30 Million Could Benefit From Biden's New Student Debt Relief Plan — But 5 Public Companies Might Suffer

The White House announced this week a new attempt to forgive student debt to almost 30 million Americans.

For 30 years, college tuition prices have increased faster than median incomes. As a result, college graduates are saddled with heavy student debt, impacting their ability to buy homes, start a family, travel, invest or build savings.

This has become an increasingly complex problem for lower- and middle-income Americans.

The Biden administration is now revising a post-pandemic measure that attempted to wipe out $400 billion of student debt, but was blocked last year by the Supreme Court.

In the context of the 2024 election, the new proposal can be read as a final effort to win the hearts of a significant portion of the population who currently struggles with student debt.

Student debt is not only kept by fresh graduates. The average debt for those aged 35 to 49 is over $42,000 and over $44,000 for those 50 to 61, who add up to about 21 million people between both groups.

With this new, more moderate plan, the administration is hoping to avoid an unconstitutionality ruling by targeting more specific groups of borrowers instead of the entire cohort.

According to the New York Times, the new plan will be published in the Federal Register and go through a public comment period.

It's not yet clear if the benefits will take effect before the November election, but some provision could begin to take effect by early fall, according to the administration.

Impact On Stocks

Most student debt in the U.S. is Federal. But private student loans account for 7.5% of all U.S. student loans as of September last year.

That's a significant amount considering that the total federal student loan currently amounts to $1.7 trillion, according to the Department of Education.

Outstanding student debt owed to private companies is above $130 billion, according to Entreval Analytics.

Better accessibility to federal loans, as well as easier repayment structures, could steal market share from private lenders, and potentially affect their stock prices.

As of Tuesday’s close:

• Shares of SLM Corp SLM, also known as Sallie Mae, one of the largest providers of private student loans, was down 1.02%.

• SoFi Technologies Inc SOFI, which provides student loan refinancing services as well as many other types of borrowing, saw its shares rise by 1.68% on Tuesday, presumably unaffected by the Biden announcement.

• Navient Corp NAVI, which manages around $300 billion in student loans for more than 12 million debtors, was down 0.47% on Tuesday.

• Discover Financial Services DFS, parent company of Discover Bank, which also provides student debt refinancing services, was down 0.29%. 

• Citizens Financial Group Inc CFG providing similar services, was up 0.14%.

Sallie Mae and Sofi didn't respond to a request for comment on how the new plan might affect their business operations.

The Details Behind Biden's New Debt Relief Plan

With college prices growing 56% in public universities in the last two decades, President Joe Biden is proposing a two-part plan. Those already in debt may receive student debt relief, and benefit from new measures that aim to ease the cost of borrowing for future students.

About 4 million borrowers could see their entire debts completely wiped out, adding to the 4 million that have already received some form of relief, according to the administration, from more than two dozen executive actions. 

These include people who have applied to existing debt forgiveness programs as well as those who qualify for SAVE, which was launched in August last year. It could also apply to those who began repaying their debts more than 20 years ago.

Borrowers who are having trouble repaying their debts because of medical debt or childcare costs could also receive relief.

Student debt could also be canceled for those who enrolled in "low-financial-value programs" like students whose institutions closed half-way through their tuition or those in institutions that were shut down for not providing sufficient value to students.

Invoking a George W. Bush law from 2003 called the Higher Education Relief Opportunities for Students (Heroes) Act, the Biden Administration tried to forgive $400 billion in student debt relief for over 40 million borrowers during the COVID-19 pandemic.

In June 2023, the conservative Supreme Court struck down those efforts.

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