Potential Supreme Court Decision on Biden’s Student Loan Forgiveness Program: Key Information for Borrowers
The fate of President Joe Biden’s student loan forgiveness program, which could provide borrowers with up to $20,000 in debt relief, hangs in the balance as the Supreme Court prepares to make a ruling in late June or early July.
Since its announcement in August last year, the program has faced legal challenges, resulting in a temporary suspension. Despite the approval of 16 million relief-eligible applications by the government last year, no student loan debt has been canceled thus far.
Republican-led states and conservative groups have taken the Biden administration to court, arguing that the executive branch lacks the authority to implement such a broad cancellation of student debt. Critics also highlight that the one-time forgiveness program fails to address the underlying issue of rising college costs and may even contribute to increased tuition fees. Some Democrats have joined Republicans in voting for a bill to block the program, but Biden vetoed it in early June.
The forgiveness program, estimated to cost around $400 billion, would fulfill Biden’s campaign promise to alleviate some student loan debt, benefiting progressives and improving the financial standing of certain borrowers when the payment pause and interest accrual moratorium expire later this year.
Eligibility for student loan forgiveness would depend on several factors. The Biden administration estimates that over 40 million federal student loan borrowers would qualify for some level of debt cancellation, with approximately 20 million potentially having their entire balance forgiven if the program is upheld. However, not all federally held student loans would be eligible.
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, may qualify for up to $10,000 in federal student loan debt forgiveness. Additionally, if a qualifying borrower received a federal Pell Grant while in college, they could be eligible for up to $20,000 of debt forgiveness. Pell grants are typically awarded to low-income students based on various factors, including family size, income, and college expenses. Such borrowers are more likely to face difficulties repaying their loans and may end up in default.
Different types of federal student loans, including subsidized loans, unsubsidized loans, parent PLUS loans, and graduate PLUS loans, would be eligible for the program, even those in default. However, federal student loans guaranteed by the government but held by private lenders would not qualify unless the borrower applied to consolidate them into a Direct Loan by September 29, 2022.
An analysis by the Penn Wharton Budget Model suggests that around two-thirds of the student, debt cancellation would benefit households earning $88,000 a year or less.
If Biden’s program receives approval, some borrowers would automatically receive debt relief without needing to take any action. An estimated 8 million people would qualify for automatic debt relief as the Department of Education already possesses their income information, likely from financial aid forms or previously submitted income-driven repayment plan applications. Moreover, the Department of Education has retained the 26 million applications it received last fall, eliminating the need for reapplication and enabling the government to begin issuing debt cancellations promptly.
For those who have not yet applied but believe they meet the eligibility criteria, the application should be available on the Federal Student Aid website if the Supreme Court permits the program to proceed. Applicants can expect an email confirmation after successfully submitting their application, and their loan servicer will notify them once the debt cancellation has been applied to their account.
During the application process, borrowers must self-attest that their income falls within the eligibility threshold. However, the Biden administration has stated that applicants who are more likely to exceed the income cutoff may need to provide additional information, such as a tax transcript.
If the Supreme Court rejects Biden’s student loan forgiveness If the Supreme Court rejects Biden’s student loan forgiveness program, the administration may have the option to make modifications to the policy and attempt another approach, although this process could potentially take several months to implement.
Regardless of the Supreme Court’s ruling, it is important for borrowers to prepare for the resumption of monthly loan repayments. Starting from September 1, student loan interest will resume, and payments will be due in October. A law passed in early June, addressing the debt ceiling, prevents any further extension of the payment pause.
Restarting payments for the approximately 44 million federal student loan borrowers will be a significant undertaking. Many borrowers may have questions regarding the amount owed, payment schedules, and the process itself, especially considering that they may now have a different loan servicer since their last payment. To confirm their loan servicer, borrowers can log into StudentAid.gov using their FSA ID.
Student loan experts recommend that borrowers reach out to their loan servicer as soon as possible with any inquiries about their loans, particularly if they are interested in enrolling in an income-driven repayment plan. These plans adjust payments based on income and family size, potentially reducing monthly payments, but they require the submission of specific paperwork.
Borrowers will also need to reauthorize automatic debits from their accounts to ensure the payment of their monthly loan bills, even if they had authorized these withdrawals before the payment pause began.
The National Association of Student Financial Aid Administrators advises borrowers to exercise patience when contacting their loan servicer, as there may be a high volume of inquiries at this time. They suggest that it may be necessary to make multiple calls before successfully reaching the servicer.
In conclusion, regardless of the Supreme Court’s decision, borrowers should prepare for the resumption of student loan repayments and proactively communicate with their loan servicers to address any concerns or questions they may have.