The Biden administration is canceling student loans for another 206,000 borrowers as part of a new repayment plan that offers a faster route to forgiveness.
The Education Department announced the latest round of cancellations Friday in an update on the progress of its SAVE Plan. More people are becoming eligible for student loan cancellation as they hit 10 years of payments, a new finish line for some loans that’s a decade sooner than what borrowers faced in the past.
Casting a shadow over the cancellations, however, are two new lawsuits challenging the plan’s legality. Two groups of Republican-led states, fronted by Kansas and Missouri, recently filed federal suits arguing that the Biden administration overstepped its authority in creating the repayment option.
“From day one of my Administration, I promised to fight to ensure higher education is a ticket to the middle class, not a barrier to opportunity,” President Joe Biden said in a statement. “I will never stop working to cancel student debt — no matter how many times Republican elected officials try to stop us.”
With the latest action, the Education Department has now approved cancellation for about 360,000 borrowers through the new repayment plan, totaling $4.8 billion.
The SAVE Plan is an updated version of a federal repayment plan that has been offered for decades, but with more generous terms.
Congress created the first income-driven repayment option in the 1990s for people struggling to afford payments on standard plans. It capped monthly payments to a percentage of their incomes and canceled any unpaid debt after 25 years. Similar plans were added later, offering cancellation in as little as 20 years.
Arguing that today’s borrowers need even more help, the Biden administration merged most of those plans into a single repayment option with more lenient terms.
The SAVE (Saving on a Valuable Education) Plan allows more borrowers to pay nothing until their income rise above certain limits. It also lowers payments more than past plans, eliminates interest growth and cancels unpaid debt in as little as 10 years.
Biden announced the plan in 2022 alongside his broader proposal for a one-time cancellation of up to $20,000 for more than 40 million people. While the one-time cancellation was struck down by the Supreme Court, the SAVE Plan moved forward and initially escaped legal scrutiny.
The repayment plan opened for enrollment last fall, with certain provisions scheduled to be phased in later this year. The faster path to cancellation was among those slated to start this summer, but the Biden administration fast-tracked that benefit early this year, announcing forgiveness for 153,000 borrowers who had hit 10 years of payments.
Almost 8 million Americans have enrolled in the plan, including 4.5 million who pay nothing because they have lower incomes.
In a call with reporters, Education Secretary Miguel Cardona said the plan provides relief and prevents borrowers from falling behind on their loans.
“Now they have some money back in their pockets, instead of a bill that too often competed with basic needs like groceries and health care,” he said.
Under the plan, borrowers who originally borrowed $12,000 or less are eligible for forgiveness after 10 years. Those who took out more than $12,000 can get cancellation but on a longer timeline. For each $1,000 borrowed beyond $12,000, it adds an additional year of payments on top of 10 years.
The Biden administration says it’s designed to help those who need it most. Counterintuitively, those with smaller student loan balances tend to struggle more. It’s driven by millions of Americans who take out student loans but don’t finish their degrees, leaving them with the downside of debt without the upside of a higher income.
In two separate lawsuits, Republican attorneys general in 18 states are pushing to have the plan tossed and to halt any further cancellation. They say the SAVE Plan goes beyond Biden’s authority and makes it harder for states to recruit employees. They say the plan undermines a separate cancellation program that encourages careers in public service.
It’s unclear what the suits could mean for loans that have already been canceled. A court document filed by Kansas’ attorney general says it’s “unrealistic to think that any loan forgiveness that occurs during this litigation will ever be clawed back.”
The lawsuits don’t directly address the question, and the attorneys general didn’t immediately respond to an Associated Press request.
The Education Department says Congress gave the agency power to define the terms of income-driven payment plans in 1993, and that authority has been used in the past.
Along with the repayment plan, Biden is trying again at a one-time student loan cancellation. In a visit to Wisconsin on Monday, he highlighted a proposal to reduce or cancel loans for more than 30 million borrowers in five categories.
It aims to help borrowers with large sums of unpaid interest, those with older loans, those who attended low-value programs, and those who face other hardships preventing them from repaying student loans. It would also cancel loans for people who are eligible for other forgiveness programs but haven’t applied.
The Biden administration says it will accelerate parts of the proposal, with plans to start waiving unpaid interest for millions of borrowers starting this fall. Conservative opponents have threatened to challenge that plan, too.
On Friday the administration also said it’s canceling loans for 65,000 borrowers who are enrolled in older income-driven repayment plans and hit the finish line for forgiveness. It also announced cancellation for another 5,000 borrowers through the Public Service Loan Forgiveness program.
Through a variety of programs, the Biden administration says it has now provided loan relief to 4.3 million people, totaling $153 billion.
Having fled economic and political chaos in Venezuela, Luisana Silva now loads carpets for a South Carolina rug company. She earns enough to pay rent, buy groceries, gas up her car — and send money home to her parents.
Reaching the United States was a harrowing ordeal. Silva, 25, her husband, and their then-7-year-old daughter braved the treacherous jungles of Panama’s Darien Gap, traveled the length of Mexico, crossed the Rio Grande, and then turned themselves into the U.S. Border Patrol in Brownsville, Texas. Seeking asylum, they received a work permit last year and found jobs in Rock Hill, South Carolina.
“My plan is to help my family that much need the money and to grow economically here,” Silva said.
Her story amounts to far more than one family’s arduous quest for a better life. The millions of jobs that Silva and other new immigrant arrivals have been filling in the United States appear to solve a riddle that has confounded economists for at least a year:
How has the economy managed to prosper, adding hundreds of thousands of jobs, month after month, at a time when the Federal Reserve has aggressively raised interest rates to fight inflation — normally a recipe for a recession?
Increasingly, the answer appears to be immigrants — whether living in the United States legally or not. The influx of foreign-born adults vastly raised the supply of available workers after a U.S. labor shortage had left many companies unable to fill jobs.
More workers filling more jobs and spending more money has helped drive economic growth and create still more job openings. The availability of immigrant workers eased the pressure on companies to sharply raise wages and then pass on their higher labor costs to their customers via higher prices that feed inflation. Though U.S. inflation remains elevated, it has plummeted from its levels of two years ago.
“There’s been something of a mystery — how are we continuing to get such extraordinarily strong job growth with inflation still continuing to come down?’’ said Heidi Shierholz, president of the Economic Policy Institute and a former chief economist at the Labor Department. “The immigration numbers being higher than what we had thought — that really does pretty much solve that puzzle.’’
While helping fuel economic growth, immigrants also lie at the heart of an incendiary election-year debate over the control of the nation’s Southern border. In his bid to return to the White House, Donald Trump has attacked migrants in often-degrading terms, characterizing them as dangerous criminals who are “poisoning the blood” of America and frequently invoking falsehoods about migration. Trump has vowed to finish building a border wall and to launch the “largest domestic deportation operation in American history.” Whether he or President Joe Biden wins the election could determine whether the influx of immigrants and their key role in propelling the economy will endure.
The boom in immigration caught almost everyone by surprise. In 2019, the Congressional Budget Office had estimated that net immigration — arrivals minus departures — would equal about 1 million in 2023. The actual number, the CBO said in a January update, was more than triple that estimate: 3.3 million.
Thousands of employers desperately needed the new arrivals. The economy — and consumer spending — had roared back from the pandemic recession. Companies were struggling to hire enough workers to keep up with customer orders.
The problem was compounded by demographic changes: The number of native-born Americans in their prime working years — ages 25 to 54 — was dropping because so many of them had aged out of that category and were nearing or entering retirement. This group’s numbers have shrunk by 770,000 since February 2020, just before COVID-19 slammed the economy.
Filling the gap has been a wave of immigrants. Over the past four years, the number of prime-age workers who either have a job or are looking for one has surged by 2.8 million. And nearly all those new labor force entrants — 2.7 million, or 96% of them — were born outside the United States. Immigrants last year accounted for a record 18.6% of the labor force, according to the Economic Policy Institute’s analysis of government data.
And employers welcomed the help.
Consider Jan Gautam, CEO of the lodging company Interessant Hotels & Resort Management in Orlando, Florida, who said he can’t find American-born workers to take jobs cleaning rooms and doing laundry in his 44 hotels. Of Interessant’s 3,500 workers, he said, 85% are immigrants.
“Without employees, you are broken,” said Gautam, himself an immigrant from India who started working in restaurants as a dishwasher and now owns his own company.
“If you want to boost the economy,” he said, “it definitely needs to have more immigrants coming out to this country.”
Or consider the workforce of the Flood Brothers farm in Maine’s “dairy capital’’ of Clinton. Foreign-born workers make up fully half the farm’s staff of nearly 50, feeding the cows, tending crops, and helping collect the milk — 18,000 gallons each day.
“We cannot do it without them,” said Jenni Tilton-Flood, a partner in the operation.
For every unemployed person in Maine, after all, there are two job openings, on average.
“We would not have an economy, in Maine or in the U.S. if we did not have highly skilled labor that comes from outside of this country,” Tilton-Flood said in a phone interview with The Associated Press from her farm.
“Without immigrants — both new asylum-seekers as well as our long-term immigrant contributors — we would not be able to do the work that we do,” she said. “Every single thing that affects the American economy is driven by and will only be saved by accepting immigrant labor.”
A study by Wendy Edelberg and Tara Watson, economists at the Brookings Institution’s Hamilton Project, has concluded that over the past two years, new immigrants raised the economy’s supply of workers and allowed the United States to generate jobs without overheating and accelerating inflation.
In the past, economists typically estimated that America’s employers could add no more than 60,000 to 100,000 jobs a month without overheating the economy and igniting inflation. But when Edelberg and Watson included the immigration surge in their calculations, they found that monthly job growth could be roughly twice as high this year — 160,000 to 200,000 — without exerting upward pressure on inflation.
“There are significantly more people working in the country,” Fed Chair Jerome Powell said last week in a speech at Stanford University. Largely because of the immigrant influx, Powell said, “it’s a bigger economy but not a tighter one. Really an unexpected and an unusual thing.’’
Trump has repeatedly attacked Biden’s immigration policy over the surge in migrants at the Southern border. Only about 27% of the 3.3 million foreigners who entered the United States last year did so through as “lawful permanent residents’’ or on temporary visas, according to Edelberg and Watson’s analysis. The rest — 2.4 million — either came illegally, overstayed their visas, are awaiting immigration court proceedings, or are on a parole program that lets them stay temporarily and sometimes work in the country.
“So there you have it,’’ Douglas Holtz-Eakin, a former CBO director who is president of the conservative American Action Forum, wrote in February. “The way to solve an inflation crisis is to endure an immigration crisis.”
Many economists suggest that immigrants benefit the U.S. economy in several ways. They take generally undesirable, low-paying but essential jobs that most U.S.-born Americans won’t, like caring for children, the sick, and the elderly. And they can boost the country’s innovation and productivity because they are more likely to start their own businesses and obtain patents.
Ernie Tedeschi, a visiting fellow at Georgetown University’s Psaros Center and a former Biden economic adviser, calculates that the burst of immigration has accounted for about a fifth of the economy’s growth over the past four years.
Critics counter that a surge in immigration can force down pay, particularly for low-income workers, a category that often includes immigrants who have lived in the United States longer. Last month, in the most recent economic report of the president, Biden’s advisers acknowledged that “immigration may place downward pressure on the wages of some low-paid workers” but added that most studies show that the impact on the wages of the U.S.-born is “small.”
Even Edelberg notes that an unexpected wave of immigrants, like the recent one, can overwhelm state and local governments and saddle them with burdensome costs. A more orderly immigration system, she said, would help.
The recent surge “is a somewhat disruptive way of increasing immigration in the United States,” Edelberg said. “I don’t think anybody would have sat down and said: ‘Let’s create optimal immigration policy,’ and this is what they would come up with.”
Holtz-Eakin argued that an immigration cutoff of the kind Trump has vowed to impose if elected, would result in “much, much slower labor force growth and a return to the sharp tradeoff’’ between containing inflation and maintaining economic growth that the United States has so far managed to avoid.
For now, millions of job vacancies are being filled by immigrants like Mariel Marrero. A political opponent of Venezuela’s authoritarian President Nicolás Maduro, Marrero, 32, fled her homeland in 2016 after receiving death threats. She lived in Panama and El Salvador before crossing the U.S. border and applying for asylum.
Her case pending, she received authorization to work in the United States last July. Marrero, who used to work in the archives of the Venezuelan Congress in Caracas, found work selling telephones and then as a sales clerk at a convenience store owned by Venezuelan immigrants.
At first, she lived for free at the house of an uncle. But now she earns enough to pay rent on a two-bedroom house she shares with three other Venezuelans in Doral, Florida, a Miami suburb with a large Venezuelan community. After rent, food, electricity, and gasoline, she has enough left over to send $200 a month to her family in Venezuela.
“One hundred percent — this country gives you opportunities,’’ she said.
Marrero has her own American dream:
“I imagine having my own company, my house, helping my family in a more comfortable way.”
The average long-term U.S. mortgage rate rose to its highest level in five weeks, a setback for prospective homebuyers during what’s traditionally the busiest time of the year for home sales.
The average rate on a 30-year mortgage rose to 6.88% from 6.82% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.27%.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.
Rates have been mostly drifting higher in recent weeks as stronger-than-expected reports on employment and inflation have stoked doubt among bond investors over how soon the Federal Reserve will move to lower its benchmark interest rate. The central bank has signaled that it expects to cut its short-term rate three times this year once it sees more evidence of cooling inflation.
On Wednesday, Treasury yields jumped in the bond market following a report showing that inflation was hotter last month than economists expected. The March consumer prices report was the third straight showing inflation readings well above the Fed’s 2% target. A report on Thursday showed inflation at the wholesale level was a touch lower last month than economists expected.
The yield on the 10-year Treasury, which lenders use as a guide to pricing loans, jumped to 4.57% on Thursday afternoon, its highest level since November. How the bond market reacts to the Fed’s interest rate policy, the moves in the 10-year Treasury yield, as well as other factors can influence mortgage rates.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December, though it also hasn’t gone below the 6.6% it averaged in mid-January.
Mortgage rates will likely continue to hover between that 6.6% and 7% range until inflation shows convincing progress towards the Fed’s target, said Hannah Jones, Realtor.com’s senior economic research analyst.
“Eager buyers and sellers are hoping to see more favorable housing conditions as the spring selling season kicks off,” said Jones. “However, mortgage rates have offered little relief as economic data, as measured by both inflation and employment, remains strong.”
The U.S. housing market is coming off a deep, 2-year sales slump triggered by a sharp rise in mortgage rates and a dearth of homes on the market. The overall pullback in mortgage rates since their peak last fall helped spur a pickup in sales in the first two months of this year.
Sales of previously occupied U.S. homes rose in February from the previous month to the strongest pace in a year. That followed a month-to-month home sales increase in January.
Still, the average rate on a 30-year mortgage remains well above where it was just two years ago at 5%. That large gap between rates now and then has helped limit the number of previously occupied homes on the market because many homeowners who bought or refinanced more than two years ago are reluctant to sell and give up their fixed-rate mortgages below 3% or 4%.
Many economists still expect that mortgage rates will ease moderately later this year, though most forecasts call for the average rate on a 30-year home loan to remain above 6%.
The cost of refinancing a home loan also got pricier this week. Borrowing costs on 15-year fixed-rate mortgages, often used to refinance longer-term mortgages, rose this week, pushing the average rate to 6.16% from 6.06% last week. A year ago it averaged 5.54%, Freddie Mac said.
Shop for a home now or hold out for the possibility of lower mortgage rates? That question is confronting many home shoppers this spring homebuying season.
Lower rates give home shoppers more financial breathing room, so holding out for a more attractive rate can make a big difference, especially for first-time homebuyers who often struggle to find an affordable home.
However, there’s a potential downside to waiting. Lower rates can attract more prospective homebuyers, heating up the market and driving up prices.
Acting now would likely saddle a buyer with a rate of around 6.9% on a 30-year mortgage. In late October, the rate surged to a 23-year high of nearly 8%, according to mortgage buyer Freddie Mac. Economists generally expect the average rate on a 30-year mortgage to decline later in the year.
“If mortgage rates do in fact drop as expected, I would expect there to be more competition from increased demand, so that’s one reason to potentially act now,” said Danielle Hale, chief economist at Realtor.com. “And then those buyers, if mortgage rates do fall, would presumably have an opportunity to refinance.”
Gagan Hegde, a software engineer in Durham, North Carolina, is leaning toward the proactive approach as he looks to buy his first home.
Hegde, 29, worries that delaying his search would eventually put him up against others also looking for lower rates in a market that’s already plenty competitive.
Just recently, he matched the $450,000 list price on a townhome, but another buyer offered more than what the seller was asking.
Rather than dwell too much on mortgage rates, he’s now focusing on finding a three-bedroom, three-bath home he can afford. Once rates fall, he’ll look to refinance.
“I’m just completely being agnostic to the financing prices because I think if you start paying too much attention to it, there’s no clear answer,” he said.
The rock-bottom mortgage rates that fueled a buying frenzy in 2021 and early 2022 are long gone. While an average rate on a 30-year home loan of just under 7% is not far from the historical average, that’s little consolation to homebuyers who, prior to the last couple of years, hadn’t seen average rates this high going back nearly two decades.
Combined with a nearly 44% increase in the national median sale price of previously occupied homes between 2019 and 2023, elevated mortgage rates have made buying a home less affordable for many Americans.
A recent analysis by Redfin found that the typical U.S. household earns about $30,000 less than the $113,520 a year it needs to afford a median-priced U.S. home, which the company estimated was $412,778 in February. Redfin defines a home as affordable if the buyer spends no more than 30% of their income on their monthly housing payment. The analysis factored in a 15% down payment and the average rate on a 30-year loan in February, which was around 6.8%.
Lower mortgage rates would boost homebuyers’ purchasing power. Financing a $400,000 home with a 30-year mortgage with a fixed rate at last week’s average of 6.82% works out to about $215 more a month than if the rate was at 6%, for example. Monthly payments on the same loan two years ago, when the mortgage rate averaged 4.72%, would be $534 less.
Many economists expect that mortgage rates will ease this year, but not before inflation has cooled enough for the Federal Reserve to begin lowering its short-term interest rate.
The Fed has indicated it expects to cut rates this year once it sees more evidence that inflation is slowing from its current level above 3%. How the bond market reacts to the Fed’s interest rate policy, as well as other factors can influence mortgage rates. Current indications are mortgage rates will remain higher for a while longer.
For now, the uncertainty in the trajectory of mortgage rates is working in favor of home shoppers like Shelby Rogozhnikov and her husband, Anton.
The couple owns a townhome in Dallas and want more space now that they’re planning on having their first child. They’re looking for a house with at least three bedrooms that’s priced within their budget of around $300,000.
They’re not feeling any urgency, but they are eager to avoid a surge in competition should mortgage rates decline in the coming months.
“I know interest rates will go down eventually, but I feel like when they go down housing prices might go back up again,” said Shelby Rogozhnikov, 38. a dental hygienist. “I have the mortgage rate thing to worry about and my biological clock, which has less time on it than the mortgage rates, so it’s now or never.”
Real estate agents from Los Angeles to New York say bidding wars are still happening, though not as often as in recent years in some places.
“Overall, the bidding wars are not nearly as extreme as they were in markets’ past,” said Tony Spratt, an agent with Century 21 Real Estate Judge Fite Co., in the Dallas-Fort Worth area. “We’re still in a sellers’ market, but it’s much more mild than it was.”
Home shoppers also have more properties to choose from this spring than a year ago. Active listings -- a tally that encompasses all the homes on the market but excludes those pending a finalized sale -- have exceeded prior-year levels for five straight months, according to Realtor.com. They jumped nearly 24% in March from a year earlier, though they were down nearly 38% compared to March 2019.
The still-relatively tight inventory is helping give sellers the edge in many markets around the country, but not all.
In Raleigh, North Carolina, home listings are taking longer to sell, and that’s made sellers more flexible on price or with helping cover repair costs, said Jordan Hammond, a Redfin agent.
“Before we saw sellers could really do what they wanted,” she said. “They didn’t have to contribute at all to the buyer’s purchase. And now that’s kind of flipped. I’m seeing more buyers pushing sellers.”
Still, the thin inventory of properties on the market means home shoppers who can find a property for sale in their price range may want to put in an offer rather than wait because there’s no guarantee a better option will come along right away.
Those shopping in areas where new-home construction is more prevalent may have better luck this spring.
In response to higher mortgage rates, more than one-third of builders cut home prices in 2023. Many also offered buyers incentives like mortgage rate buydowns and below market-rate financing.
Builders also stepped up construction of smaller, less expensive homes, which helps explain why the median sale price of a new U.S. home fell nearly 8% in February from a year earlier to $400,500. That’s the lowest level since June 2021.
Home shoppers and sellers who wait until summer to test the market will also have to factor in how they may be affected by proposed changes to policies around real estate agent commissions.
Last month, the National Association of Realtors agreed to make policy changes in order to settle federal lawsuits that claimed the trade association and several of the country’s biggest real estate brokerages engaged in business practices that forced homeowners to pay artificially inflated commissions when they sold their home.
The policy changes, which are set to go into effect in July, could lead to home sellers paying lower commissions for their agent’s services. Buyers, in turn, may have to shoulder more upfront costs when they hire an agent.