How would you feel if you woke up one day and found out that your student loan debt was gone? For millions of Americans, this could become a reality if the Supreme Court approves President Biden’s ambitious student loan forgiveness plan. The plan could erase up to $20,000 of debt for millions of borrowers who meet certain criteria. But the plan is also facing a legal challenge from Republican plaintiffs who claim that Biden has exceeded his executive power. The court is expected to rule on the case by late June or early July. Meanwhile, a recent debt deal between Biden and congressional leaders has set a date for when student loan repayments will resume after a long pause due to the pandemic: 60 days after June 30. In this article, we will explain everything you need to know about these developments and how they affect you as a student loan borrower.
Biden’s Student Loan Forgiveness Plan
One of Biden’s campaign promises was to cancel some student loan debt for borrowers who meet certain criteria. His plan, which he announced in August 2020, would forgive up to $20,000 of debt for anyone who received a Pell Grant to attend college and up to $10,000 for borrowers earning less than $125,000 a year. According to the Biden administration, more than 40 million federal student loan borrowers would qualify for some level of debt cancellation, with roughly 20 million who would have their balance forgiven entirely.
The plan aims to provide relief to millions of borrowers who are struggling financially due to the pandemic and its aftermath, as well as to address the racial and economic disparities in student debt. The plan also hopes to stimulate the economy by freeing up more disposable income for consumers and reducing default rates. However, the plan also faces several challenges and criticisms. Some argue that the executive branch does not have the authority to cancel student debt so broadly without congressional approval. Others point out that the plan does not address the root causes of rising college costs and student debt, and may even incentivize more borrowing in the future. Some also question the fairness and effectiveness of the plan, as it would benefit some borrowers more than others.
The plan has been on hold since February 2021, when Republican plaintiffs sued the Biden administration over its legality. The case reached the Supreme Court, which heard oral arguments in February 2023. The court’s decision is expected by late June or early July.
The Supreme Court Case
The main question before the Supreme Court is whether Biden has exceeded his executive power by proposing such a sweeping student loan forgiveness plan without congressional approval. The plaintiffs argue that only Congress has the power to cancel student debt under Article I of the Constitution, which grants Congress the power “to borrow money on the credit of the United States” and “to make all laws which shall be necessary and proper” for carrying out its powers. They also claim that Biden’s plan violates the separation of powers principle, as it infringes on Congress’s legislative role and judicial review authority.
The defendants argue that Biden has acted within his executive authority under Section 432(a) of the Higher Education Act of 1965, which authorizes the Secretary of Education to “modify, compromise, waive, or release any right, title, claim, lien, or demand” with respect to student loans. They also contend that Biden’s plan is necessary and proper to address the national emergency caused by the pandemic and its economic impact, as well as to advance the public interest and welfare.
The possible outcomes of the case are:
- The court upholds Biden’s plan and allows it to proceed as proposed.
- The court strikes down Biden’s plan and blocks it from taking effect.
- The court partially upholds or partially strikes down Biden’s plan and modifies some of its features or eligibility criteria.
- The court remands the case to a lower court for further review or clarification.
The implications of the case are significant for both borrowers and the federal government. If the court upholds Biden’s plan, millions of borrowers could see their debt reduced or eliminated, which could improve their financial situation and credit scores. The federal government would also lose about $400 billion in revenue from student loan repayments, which could affect its budget and spending priorities. If the court strikes down Biden’s plan, millions of borrowers would have to resume paying their debt as usual, which could increase their financial stress and default risk. The federal government would also retain its revenue stream from student loan repayments, which could help reduce its deficit and debt.
Some experts and analysts have offered their opinions and predictions on the case. Some believe that the court is likely to rule in favor of Biden’s plan, citing the broad discretion that the Higher Education Act grants to the Secretary of Education and the deference that the court usually gives to the executive branch in times of crisis. Others think that the court is likely to rule against Biden’s plan, pointing to the conservative majority of the court and the constitutional limits on executive power. Some also suggest that the court may opt for a middle-ground solution, such as allowing some debt cancellation for certain groups of borrowers or requiring congressional approval for larger amounts of debt cancellation.
The Debt Deal and Repayment Pause
While the Supreme Court case is pending, another development has affected student loan borrowers: the debt deal between Biden and congressional leaders. The deal, which was reached on May 31, 2023, aims to avoid a historic government debt default by raising the nation’s debt ceiling for roughly two years. As part of a bipartisan compromise, the legislation includes a provision to restart student loan payments after a long pause due to the pandemic.
The pause on federal student loan payments and interest accrual began in March 2020 under former President Trump and was extended five times by both Trump and Biden. The pause was meant to protect borrowers who were facing financial hardship due to the pandemic and its economic fallout. The pause applied to most federal student loans, except for those held by private lenders or guaranty agencies. During the pause, borrowers did not have to make any payments on their loans, and their loans did not accrue any interest. The pause also counted toward forgiveness programs such as Public Service Loan Forgiveness and Income-Driven Repayment.
The debt deal spells out when repayments will resume: 60 days after June 30. If the legislation passes, that means all federal student loan borrowers will be expected to start making payments again after August 29. Their loans will also accrue interest then as well. And this time, it looks like it would really be the end: The debt deal prohibits the education secretary from extending the pause on federal student loan payments without congressional approval.
The end of the pause will affect some 43 million borrowers who collectively owe over $1.7 trillion in student loan debt. But in effect, the new rules won’t change much about the current loan landscape. Even before Biden and McCarthy reached a deal, the department was readying the return to repayment. Back in November 2020, the Biden administration said it was planning to end the pause at the end of August 2023 or at the latest 60 days after the Supreme Court rules on Biden’s broader student debt relief plan.
Student loan debt relief is a hot topic that affects millions of Americans and has major implications for both borrowers and taxpayers. President Biden’s student loan forgiveness plan, which could cancel up to $20,000 of debt for millions of borrowers, is currently under review by the Supreme Court, which is expected to rule on its legality and constitutionality by late June or early July. Meanwhile, a recent debt deal between Biden and congressional leaders has set a date for when student loan repayments will resume after a long pause due to the pandemic: 60 days after June 30. As a student loan borrower, you need to stay informed and take action on your debt situation.