On June 30, 2023, the Supreme Court invalidated President Joe Biden’s proposed student loan forgiveness program, effectively denying millions of borrowers the chance to receive up to $20,000 in federal student debt relief. This ruling comes just months before the resumption of student loan payments following a lengthy pause.
Biden had initially announced the student loan forgiveness program in August of the previous year, but its implementation was thwarted by prolonged legal battles.
In response to the Court’s decision, the president declared that his administration would explore alternative avenues to provide some form of student debt relief, leveraging a different legal framework than the now-defunct forgiveness program.
However, this alternative approach involves the Department of Education engaging in a formal rule-making process, which typically spans several months. The specifics of who would be eligible for relief under this pathway were not disclosed at the time of the announcement.
Additionally, Biden unveiled plans to ease the transition period for borrowers as they resume monthly student loan repayments in October. This transitional phase, known as the “on-ramp” period, aims to assist borrowers in avoiding penalties should they miss a payment within the first 12 months.
Despite the setback to the one-time forgiveness program, borrowers still have avenues to seek debt relief. The Biden administration has implemented new rules, effective from July onwards, that broaden eligibility for existing debt cancellation programs such as the Public Service Loan Forgiveness program. Moreover, a finalized proposal for an income-driven repayment plan seeks to lower monthly payments and reduce the overall repayment burden for eligible borrowers, with its implementation scheduled for the summer prior to the resumption of loan payments.
The Department of Education has also simplified the application process for borrowers who were deceived by for-profit colleges, offering them a route to seek loan forgiveness under the borrower defense to repayment program. Additionally, provisions have been made for those who are permanently disabled.
In total, the Biden administration has approved approximately $66 billion in targeted loan relief, benefiting nearly 2.2 million borrowers.
Notwithstanding the Supreme Court’s ruling, the Biden administration has affirmed that student loan payments will recommence in the near future, beginning in October. Since March 2020, most federal student loan borrowers have been exempt from making payments due to the comprehensive aid program enacted by Congress to mitigate the financial hardships caused by the COVID-19 pandemic.
The pause on loan payments has been extended eight times, spanning both the Trump and Biden administrations. However, a recent law addressing the debt ceiling precludes any further extension of the pause.
To facilitate a smoother transition, the administration has introduced a 12-month on-ramp period for borrowers reentering the repayment phase. Education Secretary Miguel Cardona emphasized the importance of borrowers resuming payments, as interest will accrue during this period. However, the on-ramp provides safeguards against severe consequences for missed, partial, or late payments, including negative credit reports and loan referrals to collection agencies. Borrowers will not be reported to credit bureaus, considered in default, or referred to collection agencies for the specified period, according to a fact sheet released by the White House.
Given the prolonged pause, experts advise borrowers to promptly contact their student loan servicers for clarification on outstanding loans, payment amounts, and procedures. Numerous borrowers may find themselves assigned to different servicers since their last payment.
If affordability becomes a concern, borrowers are encouraged to reach out to their servicers to explore options such as income-driven repayment plans, which determine payments based on income and family size, albeit requiring additional paperwork.
For updates on the resumption of payments, federal student loan borrowers can refer to the FSA website.
It’s worth noting that borrowers will need to reauthorize automatic debits from their accounts to facilitate monthly loan bill payments, even if they had previously authorized such withdrawals before the pause.
The National Association of Student Financial Aid Administrators advises borrowers to exercise patience when contacting their loan servicers, as the high volume of inquiries may cause delays in response times.
Regarding the student loan forgiveness program, despite the millions of applications received by the Biden administration and the approval of 16 million applications, no debt had been canceled. The proposed program, estimated to cost $400 billion, aimed to fulfill one of Biden’s campaign promises of partial student loan debt cancellation. However, a coalition of Republican-led states and conservative groups challenged the program in court, asserting that the executive branch lacked the authority to broadly cancel student debt in the proposed manner.
Critics argue that the one-time forgiveness program fails to address the underlying issue of college affordability for future students and may potentially contribute to rising tuition costs. Some Democrats joined Republicans in voting for a bill to block the program, which passed both the Senate and the House but was subsequently vetoed by President Biden in early June.
Under Biden’s student loan forgiveness proposal, individual borrowers earning less than $125,000 in either 2020 or 2021, as well as married couples or heads of households earning less than $250,000 per year, would have been eligible for up to $10,000 in federal student loan debt forgiveness. Furthermore, borrowers who qualified for a federal Pell grant during their college enrollment would have been eligible for up to $20,000 in debt forgiveness. Pell grants are awarded to low-income students based on factors such as family size, income, and college costs. These borrowers often face challenges in repaying their student debt and are more likely to default.
The administration estimated that approximately 20 million borrowers would have seen their entire federal student loan balance erased through the forgiveness program.
An independent analysis conducted by the Penn Wharton Budget Model revealed that roughly two-thirds of the student debt cancellation would have benefited households earning $88,000 per year or less.
