The Biden administration's student loan forgiveness plan has been shut down, leaving the 26 million borrowers who have already applied for debt relief in
Biden's one-time student loan forgiveness was struck down earlier this month by Texas federal court judge Mark Pittman as "an unconstitutional exercise of Congress's legislative power." In response, the Biden administration is extending student loan payments until after June or whenever the student loan forgiveness plan is able to move forward — monthly loan payments were initially supposed to resume in January, buying borrowers a little more time.
The Biden administration has already filed an appeal, with the case likely to go to the Supreme Court. Hence, a quick resolution is unlikely, says Meagan McGuire, a senior student loan adviser at Student Loan Planning, a student loan consulting company.
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"It was ultimately deemed unlawful, meaning the plan has not only been halted but shut down for now," she says. "But the Department of Education seems pretty confident that they can prevail."
McGuire points out that the Biden administration is already appealing another adverse ruling by the 8th Circuit Court of Appeals. Still, President Biden has stated that he believes his plan is legal and will go into effect even after facing a majority-Republic Supreme Court.
In fact, 16 million borrowers have already been approved for forgiveness and were told via email that "we will discharge your approved debt if and when we prevail in court" by Secretary of Education Miguel Cardona. While those payments are currently frozen, the Biden administration has also been forced to stop accepting and processing applications.
McGuire notes that each adverse ruling does have grounds. The 8th Circuit Court believes there may be potential harm to state revenue since a major loan servicer headquartered in Missouri — which feeds money into the state treasury — will lose revenue on the interest if the debt is forgiven. The Texas federal court judge, on the other hand, does not believe that President Biden has the authority to cancel student loan debt, even under the HEROES Act of 2003. This act states that the Secretary of Education has the expansive power to alleviate the hardship of student loans that borrowers may experience as a result of national emergencies.
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"There are a lot of rules under the HEROES Act that allows the president's administration to have more authority under extraordinary circumstances," says McGuire. "But the judge does not feel Biden can use a national emergency for this."
Many Republicans see Biden's plan as a misinterpretation of the law because the pandemic is no longer considered a national emergency. While COVID cases are still the cause of nearly 2,000 deaths per week, the Biden administration declared the pandemic "over" in September, which may not work in their favor.
There may be some important precedent however to getting student loan forgiveness past party lines: notably, the U.S. government was able to forgive $755 billion worth of Paycheck Protection Program loans, which were designed to help small businesses keep workers employed during the onset of the pandemic. These loans have essentially become government grants, with 91% of loans being fully or partially forgiven. In contrast, the Congressional Budget Office estimates one-time student loan forgiveness will cost $400 billion.
PPP loan forgiveness was meant to help the economy stay afloat by ensuring people had the means to spend — student loan forgiveness may not be so different, says McGuire.
"One-time student loan forgiveness does free up cash that can go to other places," she says. "So does it help spark economic growth or help the economy in some way? I think it potentially does."
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McGuire also has hope that even if the Biden administration fails to enact relief, they can still put their new income-driven repayment plan into effect. Currently, IDR plans allow the borrowers to make monthly payments based on their discretionary income, or the amount of Adjusted Gross Income that exceeds 100% or 150% of the federal poverty line. After 20 or 25 years of payments, balances are forgiven. Biden's IDR plans will be based on 225% of the poverty line, be forgiven after 10 years of payments for original loan balances of $12,000, and cover all interest accrual. This means borrowers' balances will not grow based on interest as they meet their monthly contributions.
"People with loan balances greater than their income usually have to resort to income-driven plans just to make the payment affordable," says McGuire. "But even as they're making payments, their balance is growing. This new plan would be more generous and make forgiveness more attainable."
McGuire views this new IDR plan as even more impactful than one-time forgiveness, as it would make monthly payments far more manageable. However, it's important to note that the 3.6 million Parent Plus Loans borrowers do not currently have access to an income-driven plan, putting further financial strain on families. While McGuire hopes to see the Biden administration include Parent Plus Loans, her guess is that it may continue to be left out.
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"The Parent Plus issue is going to get bigger and bigger because of the undergraduate costs of education," says McGuire. "They have very limited options compared to what a regular student has access to."
Regardless of whether Biden's one-time forgiveness plan prevails in court, McGuire expects to see more changes to the student loan landscape. In the meantime, she advises employers to have the resources to help employees tackle payments once they restart again.
"We haven't been making payments for a long time due to COVID," says McGuire. "For those that plan to pay loans off, these changes are definitely impactful."
