Did the student loan forgiveness go through?
Nope. On June 30th, 2023 the Supreme Court invalidated President Biden’s plan to cancel student loan debt. The ruling determined that the administration lacks the authority to eliminate student loan debt under the HEROES Act.
UPDATE: on Friday July 14th, 2023
The Department of Education under President Biden made a significant announcement stating their intention to cancel over $39 billion in federal student loans for more than 800,000 borrowers. Miguel Cardona, the Education Secretary, hailed this move as a groundbreaking step forward, although it drew strong opposition from Republicans.
In a statement, Cardona emphasized the need for this action, highlighting the longstanding problem of borrowers slipping through the cracks of a flawed system that failed to accurately monitor their progress toward loan forgiveness. He asserted that the Biden-Harris Administration was committed to rectifying these past injustices, unveiling a plan to provide $39 billion in debt relief to an additional 804,000 borrowers.
Cardona further explained that by addressing previous administrative shortcomings, they were ensuring that every individual deserving of loan forgiveness would receive it, similar to the efforts made for public servants, students deceived by their educational institutions, and borrowers with permanent disabilities, including veterans. He concluded by affirming the administration’s determination to continue fighting for equity in higher education, striving to level the playing field for all.
What’s Next?
What’s Next?Starting in October 2023, borrowers will need to confront their student debt once again after a three-year hiatus.
President Biden also announced changes to one of four income-driven repayment plans, meant to assist those who have large student debt compared to their income. Adjustments include some borrowers paying a lower percentage of their discretionary income toward their federal loans and the federal government covering some unpaid interest each month. Such adjustments will likely not start until next year and will only apply to borrowers who are accepted into specific income-driven repayment plans.
Finally, at least 14 million borrowers will be under a new student loan servicer after a handful of providers ended their contracts with the federal government over the last few years. The Consumer Finance Protection Bureau estimates that at least 40% of borrowers will be working with at least one new servicer after the transfer of 17m accounts for federal loans.
Who will be impacted by payments restarting?
The vast majority of the 43 million Americans who hold a combined $1.75tn in student debt hold loans issued by the federal government, meaning most borrowers will be restarting payments in the fall. The Consumer Finance Protection Bureau estimates one out of every five borrowers have risk factors in their finances that indicate they will struggle with their loans once payments restart. The bureau also said there has been a 24% increase in median monthly payments made on non-student loan debt made by student loan borrowers, partially because borrowers during the pause invested in other types of debt, like credit cards, auto or mortgage loans, and interest rates have also risen, making loans more expensive.
What happened to Biden’s student loan forgiveness plan?
Last August, Biden announced his plan to cancel at least $10,000 of student loans for borrowers making less than $125,000 a year. Those who qualified for federal Pell Grants would receive up to $20,000 in relief. The plan would have forgiven about $430bn in student debt.
The White House quickly received court challenges, which blocked the plan and ultimately made it to the US supreme court. At the end of June, the conservative majority of the court struck down the plan, ruling that the White House did not have the authority to forgive student debt under a 2003 law. The 2003 Heroes Act, passed after the 9/11 terrorist attacks, allows the Secretary of Education to protect borrowers in times of war or “national emergency”.
After the ruling, Biden vowed to find other ways to help borrowers. “Today’s decision has closed one path,” he said. “Now we’re going to pursue another,” Biden said that the Department of Education is looking into whether the Higher Education Act of 1965 can give the administration a Plan B pathway to student loan forgiveness.
A section of the law grants the Secretary of Education the authority to “compromise, waive, or release any right, title, claim, lien, or demand, however, acquired, including any equity or any right of redemption”. Senior Democrats, including Senators Elizabeth Warren and Chuck Schumer, had originally encouraged the administration to use executive authority under the Higher Education Act to forgive student loans, not the Heroes Act that the Biden administration chose.
student loan forgiveness Changes?
Earlier this year, President Biden introduced changes to one of the four income-driven repayment plans aimed at assisting borrowers with significant student debt compared to their income. These adjustments include reducing the percentage of discretionary income that some borrowers need to allocate towards their federal loans, as well as the federal government covering some unpaid interest each month. However, these changes are expected to take effect next year and will only apply to borrowers accepted into specific income-driven repayment plans.
Moreover, approximately 14 million borrowers will experience a transition to a new student loan servicer as several providers terminated their contracts with the federal government in recent years. The Consumer Financial Protection Bureau estimates that at least 40% of borrowers will be working with at least one new servicer as 17 million accounts for federal loans are transferred.
Who’ll be affected by student loan repayments?
The majority of the 43 million Americans holding a collective $1.75 trillion in student debt have loans issued by the federal government. Consequently, most borrowers will resume their payments in the fall.
The Consumer Financial Protection Bureau indicates that one in five borrowers exhibits financial risk factors suggesting they may struggle with loan payments once they restart. The bureau also notes a 24% increase in median monthly payments made on non-student loan debt by student loan borrowers, partly due to borrowers investing in other types of debt like credit cards, auto loans, or mortgages, coupled with rising interest rates making loans more expensive.
What happened to Biden’s student loan forgiveness plan?
Last August, President Biden unveiled a plan to cancel a minimum of $10,000 in student loans for borrowers earning less than $125,000 annually. Those eligible for federal Pell Grants would receive relief of up to $20,000. The plan aimed to forgive approximately $430 billion in student debt.
The White House faced swift legal challenges that ultimately blocked the plan, leading the case to reach the Supreme Court. At the end of June, the conservative majority on the court struck down the plan, ruling that the White House lacked the authority to forgive student debt under a 2003 law. The 2003 Heroes Act, enacted after the 9/11 terrorist attacks, grants the Secretary of Education the power to protect borrowers during times of war or “national emergency.”
Following the ruling, President Biden pledged to explore alternative means of assisting borrowers. He stated that the Department of Education is examining whether the Higher Education Act of 1965 provides an alternative pathway for student loan forgiveness. A section of the law empowers the Secretary of Education to “compromise, waive, or release any right, title, claim, lien, or demand, however, acquired, including any equity or any right of redemption.”
Initially, prominent Democrats, including Senators Elizabeth Warren and Chuck Schumer, urged the administration to utilize executive authority under the Higher Education Act for student loan forgiveness rather than the Heroes Act chosen by the Biden administration.