In 2022, the Biden Administration announced plans to forgive as much as $20,000 in federal student loans per borrower, in a sweeping plan that is estimated to cost $400 billion to implement. However, the plan has been challenged, and is currently in the hands of the Supreme Court.
The Supreme Court's ruling on the legality of the forgiveness plan is expected in the coming weeks, and this begs the question: What happens next if student loan forgiveness is not allowed to proceed?
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Will the Supreme Court block student loan forgiveness?
The short version of the challenge to President Biden's student loan forgiveness program is that several states and conservative groups say the president doesn't have legal authority to implement broad (and costly) loan forgiveness.
Although the plan was announced in August 2022, it has been on hold since then as it works its way through the court system. The Supreme Court is the last stop in the legal process, and most experts expect to hear the court's decision within the next few weeks. The Supreme Court enters its summer recess in early July, so most expect the court to rule before that time.
While there's no way to know for sure what the outcome will be, many experts aren't too optimistic. The current makeup of the Supreme Court leans conservative, and several legal experts have stated that they expect the court to rule against the plan.
On the other hand, the Biden Administration has cited the Heroes Act of 2003, which grants the Secretary of Education (part of the executive branch) the authority to change the federal student loan system during emergencies. The U.S. was under a declared emergency due to the COVID-19 pandemic when the forgiveness program was announced.
Biden's student loan plan is about more than just forgiveness
While the debt forgiveness plan is certainly the headline news item, it's important to point out that there is a lot more to the Biden Administration's student loan relief plan. In addition to forgiving as much as $20,000 per borrower, the plan also does several things to make the student loan repayment process easier.
Most significantly, it would create a new income-driven repayment plan that would require borrowers to pay no more than 5% of their discretionary income toward their undergraduate loans. This is half of the 10% rule that currently applies. And it even goes a step further and increases the threshold for what is considered discretionary income in the first place. So, many borrowers could end up with a significantly lower student loan payment than they had before the pause.
The plan also covers any unpaid interest while a borrower is enrolled in an income-driven repayment plan. Prior to the repayment pause, you may have heard stories to the effect of "I took out $70,000 in student loans, made payments for 10 years, and now owe $80,000." Under the new plan, no borrower's loan balance will increase as long as they make their required monthly payments, even if their income-driven plan requires them to pay nothing at all.
Could loan forgiveness still happen if Biden's plan is blocked?
To be perfectly clear, the Biden Administration has not released any "backup plan." The administration (at least publicly) has expressed confidence that the Supreme Court will rule in its favor.
That said, the Biden Administration could certainly choose to modify its policy and try again. At this point, however, we have no idea what that might look like (or how long it could take), so we'll just have to wait and see what happens if the Supreme Court decides to block the forgiveness plan.
