Update 10/22/22: A federal appeals court has temporarily blocked the student loan forgiveness program, as it considers a challenge from six states to block the program permanently. Applications are still being accepted while the temporary stay is in place.
President Joe Biden fulfilled a long-awaited campaign promise on Monday when he announced the formal launch of the administration’s student loan forgiveness program, opening up applications for borrowers across the country to apply for up to $20,000 in student loan relief.
The launch, which came after a brief beta test over the weekend, marks the culmination of a nearly two-month rollout that has been equal parts contentious and confusing due to a number of changes made by the administration as it attempts to dodge a flurry of lawsuits aimed at stopping the program.
“This is a game changer for millions of Americans,” Biden said.
The loan forgiveness program is estimated to affect more than 40 million borrowers across the country and the Biden administration has said that 90% of relief will go to borrowers making less than $75,000 a year. As of Tuesday, more than 12 million people had already applied for the forgiveness according to the administration.
The program will provide up to $10,000 in debt forgiveness for borrowers making under $125,000, and up to $20,000 for low-income borrowers who took out Pell Grants. It could go a particularly long way in West Virginia, a high-poverty state that ranks as one of the worst when it comes to difficulties faced by student loan borrowers.
“In West Virginia we’ve seen increased health disparities, increased housing insecurity and a lot of other things like inflation that have all had an impact in recent years,” said Rhonda Rogombe, the health and safety net policy analyst at the West Virginia Center on Budget and Policy. “Not having to worry as much about paying off balances will provide a lot of relief for a lot of people, especially in rural areas where opportunities are fewer.”
The forgiveness plan could have a bigger impact on West Virginians
About 213,000 West Virginians will be eligible for the federal student loan forgiveness — more than 11% of the state’s population, according to recent data from the White House and the U.S. Department of Education. Of that group 145,000 people could be eligible for up to $20,000 in relief because they received a Pell Grant.
Collectively, borrowers in the state hold roughly $6.5 billion in student debt according to a 2021 analysis from the West Virginia Center on Budget and Policy. Most have under $40,000 in individual student debt, which includes borrowers who started a degree program but did not finish. Last year, the center estimated that $10,000 in loan forgiveness could completely erase the student debt for roughly one-third of West Virginia borrowers.
In some states borrowers may need to pay taxes on the student loan forgiveness. A representative of the West Virginia Tax Division said the state is waiting for IRS guidance on how the federal government will treat the relief, but that “it is unlikely that this program will result in taxable income to West Virginians.”
Because West Virginia currently ranks as the fifth-highest state in the nation for defaults on student loans, experts say that the forgiveness program could have a significant impact — particularly at a moment when the state is struggling to grapple with an exodus of college graduates as well as rising tuition and declining enrollment at in-state colleges and universities.
“If we think about people’s monthly loan payments as similar to a car note — and for a lot of people it is — we can all understand the budgetary relief we would feel if all of a sudden our car is paid off,” said Nathaniel Burke, an assistant professor of economics at West Virginia University. “Particularly in places like West Virginia where there is a high rate of poverty, when you take away or reduce that payment, it means people can now either get ahead on their budget or they can start using that money to pay down other debt.”
Burke added that while the program is a “good first step”, it does have flaws, largely because it focuses on debt that already exists rather than addressing some of the factors that lead to students taking on so much debt in the first place. He also highlighted that the program does little to address interest capitalization, which occurs when borrowers need to regularly defer payments that then generate unpaid interest, creating balances that quickly outpace the original amount borrowed once a borrower resumes making payments.
“That’s really what buried a lot of borrowers,” he said.
Critics of the forgiveness argue that West Virginia already has initiatives like the West Virginia State Loan Program and the Recruitment and Retention Community Project, which offer student debt relief in exchange for work in rural areas and areas with limited medical services. Critics have also touted the state’s merit-based Promise Scholarship, which offers high school graduates up to $5,000 a year to cover tuition costs at eligible schools.
But the program doesn’t go as far as it used to due to rising in-state tuition costs: while it covered almost 94% of a student’s tuition in 2010, by 2020 it covered less than 63%.
Loan forgiveness doesn’t completely address student debt, but the relief it could provide is facing challenges
Biden’s program has faced arguments, including from West Virginia politicians, that it is incorrectly enacted and could potentially increase inflation. In September, Senator Joe Manchin criticized the program as being “excessive”, arguing that while student debt needs to be addressed, it should be through other means than widespread loan forgiveness, an argument that has also been shared by some congressional Democrats. (A spokesperson for Manchin’s office declined to offer further comment.)
The program has also faced some criticism from West Virginia Attorney General Patrick Morrisey, who has argued that his recent victory at the Supreme Court against the U.S. Environmental Protection Agency should be seen as a helpful legal precedent that “could be substantive to the argument against the White House’s action.”
The biggest arguments against the program have largely come from Republican politicians and conservative-aligned organizations who argue that the loan forgiveness is illegal because it was not passed by Congress and also serves as an example of presidential overreach that unfairly spreads the cost of student debt to taxpayers while doing nothing to stop schools from charging higher tuition.
In the nearly two months since the program was announced, there have been numerous lawsuits filed making a range of arguments against it, including that the program will lead to some borrowers receiving higher tax bills, that the program unfairly aims to help Black borrowers and reduce the racial wealth gap, and that the relief undercuts the Department of Education’s Public Service Loan Forgiveness program, which allows people who work for nonprofits to have their debts excused after 10 years.
So far, many of these lawsuits have failed. In recent weeks, the administration’s biggest legal threat came from a suit filed in September by five Republican attorneys general in Missouri, Arkansas, Kansas, Nebraska and South Carolina, as well as legal representatives from Iowa. They argue the president does not have the legal authority to enact the forgiveness program and that lenders in their states will lose out on valuable revenue tied to the student loans. That case was dismissed by a judge on Thursday; he ruled the plaintiffs did not have the standing to bring the lawsuit.
An effort to bring a different case before the Supreme Court also failed on Thursday, but opponents of the debt cancellation have pledged to continue fighting the forgiveness program.
The lawsuits have led the Biden administration to offer more information about the program than it initially had. The suits have also prompted the administration to change some aspects of the forgiveness program, including the removal of commercially held Family Federal Education Loans from the initial list of qualifying loans.
In the months to come, there will likely be a protracted legal battle over the future of the program and the relief that it could provide. And while loan forgiveness will help, experts say that addressing student debt and the rapidly increasing cost of college will require additional reforms and changes to how the country thinks about higher education.
“I don’t think we should continue towards a point where we just say ‘school is expensive, if you can’t afford it don’t go,’” Burke said. “Because then we lose diversity of thought, we lose college access for communities and we increase the gap between the haves and the have-nots.”