U.S. Supreme Court Says No to Biden Loan Forgiveness Plan

The Republican opposition has long made it clear that they felt President Biden's student loan forgiveness program — which would ease the burdens on some 43 million Americans with federal student loans by erasing all or up to $20,000 of money owed — was a Presidential over-reach.

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On June 30, the Supreme Court of the United States (SCOTUS) ruled that the basis for Secretary of Education Miguel Cardona's arguments to implement the program is invalid. Essentially, it boils down to the notion that the Congress holds "the power of the purse" in the separation of powers that check and balance the federal government.

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In a nutshell this means that Congress is the only branch of government able to eliminate such substantial sums through acts of legislation. The view advanced by SCOTUS is that presidential (or proxy) decrees cannot wipe out such sums by fiat.

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Get in the Swing of Things

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I've written two other GoCertify columns on this topic. If you want the background on Biden's program, who's affected, income limits, and eligibility, please read:

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Would Income Limits Help Sell Student Loan Forgiveness? (April 29,2022)
An Update on US Federal Student Loan Forgiveness (June 17, 2022)

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The June 30 Washington Post story "Supreme Court rejects Biden student loan forgiveness plan" also does a pretty good job of talking things through: explaining the arguments, sussing the issues, and pondering the next steps that might lie ahead.

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I'm on the record as approving of the plan, albeit with the idea that lower-income debtors should get priority in obtaining forgiveness of debts as they are most likely to benefit substantially from reduced payment burdens.

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What's Next from the Biden Administration?

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Within hours of the release of the 77-page Supreme Court opinion on the governing case (Biden & USA v. Nebraska, et al.), from the pen of chief Justice John Roberts, President Biden announced a "new path" toward loan forgiveness.

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First, he's offering a temporary, 12-month "on-ramp" period for borrowers. This means those who miss loan payments during this period will not be referred to credit agencies for 12 month. Biden states that the purpose of this temporary offer is "to give them a chance to get back up and running."

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At the same time, the Department of Education is starting a new federal rulemaking process to mitigate the effects of repayment on low-income borrowers. Thus, for example, the current 10 percent cap on disposable income going to loan payments could be cut in half, to 5 percent.

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One thing's for sure: President Biden's campaign promises to reduce the burden of student debt on over 40 million Americans are in jeopardy. His vision will have to work its way through regulatory and legal changes to take some new, as-yet-unknown shape.

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At issue right now is a telling quote from the Post story, where Cardona says that moving forward will require "exhaustive rewriting" of the HEROES Act statute. Inevitabley, this is will provoke further legal action and perhaps even more interaction with the Supreme Court.

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That court is split on ideological lines, with the six conservative justices backing the plaintiff's arguments in the Biden & USA v. Nebraska case, and the three liberal justices affirming the arguments from the Solicitor General for the US asserting that the forgiveness plan is justified and indeed falls under the HEROES Act's provisions.

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Who knows how this will ultimately turn out?

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What Should Student Debtors Do?

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Short answer: Whatever the Student Loan Program instructs them to do. At the same time, they should be sure to exercise all options presented through the on-ramp period, reduced payment amounts, and so forth, to keep the impact of repaying student loans as low as possible.

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This situation appears unlikely to resolve itself fully any time in the next year or two, as the opposing viewpoints and plans work their way through the courts, the Education Department, and the legislative branch.

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In the meantime, it appears that "do what they tell you" — they being staff at the U.S. Federal Student Loan Program, who set the prevailing terms and conditions for repayments of such loans for those with unpaid balances — is probably the only workable strategy.

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I'd also say that under these circumstances "Hope for the best; plan for the worst" is probably the right way to plan out future finances.

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Biden Administration Fires A Smaller Salvo of Loan Forgiveness

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Earlier today (Friday, July 14), the administration announced it would forgive loans for over 800,000 student loan holders who enrolled in what the Washington Post called "income-driven repayment plans." This retires something close to $40 billion in federal student loans (about 10 percentof what the now-nixed plan would have covered).

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This time around, per its 2022 announcement, the Education Department will implement a "one-time adjustment to help address any inaccuracies in payment counts for borrowers" participating in federal student loan programs. Generally, these kinds of loans are forgiven when borrowers reach certain milestones in their repayment progress.

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Thus, for example, a borrower who has made all payments for a certain length of time — 20 years was the example I heard this morning on NPR — should have the outstanding balance of the loan forgiven going forward. The Post story concludes with these statements:

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"In coming days, qualifying borrowers who have met the necessary threshold for forgiveness will be notified. Types of loans covered include Direct Loans or Federal Family Education Loans held by the Education Department, including Parent PLUS loans."

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Thus, it sounds as though something like 1 in 10 of the student loan holders who would have benefited under the earlier, now-invalidated forgiveness plan may still find forgiveness anyway. According to NPR this is called the SAVE plan (Saving on a Valuable Education), set to phase out the current Revised Pay As You Earn plan (REPAYE).

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If this might mean you, then be on the lookout for a notification in the mail. Fingers crossed!