By Catherine Brown, Senior Director of Policy and Advocacy
Reading time: Four minutes
Today, the Supreme Court of the United States (SCOTUS) ruled against the Biden Administration’s student loan forgiveness program, finding that the Department of Education (ED) does not have the authority to forgive student debt under existing law. The Court found that one of the groups of plaintiffs in the cases before them – a group of state attorney generals – had standing to challenge the program and that the HEROES Act did not provide the authority for the Administration to provide student loan forgiveness. The HEROES Act is a law that provides the Secretary of Education with flexibility in administering student aid programs during a national emergency. SCOTUS found that the other group of plaintiffs, student borrowers, did not have standing.
Mere hours later, President Biden announced that his administration is pursuing Plan B. They set in motion a negotiated rulemaking process to use the authority contained within the Higher Education Act (HEA) - instead of the HEROES Act - to cancel student debt. “We intend to convene a committee to develop proposed regulations pertaining to topics in the title IV, HEA programs. Those topics are the authorities granted to the Secretary in HEA Section 432(a), which relate to the modification, waiver, or compromise of Federal student loans,” reads the notice published today in the Federal Register. At the same time, President Biden announced that his administration is, “creating a temporary 12-month 'on ramp' to repayment. This is not the same as the student loan pause, but during this period – if you miss payments – this 'on ramp' will temporarily remove the threat of default or having your credit harmed.”
While it will take time to determine whether this new approach passes constitutional muster, the administration is not letting the dust settle. On July 18 at 10 AM ET, ED will host its first public hearing to discuss the agenda.
Background
In August 2022, the Biden Administration announced a loan forgiveness program that would provide up to $20,000 in loan forgiveness for federal student loan borrowers (up to $20,000 for individuals who received Pell grants and up to $10,000 for all other borrowers) to help ease the transition back to repayment status. Nearly all federal student loan payments, interest accrual and collections on defaulted loans have been paused since the beginning of the COVID-19 pandemic in March 2022.
What's Next
With this decision, many borrowers are now wondering what will happen next. Action by Congress and the Biden Administration’s own plans will affect the path forward for federal student loan borrowers in the coming months:
Federal student loan payments will resume in September. Congress recently passed the Fiscal Accountability Act. Among other provisions, the bill would prohibit ED from using authorities the agency has been using since March 2022 to continue to pause federal student loan payments, interest accrual, and collections. The law set the end of August for the expiration of those authorities, meaning that ED will instruct the contractors they use to service Federal student loans to begin sending out bills in early September for payment starting in early October. Official details from ED and its servicers will be coming to borrowers in the coming weeks.
ED is expected to not immediately count delinquent payments and to allow borrowers to benefit from the “Fresh Start” initiative. While ED has not yet officially communicated this to borrowers, we expect that the agency will not count missed payments during the first 90 days after the resumption of student loan payments. ED will likely begin to inform borrowers of the exact policy on this matter and its details in the coming weeks. Likewise, ED has previously announced its “Fresh Start” initiative. This effort is designed to help defaulted borrowers return to repayment status, both for the purposes of enrolling in the most beneficial repayment plan, but also to return to school.
ED is also set to announce the details of a new Income-Driven Repayment Plan (IDR) in the coming weeks. This plan is likely to be one of the most borrower friendly IDR plans, providing faster paths to forgiveness for most borrowers, reducing the percentage of a borrower’s income required to be devoted to monthly loan payments and increasing the income threshold by which enrolled borrowers would have a zero-dollar monthly payment. The Administration has not yet finalized this plan, but stay tuned for updates from the National College Attainment Network (NCAN) on its details and how and when borrowers can sign up.
Today's decision by SCOTUS is a loss for student loan borrowers everywhere. Borrowers should closely examine the other options described above, including Fresh Start and the new IDR plan, especially when official details are released by ED. In the meantime, this lack of loan forgiveness should remind us all that doubling the Pell Grant, one of NCAN’s primary federal policy objectives, would help eliminate debt by making college more affordable on the front end for many of our nation’s students. NCAN remains committed to pursuing this objective through this and future Congresses.
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