Courts Block Another Student Loan Relief Program

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America’s student borrowers have lost again. Another effort by the Biden Administration to reduce student loan debt for millions of borrowers is now on the ropes as two federal courts ruled against it.

One or both cases will likely reach the Supreme Court, which decided last year that the Administration’s first debt reduction program had to be reworked.

And yet, if we clear away the smoke, millions of borrowers have already benefited from Administrative efforts to lower student debt burdens. The big question is what happens next – will those who have been able to reduce loan balances be able to keep their reductions and will additional borrowers benefit from new cuts that are almost certain to be announced?

Here’s what’s happened – and where you might get student loan help in the future.

Background

In 2022, the Biden Administration announced a $430 billion student debt relief program based on provisions of the Higher Education Relief Opportunities For Students (HEROES) Act. Passed unanimously by Congress in 2002 and signed by President George W. Bush, the legislation allowed the government to forgive student debt for individuals “who suffered direct economic hardship as a result of a war, military operation, or national emergency. “

The country was facing the COVID-19 pandemic in 2022 and thus almost everyone was impacted by a national emergency.

According to the Congressional Research Service, the Biden plan would “cancel or reduce federal student loan balances for borrowers with annual income in 2020 or 2021 below $125,000 or household income below $250,000 (categorical cancellation). The program will generally offer cancellation of up to $10,000 per eligible borrower, or up to $20,000 of cancellation for eligible borrowers who are also prior Pell Grant recipients.”

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Economic Impact

A debt reduction of $10,000 to $20,000 would be significant for millions of student borrowers, in many cases lowering or even eliminating all outstanding student loan balances. Borrowers with less debt have smaller monthly costs, the potential for higher credit scores, and a better chance to qualify for home and auto financing.

Such relief, however, goes beyond students. Much of the money not set aside for student debt repayments could instead be spent on local products and services. In effect, reducing student debt would have the effect of increasing local purchases, meaning more business income, profits, and jobs – and thus more tax revenue for states and localities.

The Supreme Court

The Heroes Act plainly gives the government some authority to “cancel or reduce” outstanding student debts. But does that mean the Biden Administration – or any administration – can simply write off $430 billion?

The answer, according to the Supreme Court, is no. Some reductions are okay, but in Nebraska V. Biden, the Court ruled that bigger programs require congressional approval.

The Court’s decision was announced in June 2023, but by that time the Administration had already provided substantial relief: $45 billion was forgiven for more than 660,000 public service employees, $10.5 billion went to 491,000 borrowers with total and permanent disabilities, $1.2 billion in relief was provided to 1.3 million borrowers who had been cheated by their schools, etc. In total, the Administration estimated that it had approved more than $116 billion in loan cancellations for 3.4 million borrowers by last summer.

The SAVE Student Debt Relief Program

The Supreme Court did not say that student debt relief was forbidden, only that it was limited under the HEROES Act. The Administration then turned to other laws that allowed forgiveness, reduction, or lower monthly payments.

The establishment of the Saving on a Valuable Education (SAVE) plan in August was a further effort to reduce student debt levels.

SAVE has a variety of debt and payment reduction plans. For instance, monthly undergraduate loan payments were reduced from 10% of discretionary income to 5% and loan balances could be forgiven after 10 years rather than 20 or 25 years. In some cases, monthly payments could fall to zero.

For details, go to the SAVE page.

2024 Court Cases

In the same way that the original forgiveness programs were challenged, the SAVE plan has also been tested in court. In June, a federal judge in Kansas ruled that the states of South Carolina, Texas, and Alaska had grounds to challenge the federal program.

A federal judge in Missouri found that seven states could test the SAVE program in court and ordered the federal government to suspend the program until the court challenge is resolved.

The matter is likely to again wind up before the Supreme Court. Meanwhile, as of March, the Administration said “over $140 billion for almost four million people who have received relief.” 

The Bottom Line: We don’t know how the federal court cases from Missouri and Kansas will be decided, but we do know this: When the federal government next announces a student debt reduction plan, act quickly to get as much help as you can just in case the program is later cut off.

Peter G. Miller

Peter G. Miller is a nationally-syndicated columnist, the author of seven books published originally by Harper & Row (including one with a co-author), and has contributed to leading online sites and major print publications. He has appeared on numerous media outlets including the Today Show, Oprah!, CNN, and NPR.

Peter has been an accredited correspondent on Capitol Hill and a member of the White House Correspondents Association. He has served with the District of Columbia National Guard and holds both BA and MS degrees from The American University in Washington, DC. View Peter on LinkedIn.

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