What the Supreme Court’s ruling about the HEROES student loan forgiveness plan will and won’t mean for borrowers and the country
As many as 43 million people would have received relief under Biden’s plan. That’s roughly one in eight Americans. 20 million borrowers could have had their student loans erased completely.
Writing for the majority, Chief Justice John Roberts said: “The authority to ‘modify’ statutes and regulations allows the Secretary to make modest adjustments and additions to existing provisions, not transform them.”
Siding with the states, Justice Amy Coney Barrett said, in her concurring opinion, said the major questions doctrine “reinforces” the majority’s conclusion “but is not necessary to it.”
“The plaintiffs in this case are six States that have no personal stake in the Secretary’ loan forgiveness plan,” she said. The Secretary differs from them and they think the plan is a very bad idea.
The decision comes as a disappointment to federal student loan borrowers who were eligible for relief under the plan — as many as 43 million borrowers, or roughly 1 in 8 Americans.
“The HEROES Act allows the Secretary [of Education] to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act,” the ruling states, “but does not allow the Secretary to rewrite that statute to the extent of canceling $430 billion of student loan principal.”
The new loan forgiveness program created by the Department of Education “expanded forgiveness to nearly every borrower in the country”, Roberts wrote.
That August announcement came after months of speculation that the president would act, and its warm reception by younger voters may have contributed to Democrats’ better-than-expected showing in the midterm elections. But the proposal was also beset by a host of Republican legal challenges that ultimately led to the Supreme Court stepping in.
While much can be said about the court’s decision – and no doubt will be in the coming days – here are five things to know about what it will and won’t mean for borrowers and the country.
Student Loan Borrower Protection Center: What did Biden and Johnson say about the NAACP, the Supreme Court, and the Student Loan Debt Decision?
Whatever you think of Biden’s proposal, in this moment, the collective disappointment and perhaps disillusionment of so many Americans is palpable and worth acknowledging.
“I feel like it’s back to business as usual,” says borrower Kurt Panton, with a long sigh. What else do I have to do? Go back to paying the student loan that I have been paying for 20-plus years.”
Panton took out federal student loans to pay his way through college, and made monthly payments for the next ten years.
“It’s really tragic that student loan borrowers have been stuck in this position as political pawns,” says Persis Yu of the Student Borrower Protection Center, “and now are victims to a politicized court that is willing to jeopardize their financial security for political gain.”
The Student Borrower Protection Center is one of a handful of advocacy groups that have been vocal in their support of debt relief, and have put pressure on President Biden to be as generous as possible. The NAACP wanted relief.
The NAACP’s president and CEO says that in a country that bails out Fortune 100 companies, and bails out banks that are not good actors, that this Supreme Court would allow that to happen.
In the days leading up to the court’s decision, Johnson sent a letter to Biden, advising him that he should pursue all legal pathways in the hope of getting rid of student loan debts.
Black voters will be incredibly disappointed by the Administration who failed to deliver on key campaign promises but widened the racial wealth gap, warned Johnson.
Source: https://www.npr.org/2023/06/30/1176839127/supreme-court-student-loan-forgiveness-decision
The Problem that Most Borrowers Are Out Of: The Biden Debt Relief Plan, the Federal Student Loan System, and the Student Loan Default Crisis
Republicans were against Biden’s plan because they claimed it was an abuse of power and handout to college-educated Americans. The debt relief plan is estimated to cost $400 billion over the next 30 years.
The Republican chairwoman of the House education committee is pleased that the Supreme Court is following the Constitution. “What the president has done is take on the role of Congress by deciding through a rule to appropriate money from the taxpayers to people who willingly took on a debt. I think that he has done something that is not in line with the law.
While Republican opposition was fierce, a majority of the public (55%) supported forgiving up to $10,000 per person in federal student loan debt, according to a June 2022 NPR/Ipsos poll.
It’s the problem that most borrowers are out of. In fact, many have never had to make a student loan payment. According to federal data, roughly 7 million federal student loan borrowers are 24 years old or younger, which means they were at most 21, and in many cases still in college, when the current payment pause began in March 2020.
Making matters worse, many older borrowers will have a new loan servicing company – not to mention they may have forgotten their online portal passwords; some may not have even checked their balances in months, if not years. Those days are coming to an end.
Some borrowers were given a chance at a “fresh start” during the P-H2N1, at greatest risk of falling through the restart cracks. For these roughly 7.5 million borrowers who are in default, the department is offering protections from involuntary collections on their accounts and the chance to regain access to flexible repayment plans. To benefit, “fresh start” borrowers must contact their loan servicer to opt-in to the program.
After a political fight between Democrats and Republicans over Biden’s debt relief plan, Congress flat-funded FSA for this year, making it all but impossible for it to keep up with its many student loan responsibilities.
At the very moment FSA and its loan servicers will have to navigate an unprecedented flood of borrowers returning to the system, the agency is actually cutting costs and services.
The agency has quietly put on hold the review of the loans of millions of borrowers, promised by the Biden administration. Promised in May, that review has been extended into 2024.
And that review is a logistical cakewalk compared to the Everest of helping millions of borrowers – whose loans have been paused for more than three years – navigate the return to repayment.
Many borrowers’ financial situations are different, and their repayment options need to be adjusted as well. The call centers will get many calls from confused and anxious borrowers, so they need more and better trained workers.
Instead, however, the Education Department has cut funding to loan servicers, according to multiple sources familiar with the cuts, and is allowing them to scale back call center hours.
A department spokeswoman told NPR that the department was committed to supporting student loan borrowers as they made their way back to repayment. But the statement also acknowledges: “the Department is deeply concerned about the lack of adequate annual funding made available to Federal Student Aid this year. It is clear that restarting repayment requires significant resources to avoid the unnecessary harm of cuts to servicing.
“It is possible that loan servicers may be overwhelmed with a high volume of inquiries,” says the National Association of Student Financial Aid Administrators (NASFAA) in a warning to borrowers. “It is possible you may not reach your servicer via phone the first time you call, and you may need to call a few times before getting connected.”
When the student loan system is fully funded, it works better than when it is not, but the consequences of returning to repayment under current funding system are going to be disastrous.
Foxx, the House education committee chairwoman, says she too worries about the return to repayment because the department is “terribly managed.” She says there isn’t much sympathy to give more money to the department. It’s using its money inappropriately, using people inappropriately. Something needs to be done about that.
Source: https://www.npr.org/2023/06/30/1176839127/supreme-court-student-loan-forgiveness-decision
Debt Relief and Student Loans: The Hickening of Biden’s Plan to Address Student Loan Definability in the 21st Century
Before publishing this story, I prepared two different scenarios, one if the court had kept Biden’s debt relief plan, the other if it scrapped it. Both versions had the same ending.
The system has been broken for a long time, and she points out that Republican efforts to limit interest on student loans is one fix.
The cost of college has doubled since 1990 from $15,000 a year to $29,000 in 2020. And students are using loans to keep up. The Congressional Budget Office said that student loan debt increased by sevenfold between 1995 and 2017, to a total of 1400 billion dollars.
The plan to address that is a part of the Biden administration’s plan, but it involves a new income-driven repayment plan that has drawn praise from borrowers advocates and sharp criticism from Republicans.
Even if the administration is able to roll out this new plan, though, it’s unclear how quickly it could be available to borrowers returning to repayment.