Hoosier student debt hangs in limbo as courts consider lawsuit
President Joe Biden’s proposed student loan relief program is temporarily paused — and that means millions of people’s academic debt is in limbo. Applications for relief are still open at studentaid.gov.
The proposed student loan relief program would forgive $400 billion dollars across 45 million people — and that includes more than 900,000 Hoosiers, according to federal data compiled by the Education Data Initiative.
For people making less than $125,000 per year ($250,000 for couples), up to $10,000 in federal loans could be forgiven. For people who also received a Pell grant, up to $20,000 could be wiped clean.
“Less than one week, close to 22 million people have already given us the information to consider this lifechanging relief,” Biden said last Friday, only two days after the application opened.
LISTEN: The new college debt relief bill sparks mixed reactions
Carli Stevenson lives in Indianapolis but is from New Hampshire. She went to public state school and graduated with about $60,000 in debt.
“I've been paying that debt for 14 years now, and I still owe about $32,000,” she said.
If Biden’s plan survives court challenges, Stevenson would be left with about $15,000 of debt.
“When you don't come from money, even if you go to college, you are starting out much further behind your peers that you are working with who come from upper middle class and upper-class families,” she said.
However, some people argue the program fundamentally isn’t fair.
“People take matters of financial fairness personally,” author and financial aid expert Mark Kantrowitz said. “So, it's not, ‘oh, this is unfair to someone — it's unfair to me.’”
People opposed to the loan forgiveness program argue that debt is just being redistributed to people who didn’t go to college or take out student loans.
“But not everything is fair,” he said. “And there's lots of government actions that, like, as someone who was a pacifist might not agree with the military budget — it's not fair to them.”
Currently, six states are suing because people consolidated Federal Family Education Loans to qualify for forgiveness. States hold or service FFELP loans, which means a smaller loan volume, thus less revenue.
However, the White House had not finalized the details of the program by the time the states filed the lawsuit.
“Who knows why they consolidated,” Kantrowitz said. “Maybe they were consolidating to take advantage of the payment pause and interest waiver. Maybe they were consolidating to take advantage of that limited public service loan forgiveness waiver.”
As of Sept. 29, the same day the lawsuit was filed, people who hadn’t already consolidated FFELP loans no longer qualified.
“This essentially rendered the claim that the states had been harmed moot, because they were no longer being harmed,” Kantrowitz said.
A federal judge dismissed the case, but the states appealed to the 8th Circuit Court. A judge last Friday temporarily blocked the plan as it waits to issue a ruling on an injunction.
“The stay only prevents the Department of Education from issuing the forgiveness,” Kantrowitz said. “If they are ready to go, they could resume as soon as that stay is lifted.”
READ MORE: What do Hoosiers need to know about Indiana’s taxation of student loan forgiveness?
But does the president have the authority to forgive billions of dollars in student debt?
The Biden Administration is using the HEROS Act of 2003 to authorize the program. But Kantrowitz said the court could potentially invoke the major questions doctrine, which says for agency actions that have major consequences, like costing $400 billion, there should be explicit authorization by Congress.
Congress has attempted to pass student loan forgiveness legislation multiple times but failed.
“That then doesn't give the administration carte blanche to implement what they couldn’t get through Congress through executive action,” Kantrowitz said.
However, he said the legality of what the president did is a separate issue. For a court to rule on the program, someone must first show harm.
“Until plaintiffs are able to demonstrate that they have legal standing, and so far, none have —and I don't think any will — the courts can’t consider whether what the president did passes legal muster,” Kantrowitz said.
He said the Biden Administration should have targeted the program more carefully — especially for retired people. One third of people with student loans who are older than 65 and half of the people older than 75 are in default on their payments.
“Forgiving all their student loans would cost only about $60 billion,” Kantrowitz said. “That seems like a good way to spend money, much less expensive than $400 billion.”
He said many retired people will benefit from the $10,000 or $20,000, but many will still have debt afterwards. When these retired people default, the government can garnish a portion of their social security check each month.
“The government is giving with one hand and taking back with the other,” Kantrowitz said. “They're on fixed income, they have no other source of income to pay for housing, food, medicine.”
“It's a morally bankrupt policy to offset Social Security Retirement Benefits,” he said.
Kantrowitz wants more money for federal grants, which don’t have to be forgiven the same way loans do. However, he isn’t sure if Biden’s plan will lead to a more in-depth discussion about reforming the entire college loan program.
“I think this is driven more by politics, not by policy,” he said. “He made a campaign promise; he's fulfilling the campaign promise.”
READ MORE: Indiana will tax loan forgiveness, similar to other states
Cynthia Shultz said she would benefit from Biden’s plan, considering she took an alternate route to college.
“I've been retired six years, I'm 71, and most people my age don't have student debt,” Shultz said. “I had some health challenges mid-career that meant we didn't have as much savings as we had planned for.”
Shultz returned to college when her children were in high school, and she eventually graduated with $50,000 worth of debt- debt she’s still paying.
“I didn't come from a family of college graduates; I am the first person in my family to graduate from college,” she said. “I'm definitely the first person to get a master's degree.”
Shultz said it’s difficult to plan for the near future when thousands of dollars’ worth of debt are resting on a lawsuit.
Kantrowitz said he expects the court to act quickly, but the decision could take several weeks.
Regardless of the outcome of the appeals court, one side is likely to push the issue to the United States Supreme Court. In the meantime, President Biden has paused all student loan payments until next year.