- The Supreme Court is expected to issue a decision on Biden's student-debt relief by the end of June.
- It will determine whether borrowers have to resume payments this year with or without relief.
A critical Supreme Court decision for millions of student-loan borrowers could come by the end of next month. There's a lot at stake.
On February 28, the nation's highest court heard oral arguments in two cases that paused the implementation of President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers making under $125,000 a year. The relief was halted in November due to two conservative backed lawsuits: one was filed by two student-loan borrowers who sued because they did not qualify for the full $20,000 amount of relief, and the other was filed by six Republican-led states who argued the relief would hurt their states' tax revenues, along with the revenue of student-loan company MOHELA.
As Insider previously reported, conservative and liberal justices were largely split in their lines of questioning. While conservative Justice Amy Coney Barrett did join the liberals in questioning the plaintiffs' standing to sue in each of the cases, the conservative justices — the majority on the court — appeared skeptical of Biden's authority to use the HEROES Act of 2003 to cancel student debt, which gives the Education Secretary the ability to waive or modify student-loan balances in connection with a national emergency.
So, at this point, it's not clear how the Supreme Court will rule — but Biden's administration has continued to express confidence in the legality of its debt relief plan.
"The demand for this relief is undeniable," Education Secretary Miguel Cardona said in a statement leading up to the Supreme Court arguments. "In less than a month, 26 million people applied or were deemed automatically eligible for relief. And 16 million were fully approved. They could have debt relief right now if it weren't for these lawsuits."
For now, millions of borrowers are waiting to find out if they will see a reduction to their balances this year — a decision expected by the end of June. Here's what else is on the line.
Student-loan payment resumption this fall
In light of the two lawsuits that paused the broad debt relief, Biden in November extended the student-loan payment pause through 60 days after June 30, or 60 days after the Supreme Court issues its final decision, whichever happens first. And it looks like the Education Department is planning for those payments to resume with or without relief.
According to documents obtained by Politico via a public records request, the department has started issuing guidance to student-loan companies to prepare for the repayment resumption. Per the documents, companies should prepare to resume charging interest on borrowers' loans in September, and the department expects the first monthly payment for borrowers will be in October.
Additionally, SoFi Bank — a student-loan refinancing company — filed a lawsuit last month to end the payment pause, and at the very least, return borrowers ineligible for Biden's broad debt relief back into repayment. While it's highly unlikely the lawsuit will end the current payment pause given the legal timeline, it could prevent a further extension of the payment pause.
The implementation of targeted debt relief reforms
The Education Department has some other things in the works, aside from broad student-debt relief. In October, the department announced some permanent changes to the Public Service Loan Forgiveness (PSLF) program and income-driven repayment plans to ease the debt relief and repayment processes.
That included a one-time account adjustment to give borrowers another shot at ensuring their payments are up to date. Additionally, alongside its August announcement of broad debt relief, the department announced plans to create a new income-driven repayment plan that would require borrowers to pay no more than 5% of their discretionary income monthly on their undergraduate student loans — down from the current 10%.
These reforms are a big undertaking for the department, and on Monday, it announced it awarded five student-loan companies new contracts to overhaul the repayment system and facilitate "the most affordable repayment plan ever" when the contracts go into effect next year.
But, as the department noted in the press release, congressional funding is essential to effectively implement those reforms. The deadline for borrowers to see the results of the one-time account adjustment has already been delayed, and Biden's budget requested $2.7 billion for Federal Student Aid — a $620 million increase over the 2023 spending level — to carry out the reforms the department has announced. But with a Republican majority in the House, it's unlikely Biden's budget request will be approved at his requested levels, meaning further delays in relief reforms are likely.
A potential Plan B for broad student-debt relief
Since the Supreme Court arguments in February, the White House has maintained confidence in the legality of Biden's debt relief plan and has said on numerous occasions that it is not deliberating a backup plan right now should the relief get struck down.
"We feel confident in our authority under the HEROES Act to take the action that we have taken," Bharat Ramamurti, deputy director of the National Economic Council, told reporters in January.
"Obviously, the Supreme Court will weigh in on that soon," he added. "But we are not deliberating or considering any other kind of alternative approach. We're fully committed to the approach that the Secretary of Education used in this case, and we're confident in our legal authority."
But some Democratic lawmakers have previously expressed support for another legal route to cancel student debt using the Higher Education Act of 1965, which does not require the existence of a national emergency for relief. Biden's administration has not commented on whether it would consider going that route — but a Supreme Court decision signaled the justices could be open to it.
In a separate lawsuit unrelated to broad student-debt relief, three schools challenged a settlement the Education Department agreed to that would forgive student debt under the borrower defense to repayment, which allows a borrower to file a claim if they believe they were defrauded by a for-profit school, and if approved, their loans would be discharged.
The schools argued that Biden did not have the authority to enact that relief under the Higher Education Act — but the Supreme Court rejected their appeal, meaning that law could potentially succeed in another broad debt relief plan.
Are you feeling nervous about the Supreme Court decision? Do you have faith the relief will be upheld, or you're not really banking on it? Share your student debt story with this reporter at asheffey@insider.com.