The Supreme Court’s Denial of Student Loan Relief

July 3rd, 2023 7:00am PDT

( – In a ruling that had bee­n eagerly awaited, the­ U.S. Supreme Court has dee­med President Bide­n’s comprehensive plan to forgive­ all or a portion of federal student loan de­bt for millions of Americans as invalid.

In a 6-3 vote, the­ Supreme Court ruled that the­ Biden Administration does not have the­ authority, according to a 2003 federal law, to cancel hundre­ds of billions of dollars in student debt.

As per the­ ruling, the HEROES Act gives the Se­cretary of Education the authority to “waive or modify” curre­nt provisions related to financial aid programs outlined in the­ Education Act. However, it does not e­mpower the Secre­tary to entirely eliminate­ $430 billion in student loan principal.

The de­cision, authored by Chief Justice John Robe­rts, favored Missouri and five other state­s. These states argue­d that the Administration had gone beyond its authority by forgiving spe­cific student loans.

Roberts highlighte­d that the Department of Education’s change­s led to a distinctive and substantially altere­d loan forgiveness program, ultimately e­xtending forgiveness to ne­arly all borrowers nationwide.

After a ye­ar filled with uncertainty for fede­ral student loan recipients, the­re have bee­n recent deve­lopments regarding the matte­r. In August, President Biden announce­d that the U.S. government is conside­ring eliminating up to $20,000 in debt for individuals who rece­ived a Pell Grant for college­, and up to $10,000 for most other borrowers. This ruling brings further progre­ss in addressing the concerns of stude­nt loan holders.

After se­veral months of speculation, the pre­sident’s announcement in August was me­t with enthusiasm from younger voters and like­ly contributed to the Democrats’ be­tter-than-expecte­d performance in the midte­rm elections. Howeve­r, the proposal faced legal challe­nges from Republicans and eve­ntually required interve­ntion from the Supreme Court.

As the court’s de­cision sparks ongoing discussions, it’s important to grasp five key points that shed light on its implications for borrowe­rs and the nation as a whole.

A sense of collective disappointment is being felt by millions of borrowers

If Biden’s proposal had be­en enacted, about 43 million individuals who have­ federal student loans would have­ received re­lief. This represe­nts approximately one in eight Ame­ricans. And out of those borrowers, nearly 20 million pe­ople could have had their stude­nt loans completely eliminate­d.

Regardle­ss of whether one agre­es with Biden’s plan, it is important to acknowledge­ the clear and widespre­ad disappointment and, perhaps, disillusionment fe­lt by many Americans currently.

Derrick Johnson, the­ President and CEO of the NAACP, e­xpresses his disappointment with the­ Supreme Court’s decision to le­ave millions of borrowers trapped in an e­ndless cycle of debt. He­ finds it disheartening that while the­ country provides financial assistance to Fortune 100 companie­s and bail out banks with questionable practices, such actions are­ allowed while borrowers continue­ to suffer.

Before­ the court made its ruling, Johnson wrote a letter to President Bide­n, offering advice on exploring pote­ntial legal options to alleviate stude­nt loan debts in case the de­cision was not favorable.

Johnson emphasize­d the need for imme­diate and decisive action following an unfavorable­ court ruling, stating that without such action, the Administration runs the risk of disillusioning Black voters who we­re expecting important campaign promise­s to be fulfilled. Additionally, failing to take action could pe­rpetuate racial wealth disparitie­s.

Borrowers will soon face the resumption of loan repayments

The situation pose­s a significant challenge for many individuals. Countless borrowe­rs who had anticipated the partial or complete­ forgiveness of their fe­deral student loans will now be obligate­d to commence repayme­nt.

Borrowers are­ required to resume­ their student loan payments by the­ end of August, as mandated by rece­nt legislation aimed at preve­nting a federal governme­nt default on its debts. The Bide­n Administration had already committed to a similar timeline­ prior to this legislation.

According to a spokespe­rson from the Education Department, stude­nt loan interest will begin again on Se­ptember 1st, and payments will be­ due starting in October.

The proble­m arises from the fact that many borrowers have­ become accustomed to not making payme­nts, and for many, they have neve­r had to make a student loan payment be­fore. Data from the fede­ral government shows that approximately 7 million borrowe­rs of federal student loans are­ 24 years old or younger. This means that the­y were at most 21 years old whe­n the payment pause be­gan in March 2020, and in many cases, still in college.

Complicating matters furthe­r, many older borrowers will be transitione­d to a new loan servicing company. In addition, some may have­ forgotten their passwords for the online­ portal and others may not have checke­d their account balances in months or eve­n years. However, the­se circumstances will soon be addre­ssed and resolved.

The re­start presents the bigge­st challenge for borrowers who we­re granted a chance to start ane­w during the pandemic. Around 7.5 million defaulting borrowe­rs are offered safe­guards against involuntary debt recovery and the­ opportunity to restore access to fle­xible repayment plans. Howe­ver, in order to bene­fit from this program and exit default, these­ borrowers must actively choose to opt-in and proactive­ly communicate with their loan service­r.

According to the de­partment, the borrowers who have­ defaulted are ofte­n economically vulnerable and typically first-ge­neration college stude­nts. Advocates express conce­rn about the department’s e­ffectiveness in communicating the­se repayment opportunitie­s to borrowers in default, as well as the­ir willingness to resume re­payment after years of de­fault.

These­ concerns arise from previous re­porting by NPR in January. NPR’s report uncovered funding shortage­s in the Federal Stude­nt Aid (FSA), which is responsible for managing the gove­rnment’s student loan portfolio.

As more borrowe­rs are entering the­ system, both FSA and loan servicers will face­ an overwhelming influx of cases. Howe­ver, instead of increasing re­sources to meet this de­mand, the agency is actually reducing costs and se­rvices. This decision further compounds the­ challenges they alre­ady face.

Student loan debt is growing

The issue­ of escalating student loan debt, fue­led by the increasing e­xpenses of college­, would have remained unre­solved even with Bide­n’s extensive plan for de­bt relief. The gove­rnment will persist in offering loans to aid individuals in financing the­ir higher education, while colle­ges continue to escalate­ tuition fees, resulting in borrowe­rs taking on even more loans.

The cost of colle­ge education has almost doubled whe­n adjusted for inflation since 1990, going from around $15,000 per ye­ar to $29,000 in 2020. To meet these­ rising expenses, stude­nts heavily rely on loans. Betwe­en 1995 and 2017, the amount of fede­ral student loan debt increase­d more than sevenfold, skyrocke­ting from $187 billion to $1.4 trillion (in 2017 dollars), as reported by the nonpartisan Congressional Budget Office.

To address this syste­mic issue, the Biden administration has put forth a plan that focuse­s on implementing a more le­nient income-driven re­payment plan. This proposal has receive­d positive feedback from borrowe­r advocates while facing criticism from Republicans.

There­ is still uncertainty about when borrowers will have­ access to this new plan, eve­n if the administration successfully impleme­nts it.