The possibility of attaining student loan forgiveness via a government program — namely, President Biden’s student loan forgiveness program — has been dealt a fatal blow by the Supreme Court’s decision in Biden v. Nebraska on June 30, 2023. There were always obstacles to a student loan forgiveness plan being issued from the executive branch of government — the White House administration — rather than approved via legislation in Congress. In the Supreme Court case, the decision was 6-3, with Chief Justice John Roberts writing for the conservative majority.
In this BrokeScholar article here, we will break down what the Supreme Court’s ruling means for those seeking student loan forgiveness and where things go from here.
Background on Presidential Student Loan Forgiveness and Court Decision
In August 2022, President Biden had announced a student loan forgiveness program that aimed to alleviate millions of borrowers, up to $20,000, of their student loan debt. Although announced nearly a year ago, Biden’s student loan forgiveness program almost immediately ran into issues and never took real effect, despite millions of Americans applying for debt relief under this proposed program.
The White House’s strategy for getting its student loan forgiveness program implemented was to harness the authority of the Congressionally-passed HEROES Act to waive student loan debt. Unfortunately, this strategy was rejected by the Supreme Court in their 6-3 decision: “The Secretary’s comprehensive debt cancellation plan cannot fairly be called a waiver – it not only nullifies existing provisions, but augments and expands them dramatically,” Roberts wrote. “However broad the meaning of ‘waive or modify,’ that language cannot authorize the kind of exhaustive rewriting of the statute that has taken place here.”
Basically, the Biden student loan forgiveness program was a gamble from the start since it relied on a debatable interpretation of what could be “waived” according to the HEROES Act. From the outset Republican-dominated states and conservatives challenged Biden’s student loan forgiveness program, seeing it as essentially a “bailout” and an unlawful attempt to eliminate roughly $430 billion of federal student loan debt. The Supreme Court essentially agreed with this view, with Chief Justice Roberts stating that the federal government needed direct authorization from Congress, aka a new piece of legislation rather than trying to fit the program into the HEROES Act.
Additional Student Loan Forgiveness Issues
With the Supreme Court’s decision in Biden v. Nebraska, the millions of student loan borrowers who hoped for some form of relief via the presidential student loan forgiveness program are now adrift. Indeed, up until a lower court in Texas proclaimed a nationwide injunction of the program in November 2022, the White House claimed it received 26 million applications, with 16 million of those applications being approved for relief. The Biden student loan forgiveness plan was designed to assist borrowers earning less than $125,000 per year — $250,000 for households — in 2020 or 2021. Overall, the presidential student loan forgiveness program was intended as composing part of America’s response to the pandemic. With the economic tumult generated by the Covid-19 pandemic, the Biden administration had argued its student loan forgiveness plan was necessary to avert a disastrous wave of student loan defaults and delinquencies for those impacted by the pandemic.
Now, with the presidential student loan forgiveness plan dead in the water, millions of borrowers who applied, and maybe even got approved, for relief will get nothing. Still worse, the emergency pause of monthly student loan repayment obligations will end starting in October 2023, which could prove to have dire consequences for many borrowers. Additional temporary benefits, like the student loan interest freeze, will also come to an end.
As a result of the Supreme Court's ruling and the convergence of many pandemic-based relief measures for borrowers coming to an end soon, Biden announced that his administration is going to pursue another pathway to providing some form of student debt relief. This “other pathway” necessitates the Department of Education to undertake an official rule-making process, a process which usually takes several months. What’s more, the Biden administration announced it will implement steps to make the transition period for borrowers easier to handle as student loan repayments start up again in October 2023. Hopefully, these measures to smooth out the transition experience will allow borrowers to avoid negative impacts to their finances.
It is very worrying how long monthly student loan repayments were paused and the degree to which borrowers got used to this new “norm.” That new “norm” began in March 2020, when Congress passed several emergency measures to mollify the pandemic’s economic impact, one of which was the pause on federal student loan monthly payments. This pause was then extended 8 times, both under the Trump administration and the Biden administration. However, as part of the deal on the debt ceiling reached in June 2023, there’s now a prohibition on extending the federal student loan repayment pause any longer.
With anymore extensions blocked, the Biden administration is working with the Department of Education to create an “on-ramp” program of 12 months, during which borrowers will not be reported to credit bureaus, be classified as in default, or sent to collections for late, missed, or partial payments. Whether you qualify for this “on-ramp” program or not, the basic fact is that monthly federal student loan payments will resume in October 2023 — and there’s a good chance a lot of Americans will see their financial situation seriously disrupted.
Your Student Loan Debt Relief Options
As federal student loan monthly payments are set to resume in October 2023, borrowers will need to navigate repayment options carefully to avoid financial stress. The first strategy for borrowers to consider is enrolling in an income-driven repayment plan. This type of plan will calculate monthly payments based on income and family size, often leading to significantly lower payments and potential loan forgiveness after a set period. However, it's crucial to remember that lower payments can mean more interest over time, so it is essential to evaluate this option against your long-term financial goals.
Another strategy to consider is student loan refinancing, especially for borrowers with high-interest rates or multiple student loans. By refinancing, borrowers might be able to secure a lower interest rate, which could significantly decrease the total amount paid over the life of the loan. However, refinancing a federal loan with a private lender means losing federal benefits, such as income-driven repayment options, loan forgiveness programs, and protections like deferment and forbearance. Therefore, refinancing is a step that should be taken after careful consideration and potentially after consulting with a financial advisor.
For borrowers working in the public sector, pursuing Public Service Loan Forgiveness (PSLF) could be a significant relief. The PSLF program forgives the remaining balance on Direct Loans after the borrower has made 120 qualifying payments while working full-time for a qualifying employer, typically a government or non-profit organization. If you are already working in the public sector or considering a career move, it may be beneficial to look into the requirements for this program.
Further, the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) offers more flexibility than the traditional PSLF program by accepting payments made on an expanded list of repayment plans. If borrowers were denied PSLF because some or all of their payments were not made under a qualifying repayment plan for PSLF, they could be eligible for forgiveness under TEPSLF. This offers a pathway to debt relief for borrowers who were on the wrong repayment plan but otherwise met the requirements for PSLF.
Lastly, it is essential to stay informed about any changes in federal policies and to take advantage of any student loan relief measures provided by the government. The federal government has been known to change regulations, especially during crises. Stay updated with the news and consider seeking advice from a financial advisor or student loan debt counselor. Remember, it's also crucial to continue making payments on your loans once they resume, even if it's a financial struggle. Defaulting on a student loan can have severe and long-lasting financial consequences, so consider reaching out to your loan servicer if you're having trouble making payments. They may be able to provide temporary relief or help you explore different repayment options.
The Bottom Line on the Failure of Biden Student Loan Forgiveness Program
With the Supreme Court’s decision in Biden v. Nebraska, which has effectively gutted the Biden student loan forgiveness program, borrowers will have to look elsewhere for debt relief. As mentioned above, there are several existing student loan debt relief programs, with a few of them having their scope broadened to allow for more borrowers to qualify. Of course, all of the government’s measures aimed at relieving borrowers of their student loan debt were and are limited to federal student loans — private student loans fall outside the power of the federal government.
In the end, the Biden student loan forgiveness program was ensnared from the get-go with issues. As a program launched by the White House without explicit Congressional approval, the student loan forgiveness program came under immediate fire as an overstepping of power by the executive branch of the US government. And this is essentially what the Supreme Court’s majority in Biden v. Nebraska concluded.
While the Biden administration’s grand student loan forgiveness plan is dead, there are several options that borrowers can pursue to help with the resumption of monthly loan repayments. You can even apply for grants to pay off student loan debt, in addition to the options we already mentioned above. However, the bigger concern here is what the effects of resumption of student loan repayments will be on borrowers who’ve gotten so used to the pause on monthly payments since March 2020.
