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40 million student loan borrowers have something at stake this week as the U.S. Supreme Court hears arguments about whether the Biden administration can forgive up to $20,000 in debt for each borrower. In all, almost a half-trillion dollars in loans are at stake.
The court will hear two cases but could have taken up many more that make essentially the same claims.
One of the suits involves six states (Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina) that claim President Joe Biden did not have the authority to forgive the debts. That forgiveness has the potential, they say, to harm states. Specifically, they say, Biden asked the education secretary to modify financial assistance programs for students under a 2003 federal law that was meant to work “in connection with a war or other military operation or national emergency.”
The other case involves conservative groups that say the plan did not go through the required “comment periods” necessary for such federal action. Even so, 12,000 did comment on the loan forgiveness proposal. (It is fairly easy to find people near you who commented. Just put the location in the search box. Look at the kinds of stories you could find this week, including borrowers who have paid hundreds of dollars a month for decades.)
Using federal records, The Washington Post calculated that at least 47,000 Americans have been paying on their student loans for 49 years or more.
(The Washington Post)
The debt relief program had two main parts:
- $10,000 in federal loans would be canceled for people making less than $125,000 or for households with less than $250,000 in income.
- Recipients of Pell Grants would get an additional $10,000 in debt forgiven. Most Pell grant recipients have fewer financial resources available to them.
The Congressional Budget Office estimates that the program will eliminate $430 billion of the outstanding $1.6 trillion in federal student loan debt. Another analysis projects the program will cost up to $519 billion over 10 years. The U.S. Department of Education announced that roughly 43 million borrowers will be eligible for debt reduction, and 20 million “will have their debt completely canceled.”
The states that filed the lawsuit against forgiveness argue:
Canceling hundreds of billions of dollars in student loans—through a decree that extends to nearly all borrowers—is a breathtaking assertion of power and a matter of great economic and political significance.
The Act allows the Secretary to waive or modify existing provisions when necessary to keep certain borrowers from being placed in a worse position in relation to their loans because of a national emergency. But the Program places an estimated 43 million borrowers in a better position by eliminating all loan balances for 20 million and erasing up to $20,000 for over 20 million more. This vastly exceeds the Secretary’s authority under the Act.
If the Supreme Court rules against Biden, when do payments begin again?
Since 2020, student loan payments have been put on pause, but this will come to an end sometime in 2023. The exact date that payments resume depends on when the Supreme Court rules on the lawsuit against Biden’s student loan forgiveness plan. If the Supreme Court has not made a decision by June 30, payments will resume 60 days after, and interest will begin accruing again at that time. If the court decision is made before June 30, payments will resume 60 days after the court ruling, and interest will then begin accruing.
The government, in its Supreme Court pleading, said that research shows once a repayment program is put on hold and restarted, default rates usually rise by a lot:
The Department analyzed historical data about borrowers who transitioned back to repayment after periods of forbearance, including after other emergencies, and concluded that such borrowers are typically at “elevated risk of delinquency and default.” J.A. 234. Indeed, default rates increase twentyfold after the period of non-payment ends, and affected Pell Grant recipients experience even “larger increases in default. That data suggests that a pause on payments alone is not necessarily sufficient to alleviate the economic effects of a disaster on the affected borrowers’ ability to repay their loans.
The Department also reviewed data specific to the COVID-19 pandemic and its effects on borrowers, including borrower surveys, loan data, economic studies, and credit analyses conducted by the Consumer Financial Protection Bureau and Federal Reserve Banks. That data revealed rising delinquency rates on nonstudent-loan debt and commercially held student-loan debt (which was not covered by the pause); high percentages of borrowers who anticipate difficulty making loan payments; and acute inflationary pressures on household budgets for “basic necessities, including energy, food, and shelter costs.
And the Department emphasized the substantial penalties imposed on borrowers who are delinquent or default on student-loan payments, including exposure to involuntary collection methods; lost access to affordable or flexible repayment options; and 50-to-90-point drops in credit scores that make insurance, rent, and other financial products more expensive and limit employment opportunities.
Other ways to get debt forgiveness
Even if the Supreme Court rules against the Biden loan forgiveness plan, There could be other paths to loan forgiveness. USA Today spells out some of the options:
Other avenues for forgiving or winnowing student loan borrowers’ debt, however, are alive and well. There’s even a plan in the works to keep people from borrowing to attend a subpar school.
The administration has streamlined loan forgiveness for people who work in the public sector, canceled the debts of students taken advantage of by predatory colleges and universities and unveiled a new income-driven repayment plan that could reduce how much borrowers have to pay.
Together, these programs affect millions of borrowers, have led to billions in student loan debt being forgiven and could erase billions more. Most are meant to be long-term changes rather than a one-time fix.
Whether the court undoes Biden’s signature plan, or not, other programs are essential to addressing the nation’s student loan debt in the long run: One-time debt relief would wipe out a chunk of the country’s $1.7 trillion student loan debt portfolio, but it could quickly rebound if widespread borrowing continues unabated.
Supreme Court cases could refocus the national conversation about the cost of college
Slate notes:
About 1 in 6 adults in America holds federal student loan debt. A typical undergraduate finishes school with nearly $25,000 of debt, which takes an average of 20 years to pay back.
(Congressional Research Service)
While loan forgiveness could provide relief to borrowers, it leaves many of the root causes of the student debt crisis unaddressed. Tuition fees have nearly tripled since 1980, outpacing inflation and wage growth—but despite that, the federal government hasn’t put any rules or restrictions on its student loan program that could push colleges and universities to rein in tuition costs.
CDC issues warning about a nasty stomach bug
Over the weekend, the Centers for Disease Control and Prevention issued a warning about the spread of a drug-resistant strain of shigellosis. The CDC will update the medical community about the spread of the outbreak tomorrow.
The CDC said, “Shigellosis usually causes inflammatory diarrhea that can be bloody and may also lead to fever, abdominal cramping.” The inflections have been detected in 29 states, with the biggest outbreaks occurring in California, Massachusetts and Colorado.
The CDC said:
Historically, shigellosis has predominantly affected young children (age 1–4 years) in the United States. More recently, CDC has observed an increase in antimicrobial-resistant Shigella infections among adult populations especially
- Gay, bisexual, and other men who have sex with men (MSM)
- People experiencing homelessness
- People living with HIV
Symptoms usually begin 1–2 days after infection and last 7 days.
The CDC says the infection can usually be treated with antibiotics but the strain circulating now is drug resistant. Even before this outbreak, close to a half million people got sick from shigella each year in the U.S.
The update tomorrow may point us toward a renewed concern about the rapid increase of “superbug infections” that resist antibiotic treatments.
Inside El Salvador’s new mega-prison for 40,000 ‘terrorists’
El Salvador has opened its new maximum security prison. The government calls it a “center for terrorists” who were told when they arrived they would never leave. The first 2,000 men to be incarcerated there arrived over the weekend. It will be the largest prison in North and South America. Video from EuroNews shows MS-13 and 18th Street gang members being processed, and Al Jazeera goes inside the facility. El Salvador has 2% of its population behind bars, which is the highest percentage of prison population in the world.
Malls install apartments
One of the first malls to be built in the county, in Daly City, California, is going to try to get shoppers closer to stores by turning some of its space into 400 apartments. The New York Times says other mall developers are watching this closely because malls have had a tough time, especially since the pandemic, and this idea might increase foot traffic:
The combination of malls and apartments is not a new concept, but more landlords across the country are rethinking their use of space in this way. The strategy builds on the live-work-play communities that are built to accommodate the needs of its residents and have been become popular in the past decade with young adults seeking amenities within walking distance.
The addition of medical services within shopping centers is a popular trend as well, said Mr. Latella of Cushman. It’s becoming of such interest to real estate executives in retail that he now includes the concept in his presentations at conferences in a slide that reads, “The mall of the future: dinner, a movie and a colonoscopy — not necessarily in that order.”
Another mall, in Rhode Island, is already an apartment complex. It was the nation’s first covered mall. PopSugar reports:
The Arcade Providence is filled with stylish, affordable apartments. Located in Providence, RI, the community contains 48 microapartments and 17 boutique shops. While most of the tiny lofts boast a mere 225 square feet of space, they cost under $600 per month.
(See a video of that renovation.)
These kinds of big ideas will never get off the ground if local governments can’t act quickly enough to accommodate builders’ needs. When planning and zoning approval takes years, builders get impatient, costs rise and locals lose enthusiasm for ideas that seem old by the time the shovels hit the dirt.
