Millions of borrowers are affected by the Supreme Court’s decision to kill Biden’s student debt plan

What Will The High Court Say About Student Loan Forgiveness? Five Things We Don’t Know About The Department of Education and What It Will and Will Not

The high court decided that the Department of Education does not have the power to cancel student loan debt.

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.”

Justice Amy Coney Barrett’s opinion said the major questions doctrine is not necessary and that she was siding with the states.

There are six States that do not have a stake in the loan forgiveness plan. “They are classic ideological plaintiffs: They think the plan a very bad idea, but they are no worse off because the Secretary differs.”

As many as 43 million federal student loan borrowers were eligible for relief under the plan but it was a disappointment when the decision was made.

“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.”

Roberts wrote that the “modifications” by the Department of Education created a novel and fundamentally different loan forgiveness program that was expanded to nearly every borrower in the country.

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.

What Do Student Loan Borrowers Really Need to Do? Disillusionment and Discontentment Among Debtors: The Case for Biden’s Proposal

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 normal,” says debtor Kurt Panton, with a long sigh. What more can I do? Go back to paying the student loan that I have been paying for 20-plus years.”

When the student loan payment pause began in March 2020, Panton made his monthly payments on time from late 2003 to March 2020.

“It’s really sad that student loan borrowers are stuck in this position as political pawns, and now they are victims of a politicized court that is willing to jeopardize their financial security for political gain,” said Persis Yu of the Student Borrower Protection Center.

One of the groups that has been vocal in their support of debt relief, is the Student Borrower Protection Center, who have put on pressure on President Biden to be more generous. The NAACP also pushed hard for relief.

“I see it as an unfortunate reality that in a country where we bail out Fortune 100 companies, where we bail out banks that have not been good actors, that this Supreme Court would allow that to happen, and yet,” says Derrick Johnson, the NAACP’s president and CEO, the court would choose to leave millions of borrowers “stuck in a vicious cycle of debt.”

Johnson advised Biden to pursue all legal pathways to erase student loan debts if the court ruled against him.

“Black voters are going to be so angry with the Administration that they are going to desert them,” Johnson warned, “even if the Administration does not do anything in the wake of the Court ruling.”

Biden’s debt relief plan would not have addressed the growing levels of student loan debt borrowers are taking on. Even though colleges are increasing prices, the U.S. government will still issue student loans in order to help Americans afford college.

The Republican chairwoman of the House education committee says she is very happy 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. And I think what he has done is totally illegal.”

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.

Most borrowers are out of the habit now. Many have never had to make a student loan payment. 7 million federal student loan borrowers are aged 24 years or younger, which is the same age as 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.

According to the department, these defaulted borrowers are disproportionately likely to be economically vulnerable, first-generation college students. The ability of the department to communicate these opportunities to borrowers who are in default is a source of concern among advocates.

Congress flat-funded the student loan assistance program for this year, making it hard for it to keep up with its responsibilities.

The agency is cutting costs because of an unprecedented flood of borrowers returning to the system.

The Biden administration had promised to review loans of millions of borrowers who were unfairly set back by years of mismanagement. In May, it was supposed to be done in 2020 but has been extended into 2024.

It’s a challenge compared to helping millions of borrowers who have had their loans paused more than three years navigate the return to repayment.

Many borrowers need to change their repayment plans as their financial situations have changed. Call centers will need more and better trained workers in the future, in order to handle calls from confused and anxious borrowers.

The Department of Education has cut funding to loan servicers, according to multiple sources familiar with the cuts, and is allowing them to scale back call center hours.

“We’re going to support student loan borrowers as they successfully navigate returning to repayment.” says the department in a statement. 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. As the Department has repeatedly made clear, restarting repayment requires significant resources to avoid unnecessary harm to borrowers, such as cuts to servicing.”

The National Association of Student Financial Aid Administrators warns borrowers that loan servicers are likely to be overwhelmed with a high volume of inquiries. It is possible that you have to call multiple times before you get connected, and that you will not reach your servicer on the first call.

The consequences of returning to repayment under the current funding system are going to be bad, says a borrower advocate, as the student loan system functioned poorly even when it was fully funded.

The department is “terribly managed.” That’s how the House education committee chairwoman states she worries about the return to repayment. “I don’t think there’s a lot of 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

Student Loan Borrowing: The Biden Debt Relief Problem in the 21st Century and the Recovery of the Student Loan Debt Problem

Before publishing this story, I pre-wrote two different versions: one if the court had preserved Biden’s debt relief plan, another in case it scrapped it. Both versions had the same ending.

The system is broken and Republicans are attempting to fix it with a limit on student loan interest.

The cost of college has increased over the course of the last 25 years, reaching a high of $29,000 in 2020. And students are using loans to keep up. Between 1995 and 2017, federal student loan debt “increased more than sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars),” according to the nonpartisan Congressional Budget Office.

The Biden administration has a plan to address that and it is dependent on a newly proposed income driven repayment plan which has drawn praise from borrower 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.