Legal Wrangling over Loan Forgiveness

Okay. Time to do some sorting of the details. I promise to present the facts and the arguments in as neutral a manner as possible. Our subject? The contentious federal student loan debt forgiveness action by the current administration and the legal responses to date.

A bit of history is in order. A bit of political science explanation about our federal courts is also in order.

The hue and cry for loan forgiveness have risen in volume and intensity in these past 15 years. Loans for tuition began exceeding the five-digit threshold at public universities in 2006 ( much earlier, in 1992, for private schools). Today, the average loan amount is over $30k for an undergraduate degree. Borrowing for a graduate degree can jump it by another 200k, as you can borrow for living expenses. Ask new lawyers.

Everyone will agree that most 18-22-year-olds were not told how the program worked, what their payments might be, and for how long. I guarantee this because when our student went to college, the only sentence about student loans was, “well, of course, you’ll have to pay this back.” It may be legal to offer students money through their University student portals, where they get it by just clicking a button (yes, that is ALSO true) but it is simply immoral and improper. You get more explanation about your car loan or your home loan than your student loans. Student loans can exceed your mortgage payments.

This administration used their “executive powers” and an interpretation of the HEROES act to move forward on 10k to 20k loan forgiveness. Those who disagreed started up the many legal ladders out there, including an emergency request for a “stay” from Supreme Court Judge Amy Comey Barrett which was denied.

Recently, Fifth Circuit Federal Judge Mark Pittman declared the payments unlawful, under the argument that only Congress has the authority to spend money through legislative acts. To clarify, three different acts for loan forgiveness ARE on the books, but they are limited in scope. In addition, the Eighth Circuit Court already ruled a halt to the loan forgiveness program after a loss of a temporary stay from the Supreme Court.

It’s complicated. And, it will take time to go through the federal appeals court processes. Regardless of what state, these requests are for Federal Courts to act on a Federal issue. There are 94 district courts organized into 12 Circuit Courts. Each Circuit has its own Court of Appeals and an assigned Supreme Court Justice for emergency appeals. The District of Columbia makes the 13th Circuit. Welcome to your political science tutorial. But as tough as this is, wait to hear what’s next.

An article from CNBCposted on the web on 11/10/2022 polled some people who had already received their loan forgiveness checks. 73% said they were going to use the money for travel and dining out. Almost 3 out of 4 borrowers with these early checks said that.

I have a simple question. Why weren’t the checks applied to those federal loans directly? Hmmm?

What happens if one of the court cases makes it through to the Supreme Court and they choose to rule on it? I don’t have any idea what the results might be, but what if it goes against this program? What will happen then? If you don’t send them back, will they just add the money owed to your current loan debt? That’d be a real mess to suddenly owe more than you did before you got the check. But it could happen.

Then there’s the whole “is it income” question. Students could face state taxes on their largess, or worse, federal and state taxes on money not returned to reduce their student loan debt. That’s a whole separate tax law case. But I know this- The tax courts are not friends to the taxpayer. They generally start with no.

Here’s the bottom line-

If you got a check, think hard about what you should do. If you are economically desperate, I can understand you may have survival needs. I can tell you that travel and dining out are not essentials.

If you are still in line and one is coming, think harder. Are you prepared to potentially pay it back? Are you prepared to pay taxes on it? If not, I would opine that if you actually applied it to your federal student loans, you might get lucky and they might not demand it back. Can’t say the same about pent-up travel plans.

Anything else is suspect.

I stand on my position which is basic. Do all can to get the education you need, for the lowest cost, and borrow as little as possible. It can be done if you do your work.

As you consider Christmas presents for family and friends, look no further than our good friends at Amazon. My book, ENOUGH! The College Cost Crisis is less than $20 including shipping. I guarantee your knowledge will expand, and you can make better decisions with your student.

You might actually get a rarity- a heartfelt thank-you note.

Until Next Time,

All My Best,

Bonnie Burkett