When the Supreme Court shut down President Biden's student loan forgiveness plan about a month ago, millions of borrowers were dealt a really tough blow. Many people had been banking on having a portion (or in some cases all) of their lingering debt wiped out. Now, after a multiyear pause in payments, federal student loan borrowers will have to gear up to start forking money over to their loan servicers, once again.
President Biden may not have been successful in his quest to have student loan debt forgiven broadly, but his administration managed to wipe out $130 million in student loan debt for a select group of borrowers. And while those borrowers fell into a very specific category, there could be more instances of similar loan forgiveness to come.
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When students don't get their money's worth
The Biden Administration recently announced that it would forgive $130 million in student loans taken out by people who attended CollegeAmerica in Colorado. And the reason that a good 7,400 borrowers were eligible to have that debt forgiven is that they were basically lied to.
The U.S. Department of Education found that CollegeAmerica made false claims about the salaries and employment rates of its graduates. It also misled students about its academic offerings and private loan program. CollegeAmerica has since stopped enrolling new students and closed all of its campuses as of 2021.
A special set of circumstances
President Biden's original plan to forgive federal student loan debt wasn't related to fraud. Rather, his goal was to lift the burden of debt for millions of borrowers who were poised to struggle without that relief.
The reason the Biden administration was successful at forgiving CollegeAmerica debt is that the school clearly misled students who enrolled. And we may see additional instances of student loan forgiveness in the near term in situations where enrollees were blatantly lied to.
But on a broad level, student loan forgiveness is unlikely to happen anytime soon. So borrowers who have enjoyed their reprieve over the past three years should accept that student loan payments will soon become a part of their monthly expenses.
However, that doesn't mean that student loan forgiveness is off the table completely for federal borrowers. Current borrowers may have the option to move over to an income-driven repayment plan.
The upside there is that these plans allow for monthly loan payments to be calculated as a percentage of income. And they also come with eventual loan balance forgiveness.
Furthermore, President Biden's newly introduced SAVE repayment plan could serve the very important purpose of not only shrinking monthly student loan payments individually, but also making some borrowers debt-free within 10 years. That's a faster time frame than what current income-driven repayment plans allow for.
All told, student loan borrowers aren't necessarily doomed to have to pay their balances in full. It's fair to assume that the Biden administration will continue to do all it can to alleviate that burden as much as possible.
