last updated 2022-11-17 14:41:47-05

In defense of its policy of forgiving student loan debt, government attorneys said the U.S. could experience a “historically large increase in the amount of federal student loan delinquency and defaults” when student loan payments resume.

The filing came in a court case amid multiple battles over the legality of forgiving such loans. The Biden administration had planned on forgiving up to $20,000 per borrower in federal student loan debt before federal courts intervened.

After President Donald Trump paused federal student loan payments in March 2020 due to COVID-19, borrowers have not been required to make payments since then. Trump and Biden had extended moratoriums on student loan payments during the pandemic.

When announcing his plan to forgive the debt in August, Biden said student loan payments would resume in January. As of now, borrowers are expected to make full payments.

Government lawyers say the consequences of defaulting on federal student loans are “severe.”

Before implementing a pause on accepting applications, 26 million Americans had applied for forgiveness. Of those, the government had approved 16 million.

“The group most at risk of default is the approximately 18 million borrowers eligible for one-time debt relief who would have their federal student loans discharged in their entirety under the program,” wrote James Richard Kvaal, a Department of Education undersecretary. “These student loan borrowers had the reasonable expectation and belief that they would not have to make additional payments on their federal student loans. This belief may well stop them from making payments even if the Department is prevented from effectuating debt relief.”

The filing was in response to a case involving student loan borrowers who were illegible for the forgiveness program. The relief is only eligible to those making under $150,000 a year and who have not consolidated their loan.

They argued that the rule was made by the Biden administration without going through a process of public comment and that the White House made an “arbitrary” decision on who should earn loan forgiveness.

Proponents of student loan forgiveness point out the rising cost of education in recent decades. The cost of tuition at a public four-year university in 2020-21 averaged $9,400, up from $8,500 from a decade earlier, when adjusted for inflation.

Government data shows that in the last three decades, the cost of attending a public university, which is generally far more affordable than a private one, has doubled. In the last 40 years, the cost has tripled.

A student attending a public university from 2017-21 would be expected to pay $38,093 in tuition and mandatory fees, in 2021 dollars. A person who attended a public university in 1977-81 would have been expected to pay $10,335 in 2021 dollars.

Opponents of Biden's plan say it’s too costly. The Congressional Budget Office said the cost for the government to forgive student loans is an estimated $400 billion.

Biden's plan calls for borrowers with incomes of up to $125,000 to receive up to $10,000 in federal student loan forgiveness. That amount increases to $20,000 for borrowers who received pell grants.