How the Supreme Court’s Ruling on Student Loan Debt Relief Could Reshape the College Experience

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    On Friday, June 30th, 2023 the Supreme Court blocked Biden’s proposed student loan debt relief program. A cornerstone of Biden’s 2020 political campaign, the student loan debt relief program would have benefitted 43 million borrowers, canceling a total of 20 million dollars in student debt. Initial hearings against the plan were heard by the Supreme Court in February. Although there’s been persistent doubt about the feasibility of the plan, a final decision was not reached until June 30th.

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    What you need to know about President Biden’s Student Debt Relief Plan

    “In total, this plan would have benefited up to 43 million borrowers, canceling 20 million dollars in debt.”

    If you’re reading this article, you’re most likely asking yourself: What does this ruling mean for the future of higher education? And how might this affect College Financial Planning?

    Well, to start off, let’s clarify some key details:

    Last year President Biden and the Secretary of Education, Miguel Cardona, released a student loan debt relief plan. After designing the plan, the Department of Education issued a two-minute survey to determine borrower eligibility. 26 million borrowers filled out the survey and 16 million were approved before the Biden Administration received a court order to remove the application.

    Biden’s proposed student loan debt relief plan would have forgiven $10,000 in federal student loans for borrowers earning less than $125,000 a year or $250,000 as a family. Borrowers who received Pell Grants would have received an additional $10,000 in debt relief. In total, this plan would have benefited up to 43 million borrowers, canceling 20 million dollars in debt.

    Arguments for and against the Student Debt Relief Plan

    The Biden Administration believes that the financial aftermath of the global pandemic provided sufficient cause to grant student loan forgiveness. Legally, the student loan debt relief plan was proposed under the HEROES Act, an act that permits the secretary of education to waive or modify federal student loans in the event of a national emergency. The HEROES Act was originally passed to prevent service members from being financially penalized while serving in Afghanistan and Iraq. 

    Supporters of student loan debt relief believe that the financial stress caused by the pandemic will cause borrowers to default on their loans. As stated by Sonia Sotomayor, Associate Justice of the Supreme Court: “[borrowers’] financial situation will be even worse because once you default, the hardship on you is exponentially greater. You can’t get credit. You’re going to pay higher prices for things.”

    People in opposition to the student loan debt relief program believe that the plan is unfair to people who chose not to go to college or who were able to pay off their loans independently. Ultimately, the Supreme Court ruled against the plan, 6-3. 

    Regardless of the Supreme Court ruling, some politicians and activists believe Biden still has the legal grounds to forgive student loans, on account of the Higher Education Act of 1965. It seems improbable, however, that the President will take such action.

    Exceptions for borrowers moving forward

    “The Federal Trade Commission warns borrowers to be aware of student loan scams in the coming months, saying that it’s likely scammers will pose as U.S.Department of Education personnel offering loan assistance.”

    Progressive activists and politicians hoping for another student loan extension in response to this ruling have been disappointed. President Biden promised payments would resume this fall, as part of a bipartisan deal on raising the debt ceiling, regardless of the Supreme Court’s ruling.

    After a three-year interest-free pause, student loan repayments are set to resume this October, with interest rates resuming September 1st. The Federal Trade Commission warns borrowers to be aware of student loan scams in the coming months, saying that it’s likely scammers will pose as U.S.Department of Education personnel offering loan assistance.

    So how does the Biden Administration plan to respond to the 6-3 Supreme Court ruling? Let’s take a look at an excerpt from an email sent by the Department of Education to borrowers on July 1st:

    • First, we are taking action aimed at opening an alternative path to debt relief for working and middle-class borrowers. We started the process to provide relief to as many people as we can, as fast as we can, through rulemaking. Under the law, this path will take time, but we are determined to keep fighting for borrowers and we will keep you updated in the months ahead.
    • Second, the Administration is releasing the details of the most affordable repayment plan ever created, called the Saving on a Valuable Education (SAVE) PlanLater this summer, borrowers will start saving money under the new plan, which will cut monthly payments to $0 for millions of borrowers making $32,800 or less ($67,500 for a family of four) and save all other borrowers at least $1,000 per year. Additionally, it will stop runaway interest that leaves borrowers owing more than their initial loan.
    • Third, to help borrowers back into repayment, we are creating a temporary “on-ramp” to repayment for one year for those struggling to make payments. For borrowers who still cannot make their payments, we are creating a temporary “on-ramp” period that will help borrowers avoid the harshest consequences of missed, partial, or late payments. During that time, missed, partial, or late payments will not lead to negative credit reporting, default, or loans being sent to collection agencies. Borrowers who can make payments should do so, as payments will be due and interest will accrue during this transition period. Additionally, missed payments will not count toward loan forgiveness under any of the income-driven repayment plans or Public Service Loan Forgiveness.

    How high tuition prices will continue to influence college admissions

    The increasing cost of higher education will continue to marginalize low-income students. Even with scholarships and financial aid, the financial reality of student loans may be enough to dissuade many students from attending college. 

    It’s also likely that more students will choose to go to community college or trade schools, rather than accumulate thousands of dollars in debt by attending a 4-year college. In addition to learning Everything You Should Know About FAFSA, prospective college students may want to consider some of the Best Entry-Level Jobs with Useful Work Experience to ensure that they are able to pay off their student loans after graduation.

    Unfortunately, the Supreme Court ruling concerning student loans isn’t the only Supreme Court case affecting today’s higher education. The Supreme Court also recently ruled against the constitutionality of affirmative action. 

    Although the effects of this ruling have yet to be felt, you can learn more about the ruling’s anticipated consequences in our article, How Will the Supreme Court Cases Affect College Admissions? You may also want to take a look at our article, What You Should Know As A First-Generation College Student.

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