The Supreme Court struck down Biden’s plan to cancel or reduce federal student loan debt for millions of Americans.
The student loan forgiveness program would have eliminated $10,000 in debt for people making less than $125,000 and households earning less than $250,000. Pell Grant recipients would have had an additional $10,000 in relief.
The administration said 43 million borrowers would have been eligible for relief and 26 million people had already applied. The cost was estimated at $400 billion over 30 years.
In a 6-3 decision, with conservative justices in the majority, the Supreme Court decided the Biden administration overstepped its authority with the plan.
They “had no problem with billions in pandemic-related loans to businesses. ... And those loans were forgiven,” Biden said. “But when it came to providing relief to millions of hard-working Americans, they did everything in their power to stop it.”
---> More: Biden offers new student debt relief plan, lashes out at GOP after Supreme Court ruling
Is student loan debt relief still possible?
The Biden administration is still pursuing student loan debt forgiveness.
The Biden administration is taking an “alternative path” to student loan debt relief through the Higher Education Act.
The Higher Education Act has already been used to cancel student debt, but never at this scale.
A provision in the act allows the education secretary to “compromise, waive or release” student loans. That basis was used to forgive $6 billion in loans for borrowers who were deceived by their colleges.
Exactly who would be eligible for debt relief and how much would be canceled will be decided through a federal rule-making process. That process could take months, or even longer.
A virtual public hearing will be held from 10 a.m. to noon and 1 p.m. to 4 p.m. on July 18. More information is available on the U.S. Department of Education’s website. The department will accept written comments through July 18.
Negotiated rulemaking sessions will begin in the fall. The department aims to complete the rulemaking as quickly as possible.
When will student loan payments resume?
Interest has not been accruing and payments have not been required on federal student loan debt for more than three years.
Student loan interest will resume starting on Sept. 1, 2023. Payments will be due starting in October.
What if you can’t afford to pay?
Student loan borrowers will be protected from the harshest consequences of late, missed, or partial payments for up to 12 months through a temporary “on-ramp.”
Payments will be due and interest will accrue, but interest will not capitalize at the end of the on-ramp period. Borrowers will not be reported to credit bureaus, be considered in default, or be referred to collection agencies for late, missed, or partial payments during the on-ramp period.
Future monthly bills for borrowers not enrolled in an income-driven repayment plan will be automatically adjusted to reflect the accrued interest during those months. The department said people who can pay, should, but people who cannot make payments right away can use that time to adjust.
Borrowers do not need to take any action to qualify for this on-ramp. The on-ramp period will last from Oct. 1, 2023, to Sept. 30, 2024.
New “SAVE” repayment plan
The Department of Education finalized a new repayment plan and it will be available before loan payments are due.
The plan is called the Saving on a Valuable Education (SAVE) plan. It is an income-driven repayment plan that will cut borrowers’ monthly payments in half, help the typical borrower save more than $1,000 per year on payments, allow many borrowers to make $0 monthly payments, and ensure borrowers don’t see their balances grow from unpaid interest.
Here’s what the department wants you to know about the SAVE plan:
- For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.
- Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level -- about the annual equivalent of a $15 minimum wage for a single borrower -- will have to make a monthly payment under this plan.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.
- Not charge borrowers with unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments -- even when that monthly payment is $0 because their income is low.
Borrowers will be able to enroll in the SAVE plan later this summer. Borrowers who sign up or are already signed up for the current Revised Pay as You Earn (REPAYE) plan will automatically be enrolled in SAVE once the new plan is implemented.
Statement from US Secretary of Education Miguel Cardona
On Friday, U.S. Secretary of Education Miguel Cardona issued the following statement on the Supreme Court’s ruling on the Biden Administration’s one-time student debt relief plan:
“Today, the Supreme Court ruled against students and families across the country. It’s an outrage that lawsuits brought on by Republican elected officials have blocked critical student debt relief that would have been a lifeline for more than 40 million Americans—nearly 90 percent of whom make less than $75,000 a year.
“President Biden, Vice President Harris, and I will never stop fighting for borrowers, which is why we are using every tool available to provide them with needed relief. Earlier today, the Department of Education initiated a regulatory process to provide debt relief, so we can help the working- and middle-class borrowers who need it most.
“Additionally, today the Department finalized our new income driven repayment plan, Saving on A Valuable Education (SAVE), which will be the most affordable repayment plan in history. It will cut monthly payments to zero dollars for millions of low-income borrowers, save all other borrowers at least $1,000 per year, and stop runaway interest that leaves borrowers owing more than their initial loan.
“Finally, the Department is providing a 12-month on-ramp transition period that will help ensure borrowers smoothly and successfully return to repayment without falling into delinquency or default. Borrowers who can make payments should do so as payments will resume and interest will accrue, but the on-ramp to repayment will help borrowers avoid the harshest consequences of missed, partial, or late payments like negative credit reports and having loans referred to collection agencies.
“In addition to today’s actions, our Administration will continue the critical work we have pursued under President Biden’s leadership to make college more affordable to more Americans and make long-overdue improvements to the student loan system. President Biden, Vice President Harris, and I remain fully committed to ensuring students can earn a postsecondary education, and build fulfilling careers without the burden of student loan debt blocking them from opportunity.”