The Biden administration's plan to deliver up to $20,000 of relief to millions of borrowers struggling with outstanding debt in the aftermath of Covid was blocked today by the Supreme Court in a 6 to 3 decision.
The ruling stated that President Biden does not have the authority to cancel the $400 billion forgiveness plan. The state of Missouri had grounds to sue on behalf of MOHELA and won the case.
Before it was put on pause by two federal court rulings, more than 16 million borrowers were approved for loan relief, and another 26 million people had applied.
After months at the Supreme Court, millions of borrowers are left feeling the full weight of their debt, just before payments resume in October. If you have applied for relief and have been waiting for changes, the road to this forgiveness plan has come to an end. Uncertainty will continue to reign while waiting for further adjustments to be made.
Key Dates You Need to Know
- On September 1st, borrowers should expect their student loan interest to resume, as per official information from the US Department of Education website.
- Payments will become due starting October as the debt ceiling deal signed on June 3rd prevents the Biden Administration from extending the student loan debt moratorium without approval from Congress.
- Final details of Biden’s new IDR plan should be released in the next couple of weeks.
What’s Next for Student Loan Relief
This ruling reinforces the urgency for the Biden administration to confidently identify an alternative avenue to forgive student debt that would stand up to any potential legal challenge.
It’s possible Biden’s administration may take another stab at forgiving some student loans, under the 1965 Higher Education Act, a different law to the one at issue in the Supreme Court cases. However, this is not expected as it would likely get struck down as well.
Beginning in October, borrowers should be prepared to resume payments as the federal payment pause officially ends after three and a half years.
It’s important to know who your servicer is, and pre-enroll in the right repayment plan.
New Relief under Biden’s New IDR Plan
Biden’s new Income-Driven Repayment plan, or the Modified REPAYE plan, was not affected by this Supreme Court decision. The plan is based on the premise that payments should be affordable and that borrowers should not have to choose between paying their student loans and meeting their basic needs. This plan is available to federal loan borrowers, capping payments at 5% of discretionary income.
It is possible that Biden may adjust his plan to provide even more relief, given the Supreme Court decision on widespread forgiveness. This could mean increasing the cap on payments even further, raising the poverty line to allow more borrowers to be eligible for $0 payments, or increasing the forgiveness amount after 10 years. Currently, loans are forgiven after 10 years if the amount owed is $12,000 or less.
How to Ensure You Get the Forgiveness You Deserve
Because the final details of this plan are ongoing, the new IDR plan could potentially be more transformative than the one-time forgiveness plan.
View Income-Drive Repayment plans side-by-side in the Chipper app and pre-enroll in a plan today. Get updates to plan adjustments and be ready for payments to resume with details at your fingertips.