Student loans have always been a murky subject for many people, but the recent developments with loan repayments and forgiveness have made them all the more confusing.
Last year, President Joe Biden announced a plan to forgive up to $20,000 in student loans (or $10,000 for those who did not receive a Pell Grant) for borrowers earning under $125,000 per year.
Since then, the plan has been met with multiple lawsuits, and its fate is up to the Supreme Court -- which is expected to announce its decision in the coming weeks.
Image source: Getty Images.
However, even if the plan is struck down, the Biden administration has a backup plan that can still provide loan relief to borrowers.
Will the Supreme Court strike down loan forgiveness?
In short, nobody knows what to expect right now. But many are anticipating the plan will be struck down, especially given the conservative supermajority within the Supreme Court.
Lawsuits against the loan forgiveness plan allege that Biden overstepped his presidential authority by bypassing Congressional approval for the plan.
The White House, however, has argued that it does have this authority under the HEROES Act of 2003. This act allows the Secretary of Education to modify any laws applicable to federal student loans during a national emergency (such as the COVID-19 pandemic).
Debt relief is still a possibility
Regardless of what the Supreme Court decides, Biden's loan forgiveness plan is certainly not the first time the federal government has provided debt relief.
Both Biden and former President Trump paused loan repayments during the pandemic under the HEROES Act. And in 2022, the Department of Education announced that it had provided more than $10 billion in student loan relief in 10 months through the Public Service Loan Forgiveness (PSLF) program.
In other words, even if the Supreme Court strikes down the current loan forgiveness plan, there are many different ways for the government to provide debt relief -- and even the highest courts will have a tough time blocking all of them.
What may happen, then, is that loan forgiveness could be determined on a case-by-case basis. Borrowers would likely need to apply for debt relief and prove that they experienced financial hardship as a result of the pandemic in order to have their loans forgiven.
This plan wouldn't benefit as many people, and borrowers would have the burden of proving financial hardship. But it would still help those struggling the most with loan payments, especially as inflation remains high, and many Americans are grappling with a cost-of-living crisis.
What about loan repayments?
Biden's loan forgiveness plan is separate from the pause on loan repayments. Under the recently passed debt ceiling deal, the moratorium on loan repayments is ending this summer.
This means that anyone with outstanding federal student loans will likely need to begin making payments again starting in late August.
If the Supreme Court decides in favor of Biden's loan forgiveness plan -- or if the White House comes up with a case-by-case workaround -- that could change things. But for now, it may be wise to start preparing your budget for upcoming payments this summer if you still have federal student loans.
Student loans are complex and confusing, now more than ever. But the good news for borrowers is that loan forgiveness isn't necessarily off the table, even if the Supreme Court strikes down Biden's plan.
