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Almost 11,000 Iowans will have their existing federal student loan debt canceled by the Biden administration, according to information published this week by the U.S. Department of Education. It’s part of a new effort to provide student loan debt relief, following the U.S. Supreme Court ruling last month that struck down the administration’s plan that would have canceled from $10,000 to $20,000 in federal student loan debt.
The new plan was announced on July 14, by U.S. Secretary of Education Miguel Cardonas. It is meant to correct errors for borrowers with income-driven repayment (IDR) plans. Those plans, first created in 1995, were designed to help low-income Americans manage their federal student loan debt. Monthly payments were based on a percentage of the person’s income, and after 20-25 years of monthly qualifying payment, the remaining student loan debt was to be canceled.
But problems in the system led to a failure to properly credit qualifying IDR payments and resulted in almost no loan debt being canceled. According to a 2021 analysis by the National Consumer Law Center, only 32 individuals had had their remaining loan debt canceled through the program, out of the approximately 2 million people who were eligible for relief.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” Sec. Cardona said when he announced the new debt relief last week. “Today, the Biden-Harris Administration is taking another historic step to right these wrongs and announcing $39 billion in debt relief for another 804,000 borrowers.”
According to figures released by the Department of Education on Tuesday, a total of 10,730 Iowans with IDR plans will see their remaining student loan debt canceled. Those borrowers do not have to do anything to receive that relief, and will be informed by a letter from the Department of Education about the cancellation.
The Biden administration plan for federal student loan debt relief would have assisted more than 20 times the number of Iowans the IDR adjustments will. According to the Department of Education, approximately 260,000 Iowans had applied for debt relief or had been automatically deemed as qualifying for it.
Under that plan, borrowers earning less than $125,000 per year would have been eligible to have $10,000 in outstanding federal student loan debt canceled. Borrower who were also Pell Grant recipients would have had $20,000 canceled.
President Biden announced this federal student loan debt relief effort in August 2022, invoking the Higher Education Relief Opportunities for Students Act (HEROES Act) passed in 2003. That law gave the secretary of education the power to “waive or modify” federal student loan debt if a “national emergency” is declared in order to ensure borrowers are not in a “worse position financially” because of the emergency. In 2020, President Trump issued a declaration of national emergency in response to the COVID-19 pandemic. Trump also paused the requirement that federal student loan payment be made monthly. The national emergency declaration and the student loan payment moratorium were still in place when Biden issued his August 2022 debt relief plan.
In the 6-3 ruling on June 30, the Republican-appointed justices of the U.S. Supreme Court said that even though the plain text of the HEROES Act gave the administration the authority to cancel student debt, they believed Congress had not envisioned the sort of debt cancellation Biden proposed when it approved the act. (With some irony, as Biden was a member of the Senate when the act was passed and voted for it.) Instead, the justices invoked the “major questions doctrine.”
Just over a decade ago, the major questions doctrine was a theory largely confined to rightwing legal circles. It holds that without “clear authorization” from Congress, federal agencies cannot undertake certain actions. There is no statutory authority for the major questions doctrine, there is no established definition what constitutes a “major question” or “clear authorization,” so using it allows the Republican-appointed justices, who are the only ones on the high court who consider it to be a doctrine, to strike down federal regulations or agency actions they personally disapprove of.
On June 30, 2022, the Supreme Court majority used the major questions doctrine to severely limit the power of the EPA under the Clean Air Act to regulate emissions. Exactly a year later, the majority used it to strike down Biden’s debt relief plan for federal student loan borrowers.
That decision came in a lawsuit filed by the state of Missouri. That lawsuit claimed the Missouri Higher Education Loan Authority (MOHELA) would suffer a major financial loss if the Biden plan took effect. But as the New Republic reported in May, an “internal impact analysis that MOHELA conducted in August, which the Debt Collective and Roosevelt Institute acquired through a Freedom of Information Act request, shows that the debt servicer would actually make more than $97 million annually after Biden’s student debt cancellation plan went into effect.”
“To put that figure into context, MOHELA will make more money after the debt cancellation than at any point in its history.”
The state of Missouri did not include that internal analysis as part of its legal filings, when claiming its student loan agency would suffer losses.
“I believe that the court’s decision to strike down our student debt relief plan is wrong,” Biden said in a speech at the White House after the court’s ruling. “But I will stop at nothing to find other ways to deliver relief to hard-working middle-class families.”
Gov. Kim Reynolds, acting on behalf of the state of Iowa, joined the Missouri lawsuit in September 2022. Normally, it would be the role of a state’s attorney general to do that, but then-Iowa Attorney General Tom Miller, a Democrat, declined to do so. Miller believed the lawsuit lacked merit.
When the Supreme Court issued its ruling, cutting off the possibility of student loan debt relief for 264,000 Iowans, Reynolds celebrated her victory.
“The Supreme Court’s decision affirms what Iowans have believed this entire time: the hard-working men and women of this country should not bear the burden of paying off others’ loans,” the governor said in a written statement.
Reynolds said Biden’s use of the HEROES Act authority to “modify” student loan debt “belittles Iowans who paid their own debt or chose not to pursue a traditional four-year degree.”
