Author: Judith

The bailout plan is complete, but the government can’t be held responsible for any increase in student debt

The bailout plan is complete, but the government can't be held responsible for any increase in student debt

Biden’s latest gaffe on student loan bailout plan may come back to haunt him?

A federal judge ruled that the government can be held liable for any increase in student loan debt due to this bailout plan. The ruling could have implications for Barack Obama and Hillary Clinton, who have both spoken of making college more affordable for all students.

Here’s a quick and slightly edited reminder of how this plan works: The $350 billion is an investment in student loans held by the Treasury, to be paid back with interest and provided to the holders of subsidized student loans. The loans are guaranteed by the federal government, which must pay them back with taxes. Congress has decided that the bailout plan must not be reversed. The Obama administration argues it cannot be reversed because if it were, the government would be making a promise to the holders of student loans that it could not keep.

Judge Andrew Hanen, who is presiding over the case filed by former student Jonathan Gruber, ruled that the government cannot be held liable for the increase in the debt. The government argued that it should be held responsible because under an earlier version of the plan it could have been forced to pay back some of the student loans it guaranteed. But Hanen disagreed, saying only Congress can decide when and if to pay back the full amount of the loans.

If Congress agrees, then the plan is complete. If not, it is a piecemeal deal, a second option to deal with the crisis under the current debt ceiling law that will expire in early March. If Congress decides to pay back only a portion of the loans, that will allow the government, at a higher interest rate, to negotiate with the holders of most of the loans who will be paid back only in the amounts they have been paid.

The Treasury’s investment would be limited to one year of the $350 billion set aside for students. The plan would have been used to pay off the loans by the end of 2012, but that was extended until 2014.

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