Several members of the U.S. Supreme Court, hearing arguments for the first time on legal challenges to President Joe Biden’s student debt cancellation program, expressed skepticism about whether it was legal for the government to forgive up to $20,000 in federal debt for individual loan holders.
After three hours of debate, as expected, there was no decision made on whether the debt relief plan would go forward or the challenges would be upheld.
Court followers say that, based on past cases, the Supreme Court justices will cast votes at a private conference held at some point in the next week. Then one of the justices will be selected to draft a majority opinion. It takes an average of three months after an argument for the decision to be made public.
It is possible the court will rule much sooner that the parties challenging Biden’s policy have no legal standing. If that happens, there will be no larger ruling, the debt relief program will continue, and the deadline for resuming federal student loan payments will likely be set.
However, the most probable time to hear the court’s decision on whether the student debt cancellation is legal is June, when different Supreme Court rulings are typically made public. Until then, the future of the one-time student debt relief and the date when federal student debt payments will resume could be up in the air.
At stake are such vital issues as the burden that debt-strapped working and middle class Americans struggle under, the power of the executive branch to deliver a cancellation of $400 billion of debt without Congressional approval, and the fairness that such a cancellation would impose on people who never attended college or who’ve managed to repay their college loans
The Two Sides of the Student Loan Divide
In August 2022, President Joe Biden announced his plan . He said the Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).
An online portal was created for applicants. Over the next month, more than 26 million people applied for cancellation, according to the Education Department.
However, the portal was frozen after legal challenges to Biden’s plan gained steam. Six Republican-led states and two individuals, students with loans, brought court actions. The states say Biden overstepped his authority with the debt cancellation program; they also argue that the plan would cause their tax revenues to fall. The two individuals say Biden’s cancellation is unfair to them because one of them has loans held by private lenders, so he can’t benefit, and the other is ineligible for the full $20,000.
In the arguments heard, Supreme Court Chief Justice John Roberts seemed to question whether the president can do this unilaterally.
“Most casual observers would say if you’re going to give up that much amount of money, if you’re going to affect the obligations of that many Americans on a subject that’s of great controversy, they would think that’s something for Congress to act on, and if they haven’t acted on it, then maybe that’s a good lesson to say for the president or the administrative bureaucracy that maybe that’s not something they should undertake on their own,” said Roberts.
Justice Sonia Sotomayor talked about the harm to students from debt, saying, “There’s 50 million students who are — who will benefit from this. Who today will struggle. Many of them don’t have assets sufficient to bail them out after the pandemic. They don’t have friends or families or others who can help them make these payments.”
The Supreme Court presently holds a 6-3 conservative majority. However, Justice Amy Coney Barrett joined liberal Supreme Court justices in appearing to question the legal standing of the Republican challenges. So the fate of the loan ruling is still unclear.
Why the Government Put Federal Student Loan Debt on Hold
The outstanding federal loan balance is currently $1.635 trillion and accounts for 92.4% of all student loan debt, according to educationdata.org.
In March 2020, because of the economic harm caused by Covid-19, the federal government paused loan payments and set interest rates to 0% for eligible federal student loans. The debt payment relief was authorized by the The Coronavirus Aid, Relief, and Economic Security (CARES) Act. Since then, the deadline for resuming payments has been extended multiple times.
Over 43 million Americans have federal student loan debt. The average federal student loan debt balance is $37,574 while the total average balance (including private loan debt) may be as high as $39,590.
In August 2022, President Biden announced that the pause would be extended again to December 31, 2022, along with explaining his cancellation plan. Biden also made changes in the Public Service Loan Forgiveness Program to make it accessible to more people.
After the court challenges threatened Biden’s plan and forced the Education Department to freeze applications, Biden pushed back the date for payments yet again, saying they would resume either 60 days after the Supreme Court makes its ruling — or 60 days after June 30 if litigation is ongoing. He said the delay would give enough time for the Supreme Court to rule and for loan holders to prepare their payments.
The White House said, “Borrowers can use the additional time to ensure their contact information is up to date with their loan servicers and consider enrolling in electronic debit and income-driven repayment plans to support a smooth transition to repayment.”
If the Supreme Court rules before June 30, borrowers with remaining balances will need to start repaying loans 60 days after the date of that court decision, at which point interest will also start accruing again. If the Supreme Court does not rule before June 30, forbearance will end and borrowers will need to start repaying loans 60 days after June 30, at which point interest will also start accruing again.
Recommended: Student Loan Forgiveness and Relief Guide
The Takeaway
The U.S. Supreme Court heard arguments challenging President Biden’s proposed debt cancellation of up to $20,000 in federal loan debts, with some justices expressing skepticism that Biden can relieve nearly half a trillion in debt without Congressional involvement. The decision may not come until June.
Student loan refinancing is one way holders of debt can seek to make student loan payments more manageable. If your federal debt is more than the amount of forgiveness you are potentially eligible for and you are worried about rising interest rates, you can refinance just the amount that will not be canceled. Remember that the refinanced amount will lose access to federal protections and programs, including the payment pause that has been extended.
Photo credit: iStock/Kameleon007
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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