While the Biden administration had good intentions when unveiling its student debt forgiveness plan in August of 2022, none of the details have gone according to plan so far. Several lawsuits prevented the debt forgiveness from coming to fruition in the first place, and some of the arguments made their way all the way up to the Supreme Court of the United States.
Most people with student debt know the Supreme Court is done hearing arguments and preparing to issue a decision next month. At this point, the $10,000 to $20,000 in promised federal student loan debt per eligible borrower will have been up in the air for 10 months.
That’s a long time for borrowers to wonder about their fate, and this doesn’t even take the current payment pause on federal student loan debts into account. After all, payments on federal student loans have been paused many times since the beginning of the pandemic in March of 2020, and at this point, nobody is completely sure of when payments on federal student loans will pick back up again.
Note: The U.S. Department of Education says that, for now, payments are paused until the department can implement their debt relief program or litigation is resolved, and payments start 60 days after that. If student debt forgiveness doesn’t take place and litigation has not been resolved by June 30, 2023, however, payments resume 60 days after that. This timeline gets us to the end of August 2023 before federal student loan payments are due again.
Biden’s Backup Plans: Other Potential Debt Relief Efforts for Borrowers
At this exact moment, all we can do is wait to see how the Supreme Court rules on student loan forgiveness. If the court finds the $10,000 to $20,000 in forgiveness per eligible borrower is legal and plans can move forward, millions of borrowers would see part or all of their federal student debt wiped away and payments on remaining federal student loans would pick up 60 days after that.
One Option: The Higher Education Act
Jonathan McCollum, who serves as Chair of Federal Government Relations at Davidoff Hutcher & Citron, says that Biden’s remaining powers surrounding student debt are limited. McCollum says this is one of the main reasons White House officials have been reluctant to discuss alternatives to the student loan forgiveness plan. Not only are there few alternatives to try, but offering alternate solutions now could undermine the case that is currently before the courts.
If the justices do strike down the proposal, McCollum says the administration’s best alternative would be to look to the Higher Education Act (HEA). This 1965 law allows student loan relief for certain groups of borrowers, including those whose institutions have since closed.
McCollum points out that, under section 432(a) of the Higher Education Act of 1965 (20 U.S.C. 1082(a), the Secretary is given the authority to modify, “… compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.”
A potentially viable option is to issue a new executive order on loan forgiveness under HEA, says McCollum. He adds that using this law as a basis for executive action on student debt has been supported by Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren and other Democrats who once called on Biden to use his authority under HEA to cancel up to $50,000 in student loan debt for all borrowers.
The drawback to this is option that the section of the HEA before the “…” says “In the performance of, and with respect to, the functions, powers, and duties, vested in him by this part, the Secretary may—” This could be interpreted to mean that the forgiveness aspects are only allowed in certain circumstances. Forbes contributor and student loan expert Mark Kantrowitz has covered this area in-depth: Is Student Loan Forgiveness By Executive Order Legal?
Other Options: Expanding Other Programs
Another potential solution for Biden is working with Congress to achieve a legislative solution. For example, McCollum points to one such proposal that already has wide bipartisan support — the expansion of the Pell Grant program.
“Doubling the maximum size of the Grant and expanding eligibility to benefit more middle-income households will go a long way to decrease student debt before it has a chance to spiral out of control,” he says.
Finally, the Biden administration also has another plan in the works that can help borrowers with student loans lock in a more manageable monthly payment. By overhauling income-driven repayment plans for federal student loans and even introducing a new version of one of the existing plans, the administration says millions of borrowers with student debt can have a monthly payment of $0.
Essentially, the Biden administration has been trying to overhaul the Revised Pay As You Earn, or REPAYE, income-driven repayment plan to make it more valuable for borrowers who qualify. The U.S. Department of Education has a published list of the changes that would come into play with the upcoming plan, but here’s a summary:
- Revised Pay As You Earn (REPAYE) would be amended so it offered $0 monthly payments for individuals who earn less than roughly $30,600 annually and borrowers with a family of four who earn around $62,400.
- Monthly payments for other borrowers would be cut in half.
- Despite much lower payments, borrowers would not see their balances grow due to unpaid interest that accrues (also known as negative amortization).
According to an analysis from the U.S. Department of Education, the effects of upgrading REPAYE would be significant and long-lasting. For example, it’s estimated that future borrowers would see their total payments per dollar borrowed drop by 40%, and that borrowers with the lowest potential lifetime earnings could see payments that are as much as 83% lower.
They also note that a typical graduate of a public, four-year college or university could save nearly $2,000 per year in student loan payments compared to payments on REPAYE as it currently stands.
The Bottom Line
While President Biden’s plan to forgive $10,000 to $20,000 in federal student loan debt could still come to fruition, there’s a fairly decent chance it will be struck down completely by the Supreme Court. In that case, there are backup plans that could help relieve some of the pain of student loan debt, and of course Biden could try to forgive some debt via executive action.
Either way, anyone with federal student loans should begin preparations for repayment sometime later this year.
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