US Supreme Court Strikes Down President Biden’s Student Loan Forgiveness Plan

The U.S. Supreme Court, in a decision announced on June 30, 2023, rejected the Biden administration’s student loan forgiveness plan, siding with the six states that initiated the lawsuits.  The program would have provided up to $20,000 in federal student loan relief to millions of eligible borrowers.

Chief Justice John Roberts wrote the 6-3 decision for the conservative majority of the Supreme Court. The Court found that the Biden Administration’s Secretary of the Department of Education exceeded his authority allowed using executive orders, specifically the powers granted under the HEROES Act of 2003. Roberts asserted that Congress has authority and may opt to make debt forgiveness only in particular and more narrow circumstances.  Justice Amy Barrett voted with the majority but provided a concurring opinion, adding a different reasoning.  Justice Elena Kagan wrote the dissent, with Justices Sonia Sotomayor and Ketanji Jackson.

Background of the US Supreme Court Case

The decision concerns the $1.6 trillion in outstanding federal student loans extended to 43 million borrowers or roughly one in eight Americans. President Biden’s Secretary of Education established a complete student loan forgiveness relying on the Higher Education Relief Opportunities Act of 2003 or the HEROES Act. By doing so, his plan canceled $430 billion of student loan balances, eliminating the debt of 20 million borrowers and reducing the median amount owed by the remaining 23 million from $29,400 to $13,600.
Borrowers who had adjusted gross income below $125,000 for individuals ($250,000 for married couples) in either 2020 or 2021  were eligible for the Department of Education program that would discharge the balance of those federal loans up to $10,000 per borrower, or if they received Pell Grants, they would qualify for up to $20,000.
Eligibility for the one-time student loan forgiveness plan was associated with three types of federal loans, including Federal Direct Loans made directly to students. These are the bulk of the Federal Government’s student lending efforts.

Implications For Student Borrowers

This decision is not entirely a surprise given the conservation majority of the US Supreme Court. While the decision removes the uncertainty regarding federal loan forgiveness, this is a significant setback for those students who had hoped for debt reduction or elimination. Since March 2020, the start of the pandemic-induced pause in repayments has provided considerable relief, but it is unclear how ready students are to resume loan payments.
After a substantial pause in loan repayments in March 2020 due to the COVID pandemic, students with federal loan balances will begin accruing interest on September 1, 2023, and restart payments this October. The decision impacts students with potentially higher default rates. The economy is already dealing with higher interest rates that some believe will throw us into a recession. According to Jeffries, the investment firm, resuming student payments will cost consumers $18 billion monthly.
Students may opt to delay repayments through the Extended Repayment Plan, which allows students to repay their loans for up to 25 years. While this will lower their monthly bill, they will add significant interest costs. President Biden is expected to announce new actions to protect student loan borrowers. However, he may be blocked by the debt ceiling from initiating another pause.

This article was produced and syndicated by The Cents of Money.

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