The impact of the Biden plan on Californians’ student loan debt

The United States Supreme Court is expected, as soon as this week, to release its decision on whether President Joe Biden can forgive student loans with a plan that offers tens of thousands in relief to some borrowers.

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How many Californians could be affected by the decision?

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Federal loans account for more than two-thirds of student borrowing in the U.S, according to the Public Policy Institute of California (PPIC). Students owe about $1.6 trillion, and 3.8 million Californians are responsible for more than $142 billion of it.

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Federal student loan payments, halted during the coronavirus pandemic, will resume in October, according to the U.S. Education Department. Student loan interest will start to accrue again on Sept. 1. Congress prevented further pauses on repayment as part of the agreement to lift the debt ceiling, which was signed into law this month.

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What is Biden’s student loan forgiveness plan?

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Last August, Biden announced a plan to offer up to $20,000 in forgiveness for student loan borrowers who had received a Pell Grant, federal aid for low-income students. It would give up to $10,000 to those who earn under $125,000 a year individually or are in households that make under $250,000.

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The White House estimated that more than 40 million borrowers would qualify for this one-time form of relief, intended to ease economic hardship in the wake of the pandemic.

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Overall, 26 million borrowers applied or were deemed eligible for this forgiveness by the U.S. Department of Education, including more than 2.3 million Californians, according to the White House.

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But lawsuits by several conservative states and groups, contending that Biden overstepped his executive authority, forced the program to halt.

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The Supreme Court heard arguments in February in two of the cases. One is from six Republican-led states that claim the policy would hurt companies that service federal student loans. Another was brought by plaintiffs alleging they were harmed because the plan would at least partially be exclude them from forgiveness.

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Several other forms of student loan forgiveness have continued, including relief for people in public service or who attended for-profit institutions like Corinthian Colleges that the administration said took advantage of students.

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Overall, the Biden administration has discharged $66 billion for nearly 2.2 million borrowers, Education Department data from May shows.

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How many Californians took on student debt before the pandemic?

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Borrowing dropped for four-year undergraduate institutions between 2012 and 2020 nationwide. In California, which has long had a lower rate of student borrowing than the rest of the country, only a third took out loans in the 2019 to 2020 school year.

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The PPIC studied the period between 2012 and 2020, before federal loan payments were paused amid the coronavirus pandemic. Loan payments are expected to kick in again in August.

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About a third of students attending one of the University of California (UC) or California State University (CSU) schools took on loans, per PPIC. More students going to private nonprofit institutions borrowed — 46% — with Stanford University students on the lower end with a median of $12,000 owed at graduation and Southern California Institute of Architecture at the upper end with $33,750 owed.

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Over half of borrowers who attended UC and at least 40% of people who attended CSU and private nonprofits were lowering their debt balances within three years of graduation.

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Loan delinquency and default were low before the pandemic for these borrowers. Delinquency is missing at least a payment while default is not paying for about a year. This can reduce access to home and car loans or other types of credit.

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Who has had the hardest time paying off debt?

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This differs for people who attended for-profit colleges or did not graduate.

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Over half of for-profit college graduates borrowed, with a wide range of debt owed at graduation, depending on the school. Fewer than one in three borrowers who attended for-profit schools were making progress on their loans. One in five of these borrowers were in delinquency or default.

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People who did not graduate from their schools walked away with less debt, but they struggled more to pay it off. One in four of them were in delinquency or default.

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Overall, 18% of California borrowers made regular payments that did not really shrink their debt. Another 38% were in forbearance or deferment, which can ultimately increase debt over time.