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The Student Debt Crisis

Memorandum

To: Michael Brooks

From: (My Name)

Date: May 4, 2023

RE: Student Debt Crisis

Introduction

The following is my assessment of the legal and ethical concerns made by CFO Ryan

Reed in relation to the Student Debt Crisis, as per your request. The proposed income-based

repayment plan limits monthly payments for undergraduate loan borrowers to no more than five

percent of their after-tax income. A larger share of a borrower's earnings would be disregarded in

the plan's repayment calculations if the definition of non-discretionary income was broadened.

And now, after only 10 years of payments instead of the previous 20 years, debtors with debts of

$12,000 or less will have their debts completely erased. The idea will also take care of the

borrower's overdue monthly interest.

PART 1

Issue 1: Is Biden's plan to relieve federal debt legal?

Rule: In line with the Higher Education Act and any other applicable laws, the President of the

United States possesses a constitutional right to propose and put into effect policies that relate to
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the reduction or cancellation of federal student loans (Jiménez et al. 131). These policies must be

in compliance with all applicable laws. In addition, the Higher Education assistance

Opportunities for Students Act, which was signed into law on December 27, 2020, has additional

provisions that are intended to provide assistance to those who are currently making payments on

student loans.

Analysis: The legislation now in place lends legal legitimacy to President Biden's intention to

grant student loan relief. He has the power to enact policies that offer federal student loan debtors

help, such as forgiving debt or modifying repayment terms. Higher Education Relief

Opportunities for Students Act allows for the implementation of further measures, such as the

postponement of payments and the cancellation of interest on federally held student loans until

September 30, 2021 (McKay et al.). The idea put out by Biden expands on these already legal

protections and has the potential to reduce the burden of repaying federal student loans for more

people.

Conclusion: Given that Biden has the power to draft and carry out policies involving federal

student loan relief, and that such policies are backed by current legislation, it may be inferred

that Biden's plan to alleviate federal debt is legal.

Issue 2: Does the Biden-Harris Administration have legal authority under the Higher

Education Relief Opportunities for Students Act (HEROES Act) to provide relief for

student loan borrowers?

Rule: Administrative forbearance, interest rate reductions, and debt forgiveness are some of the

options made available to borrowers by the HEROES Act, which was approved in March 2020

and gives the Secretary of Education extensive discretion to waive or amend statutory or

regulatory rules regulating federal student loans.

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Analysis: One of the ideas that have been floated by the Biden-Harris Administration to assist

students is to cancel up to fifty thousand dollars' worth of federal student loans for each

individual borrower (Geiman). It is also mentioned that there are others who believe the

HEROES Act gives the Administration the ability to do this. In order to encourage students to

pursue higher education, the HEROES Act gives the Secretary of Education extensive discretion

over federal student loan conditions. Forgiveness of debts and other sorts of assistance for

debtors would fall under this category. It's possible that critics of the Administration's plans may

point out that the HEROES Act doesn't explicitly provide for the forgiveness of student loan

debt.

Conclusion: The findings suggest that the Biden-Harris Administration has the potential

constitutional power under the HEROES Act to offer relief for student loan debtors, including

the cancellation of federal student loan debt. This authority, however, may be challenged in

court, and a solution may be required either through legislative action or litigation.

Issue 3: Is the proposed income-driven repayment plan under the Biden-Harris

Administration constitutional?

Rule: The Constitution of the United States gives Congress the authority to create bankruptcy

rules and borrow money on the nation's behalf. The constitutional principles listed above must be

upheld by any new strategy for student debt repayment offered by the Biden-Harris

Administration.

Analysis: Individuals with undergraduate loans would be required to pay a maximum of 5% of

their discretionary income per month under the proposed income-based repayment proposal

(Brown-Moseley et al. 9). In addition, the plan would broaden the definition of non-discretionary

income in order to eliminate a higher part of a borrower's wages from payback calculations. In
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addition, loan balances for borrowers with debts of less than $12,000 would be forgiven after

only ten years of payments, as opposed to the prior requirement of twenty years of payments.

The idea would also pay the borrower's unpaid monthly interest. The idea aims to drastically cut

future monthly payments for low and moderate-income borrowers. Some argue, however, that

the proposed plan exceeds the executive branch's authorized authority and interferes with

Congress's authority to enact borrowing and bankruptcy laws.

Conclusion: The sections of the United States Constitution pertaining to the rights of Congress

to borrow money and establish bankruptcy laws need to be consulted in order to determine

whether or not the income-driven repayment plan that has been presented complies with the

constitution or not.

Issue 4: What is the potential impact of forgiving student loan balances after 10 years of

payments for borrowers with loan balances of $12,000 or less?

Rule: Forgiveness of student loan debt may have an influence on the economy, the government

budget, and individual borrowers' financial status.

Analysis: For borrowers with loan amounts of $12,000 or less, the proposed income-driven

repayment plan would cancel loan balances after 10 years of payments rather than 20 years

(Jackson). While this may provide relief to borrowers who are having difficulty making

payments, it may also have a significant impact on the economy and the federal budget. Student

debt forgiveness may limit the amount of money available for other government initiatives, as

well as having an effect on credit markets and the wider economy (Mbah 376.). Student loan

forgiveness may also generate a moral hazard, in which debtors are motivated to incur additional

debt in the future, knowing that the debt may be forgiven.

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Conclusion: It is important to evaluate the forgiveness of student loan amounts after 10 years of

payments for borrowers who owe $12,000 or less. This evaluation should take into consideration

a number of aspects, including the overall status of the economy, the financial limits of the

government, and the actions of individual borrowers.

There are a number of legal considerations CFO Ryan Reed should be aware of while

evaluating the legitimacy of Biden's plan to reduce Federal debt. To begin, the question of

constitutionality is a serious one that merits careful examination. Constitutional problems arise

when considering whether or not Congress has the authority to forgive debts while having the

capacity to borrow money on the credit of the United States. Therefore, to further analyze

whether or if the Higher Education Relief Opportunities for Students Act allows the Biden-Harris

Administration the legal competence to grant relief to Federal student loan borrowers, one needs

to turn their attention to the question of legislative authority (Mott 44.). The scope of the Act's

power can be deduced from a careful reading of its text. Third, there's the issue of whether or not

the President may discharge past-due Federal student loan balances without the consent of

Congress. Since spending money is typically considered a legislative function, this raises serious

constitutional and separation of powers concerns. Lastly, the topic of justice and equity must be

taken into account, since helping some groups of student loan borrowers may be viewed as unfair

or unequal by other groups who have not been helped.

Without doing a thorough legal study of each topic, it is difficult to predict with certainty

whose arguments are likely to hold up in court. However, constitutionality concerns are likely to

receive the most scrutiny from the judicial system. It is likely that the courts will declare that the

proposal proposed by the Biden-Harris Administration to forgive existing federal student loan

debt is contrary to the Constitution. It is possible that the issue of executive authority will also be
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reviewed due to the significant problems that it poses with the separation of powers. The courts

would have to balance the competing values of justice and equality with the limitations imposed

by the law and the constitution.

PART 2

Issue 1: Can a publicly-traded firm offer its own version of the Student Debt Relief Plan as

an employee benefit and structure it in a tax-free way under the Consolidated

Appropriations Act, and would it be justifiable under a traditional profit-maximization

framework?

Rule: When it comes to employee perks and tax breaks, a publicly listed company must follow

all applicable rules and regulations. According to the Consolidated Appropriations Act,

employers have the option to grant tax-free payback benefits for student loans of up to $5,250

per year until 2025 (Feuer). This provision is in effect until 2025. However, businesses are not

required to provide this perk to their employees in any way. Companies have a responsibility to

their shareholders to maximize profits, and this must be taken into account when deciding how

much to invest in employee perks.

Application: Under the Consolidated Appropriations Act, a firm can provide its own Student

Debt Relief Plan as a tax-free employee benefit (Kess et al. 9). However, the cost of the perk

needs to make sense within a standard profit-maximization model. In a competitive job market,

where qualified individuals may have their pick of companies, this perk might provide the

company an edge in the recruitment process. Consolidated Appropriations Act tax breaks might

boost the investment's return and make it more appealing to shareholders.

Conclusion: If it makes sense from a purely profit-maximizing perspective, the company can

provide its own version of the Student Debt Relief Plan as a tax-free employee benefit in
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accordance with the Consolidated Appropriations Act. The perk might provide the company an

edge in the market when trying to hire new people, and the tax breaks could make the investment

more alluring to shareholders. The firm's commitment to maximize profits for its shareholders

must be weighed against the expenses of providing the benefit.

Issue 2: Can this employee benefit be structured in a tax-free way under the Consolidated

Appropriations Act signed into law as part of the pandemic relief efforts?

Rule: As part of the pandemic relief efforts, the Consolidated Appropriations Act was put into

law, allowing companies to contribute a tax-free incentive to employees toward the repayment of

student debts.

Application: The correct implementation of this criterion is crucial for the firm to guarantee that

its student debt reduction plan is exempt from taxation. Payments must be made directly to the

lender, the total amount of payments must be capped, and the funds must be used only for the

repayment of the employee's student loans, all as required by the Consolidated Appropriations

Act, which the firm must guarantee it complies with.

Conclusion: The benefit can be set up in a tax-free fashion if the company's student debt relief

plan satisfies the criteria set out by the Consolidated Appropriations Act. The investment's return

on investment (ROI) and appeal to shareholders would both improve as a result of this change. A

less attractive investment and potential tax repercussions for the corporation might result from a

strategy that does not comply with the Act. CFO Reed has to check that the student debt relief

plan is legal under the Consolidated Appropriations Act to guarantee the firm and its

shareholders get the most out of their investment and pay the least amount of tax possible.
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Issue 3: What business ethics and legal considerations should CFO Reed take into account

when considering the implementation of a student debt relief plan for the firm's

employees?

Rule: The company must review its choice to execute a student debt relief plan in light of

applicable nondiscrimination rules and other relevant stakeholders or values. The plan's probable

reception in the media should be considered.

Analysis: CFO Reed is responsible for making sure the company's student loan forgiveness

program complies with all applicable laws and regulations and does not discriminate against any

group of people. This involves making sure that all qualified employees, regardless of protected

characteristics like race or gender, have access to the plan (Felix et al.). The strategy should also

be assessed in light of the firm's values, mission, and social responsibility, among other

important stakeholders or principles. The company should think about how the proposal would

affect its standing with consumers, investors, and the public at large.

Conclusion: The company has to consider how the strategy will be covered in the media. The

media may portray the idea as a perk for high-earning white workers rather than as a means to

address systemic problems like income inequality. The company should think about how the

strategy would be received and take all necessary measures to mitigate any negative effects.

Therefore, CFO Reed should think about the legal and ethical ramifications of the company's

student debt relief plan and take the necessary steps to make sure it is nondiscriminatory,

consistent with the company's values and goal, and well received by all interested parties and the

media. The corporation may incur additional legal duties and risks if it provides a perk to help

employees with their student loan debt. CFO Ryan Reed needs to take a close look at the

company's contractual duties to employees, as well as its legal obligations and potential liabilities
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under applicable employment laws and regulations. He must also check that the benefit is

provided without discrimination and that the corporation has established processes to deal with

any lawsuits that may result from offering the perk.

Part 3

The goal of this section is to simplify the student loan process for existing and

prospective borrowers. With this guide, one can learn more about the plan and how it may help

them better handle their student loan debt. Although the United States Department of Education

has in the past offered income-based repayment options for student loans, the Biden-Harris

Administration has proposed a new income-driven repayment plan that would significantly

reduce monthly payments for borrowers with low to moderate incomes. This plan has been

proposed in order to encourage more people to pursue higher education. When assessing the

overall effect of the Student Loan Debt Relief Plan, this proposed rule should be considered

because of its potential to reduce the financial strain of student loans for many people. We can

better understand the Plan and the potential benefits the proposed regulation might have for

current and future borrowers if we include Part 3 in our discussion.

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Works Cited

Brown-Moseley, Veronica D., Robert M. Lawless, and Stacey Wells Salters. "Biden's Student

Loan Debt-Relief Plan Will the Gears Stay in Motion Toward Implementation, or Grind

to a Halt by Litigation?." American Bankruptcy Institute Journal 41.10 (2022): 8-9.

Felix, Eric R., S. M. Jones, and D. Gándara. "All Students Matter”: The place of race in

discourse on student debt in a Federal higher education policymaking process." 47th

Annual Conference of the Association for the Study of Higher Education. 2022.

Feuer, Albert. "How the CARES Act Takes Care of an Individual's Savings and Retirement

Benefits." (2020). [Link]

Geiman, J. "Disproportionately Impacted: Closing the Racial Wealth Gap through Student Loan

Cancellation, Payment Reforms, and Investment in College Affordability." Center for

Law and Social Policy, Inc.(CLASP) (2022).

Jackson, Victoria, and Jalil B. Mustaffa. "FAIL BLACK BORROWERS." (2022).

[Link]

[Link]

Jiménez, Dalié, and Jonathan D. Glater. "Student debt is a civil rights issue: The case for debt

relief and higher education reform." Harv. CR-CLL Rev. 55 (2020): 131.

Kess, Sidney, Joseph Buble, and James Grimaldi. "Tax Changes for Businesses in the

Consolidated Appropriations Act of 2021." The CPA Journal 91.2/3 (2021): 9-10.

[Link]

origsite=gscholar&cbl=41798
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Mbah, Ruth Endam. "A possibility or just a wish? Assessing current perceptions on the potentials

of a full student loan debt forgiveness legislation." Advances in Social Sciences Research

Journal 8.10 (2021): 365-392. [Link]

McKay, Katherine Lucas, and Diana Kingsbury. "Student loan cancellation: Assessing strategies

to boost financial security and economic growth." The Aspen Institute EPIC (2019).

Mott, Michelle. "The Biden Administration's Ambitious Higher Ed Agenda." College and

University 97.4 (2022): 41-48.

[Link]

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