Student loan debt is a massive financial hurdle for tens of millions of people. With outstanding  balances topping $1.6 trillion in the first quarter of 2023, Americans owe more on their student loans than on any other type of debt other than home mortgages. Auto loans, outstanding credit card debt, home equity loans, and other types of loans each rank behind student debt, according to the latest figures from the Federal Reserve Bank of New York.

It was in that context that President Biden announced  in August 2022 a plan to provide debt cancellation for federal student loan borrowers. However, opponents challenged the Biden plan in federal court, and in December, the Supreme Court agreed to take up the cases. With arguments having taken place on Feb. 28, a final decision is likely later in June.

Yet with many legal experts now expecting that the Supreme Court will block the Biden plan, borrowers are already wondering what could come next. As you’ll see, a Supreme Court judgment against the student loan forgiveness plan could create huge uncertainty among borrowers and lenders alike.

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How we got here

Under the Biden plan, all eligible borrowers  would be entitled to have up to $10,000 in debt held by the U.S. Department of Education canceled, with those who received Pell Grants potentially having up to $20,000 of their debt canceled. Individuals with adjusted gross income  below than $125,000 or joint filers with incomes below $250,000 would be eligible for the cancellation program.

It didn’t take long for lawsuits to arise. Two Texas students  filed suit against the plan, one of whom was completely excluded from the plan by virtue of having only private student loans, and the other of whom argued that giving Pell Grant recipients a larger amount of cancellation wasn’t fair. Meanwhile, half a dozen state governments also filed suit, saying that the plan exceeds the power of the Education Department and imposed financial harm on the states. In both cases, injunctions were granted that prevented the implementation of the student loan cancellation plan. The Supreme Court granted certiorari to hear arguments on the two cases at the same time.

Hanging in the balance

If the Supreme Court reverses lower-court rulings and rules in favor of the Biden plan, then the Education Department might be able to move fairly quickly. Millions of people have already had their applications for debt cancellation conditionally granted, and millions more would be eligible.

However, if the Supreme Court upholds the rulings of the lower courts, then it would force the Biden administration to consider alternatives to implement student debt cancellation. One would be to have Democratic representatives in Congress propose a bill explicitly authorizing the student loan cancellation program. This method would be the most likely to survive Supreme Court scrutiny, but it’s also politically unlikely because Republicans control the House of Representatives.

Alternatively, the Department of Education could attempt to move forward unilaterally using a different source of statutory or regulatory authority than what it used in the initial Biden plan. Some legal officials have pointed to a law different from the pandemic-era legislation on which the Biden administration based its initial action, arguing that the legal basis for executive action could be stronger. It’s likely that opponents would immediately file suit against the federal government once again in that event, though, setting the stage for an uncomfortable sequel that could eventually prove unfruitful as well.

Waiting it out

For student loan borrowers, the stakes are higher than ever because of the recent resolution of the debt ceiling debate. As part of the compromise, the current pause on repaying student loans will expire near the end of August.

Until the Supreme Court rules, borrowers have little choice but to get ready for repayments to resume. Some eligible borrowers have other types of relief they could pursue. Regardless, though, doing what you can to plan for the worst is a better move than simply doing nothing hoping for the best.

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