Learning
Calculator
Interest Calculator
The Supreme Court has blocked President Joe Biden's student loan debt relief plan.
By
Eliza Haverstock
The Supreme Court has blocked President Joe Biden's student loan debt relief plan, saying his administration lacked authorization under the HEROES Act to forgive up to $20,000 in student debt per borrower. Some 43 million borrowers won’t see a cent of the debt cancellation promised by the White House last year. Under current guidance from the Education Department, borrowers must get ready to resume student loan payments starting in October on their full student loan balance. Biden responded that his administration was pursuing a student debt cancellation plan B. This route leans on a different legal avenue than the one struck down by the Supreme Court, and the process could take a year or longer. But a plan B remains far from guaranteed, and there is no timeline yet. Take steps to prepare for repayment now. "Now that we have the decision, we can move forward," says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. "There are a lot of borrowers who have been in limbo waiting to see what was going to happen."
The court ruled in two cases, and struck down the cancellation through the second case. All nine justices unanimously dismissed the first case, Department of Education v. Brown, because they found the plaintiffs had no standing to sue since they "fail to establish that any injury they suffer from not having their loans forgiven is fairly traceable to the Plan." The two plaintiffs — individuals who claim they weren’t eligible for part or all of the relief — said they were harmed by not having the opportunity to participate in a notice-and-comment period for the program. In the second case, Biden v. Nebraska, the court found that at least one plaintiff, the state of Missouri, had the right to sue. Six states sued jointly — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — alleging the relief would harm tax revenue in those states in addition to the finances of certain state-based loan agencies. With standing established, a 6-3 majority of justices declared that Biden's student debt cancellation plan, enacted under the 2003 HEROES Act, was unconstitutional. Chief Justice John Roberts delivered the opinion of the court, joined by Justices Clarence Thomas, Samuel Alito, Brett Kavanaugh and Amy Coney Barrett. "The Secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal. It does not," wrote Chief Justice John Roberts in the majority opinion. "We hold today that the Act allows the Secretary to 'waive or modify' existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up." Justice Elena Kagan penned the dissent, joined by fellow liberal justices Sonia Sotomayor and Ketanji Brown Jackson.
Federal student loan payments are set to resume soon, with no possibility of further forbearance extensions. Interest will start accruing again on Sept. 1, and borrowers will have to resume monthly payments on their full student loan balance starting in October. "Take your time, get very organized, identify where your loans are, what your repayment expectations are, sit down and actually create your own budget or spending plan," says Stacey MacPhetres, senior director of education finance at EdAssist by Bright Horizons, an education and child care company. "And then take the time to figure out what you need to do." If you set money aside during the payment pause, consider making a lump sum student loan payment toward your balance before Sept. 1 to avoid racking up interest. » NEWS: Student debt canceled for 804K longtime borrowers Find your servicer and set up payments Check to see who your servicer is. Roughly 44% of borrowers now have a different federal student loan servicer than before the pandemic, according to the Consumer Financial Protection Bureau. You can identify your servicer by logging into your studentaid.gov account with your FSA ID or calling the Federal Student Aid Information Center at 800-433-3243. Your servicer can help you do the following: Check that your contact information is up to date. Determine the amount you owe, the size of your monthly payments and when your first bill will be due. Set up auto-pay. If you had this set up before forbearance, you'll need to sign up again. Discuss student loan repayment plan options to potentially lower your monthly bills. Expect long wait times when calling your servicer, cautions Scott Buchanan, executive director of the Student Loan Servicing Alliance. You may also be able to check some of this information on your servicer's self-service online portal to avoid the customer service bottleneck.
Shortly after the Supreme Court announcement on June 30, Biden announced a 12-month "on-ramp" repayment program. Borrowers who can't make payments won't fall into default until a year of missed payments, but interest will still accrue, so you should pay if you can. Contact your servicer before you miss a payment. Ask about your options to lower or temporarily suspend payments through student loan deferment or forbearance. Start with an IDR plan, which sets payments at a portion of your income and extends your repayment term. These options can help keep you out of student loan delinquency (when a payment is late by as little as one day) and default (when a payment is at least 270 days late). Don’t skip student loan payments. Defaulting on your loans can set off a devastating cascade of financial consequences, says Kristen Ahlenius, director of education at workplace financial wellness company Your Money Line. This can include credit score hits, seized paychecks and more.
