Editor’s Note 6-29-23: The Supreme Court will announce its decision regarding the legality of President Biden’s student loan forgiveness plan on Friday, June 30, around 10 a.m. EDT. 401(k) Specialist will be covering the decision shortly after it is announced.
Another opinion day has come and gone at the Supreme Court, and still no decision announced regarding the fate of President Joe Biden’s controversial student loan forgiveness program.
The Supreme Court released three more opinions on Tuesday morning, but student loan forgiveness wasn’t one of them. Per SCOTUSblog’s Amy Howe this morning: “The court is now done. The justices will return to the bench to release opinions on Thursday. The chief justice did not include the additional language indicating that Thursday will be the last day before the summer recess… That means that we are expecting at least two more opinion days.”
The next opportunity for the justices to announce the fate of student loan forgiveness is 10 a.m. EDT Thursday, with the possibility that yet another opinion day could come Friday or Monday.
With the three decisions this released morning, the high court still has seven opinions left to release over the next week before the justices begin their summer break. While many expected the decision to be announced during an opinion day last week, the last opinions to be released often cover some of the most contentious issues the court has dealt with in its current term. That would include affirmative action and student loan forgiveness.
So the waiting game continues to see whether or not the Biden Administration will be allowed to proceed with its partisan plan to wipe roughly $430 billion of federal student loan debt off the books in $10,000 or $20,000 increments for potentially tens of millions of borrowers who earn less than $125,000 a year, or families earning less than $250,000. Roughly 25 million borrowers applied for the program last fall, and the Department of Education approved about 16 million for relief before court orders put it on hold last November.
Legal challenges
The proposal, first announced by President Biden last August, quickly drew swift criticism and subsequent legal challenges from Republicans, who argued that establishing the program through executive action was a violation of federal law and skirted the congressional authority needed to implement any type of debt cancellation plan.
Even some moderate Democrats including Sens. Joe Manchin (D-WV), Jon Tester (D-MT) and Catherine Cortez Masto (D-NV) have expressed opposition to Biden’s plan to forgive large amounts of student loan debt.
While the Biden administration argues that its debt forgiveness plan falls under the 2003 Higher Education Relief Opportunities for Students Act (HEROES Act), which grants the Department of Education the power to waive student loan repayments for those impacted by “a war or other military operation or national emergency,” Republicans disagree.
“Congress never intended anything like the loan cancellation effort underway here,” said an amicus brief filed with the Supreme Court by former House members who helped draft the HEROES Act including John Boehner, John Kline and Buck McKeon.
The legal challenges that put the plan on ice specifically involve two conservative-backed lawsuits which sought to permanently block the relief from reaching borrowers, and the Supreme Court heard oral arguments in both cases in February.
One of the lawsuits, Department of Education v. Brown, was brought by two student loan borrowers who sued because they didn’t qualify for the full $20,000 in relief. And the other lawsuit, Biden v. Nebraska, was filed by six Republican-led states who argued the debt relief would hurt their states’ tax revenues, along with the revenue of student-loan company MOHELA.
Before the Court decides if the challenged policy is legal, it must first determine whether the plaintiffs have standing and can validly sue the government. Plaintiffs must prove the policy would injure them, that the injury directly traces back to the defendant, and that the relief they’re seeking would address those injuries.
During February’s oral arguments, Chief Justice John Roberts as well as some other conservatives seemed deeply skeptical of the Biden Administration’s plan. Meanwhile, liberal justices, along with conservative Justice Amy Coney Barrett, scrutinized whether the states had standing to sue the federal government. One major sticking point was whether the states can involve MOHELA in their lawsuit, as the student loan company denied involvement in the case.
Payment pause ending
If the Supreme Court strikes down student loan forgiveness, as many expect it to do, most federal student loan borrowers will need to do some major budget-shifting come October, when they will need to resume monthly student loan payments that have been paused since the onset of the Coronavirus pandemic in March 2020. The typical monthly federal student loan payment is pegged at around $350.
The recent bill passed by Congress and signed into law by President Biden to raise the debt ceiling included a provision that forces the resumption of federal student loan payments later this year. The Department of Education recently posted on its website that “student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.”
The Department of Education said borrowers will receive a billing statement or other notice at least 21 days before payment is due, and the notice will include the borrower’s payment amount.
According to nonprofit public policy organization The Brookings Institution, the most concerning outcome of the end of the federal student loan payment pause—in effect since the onset of the Coronavirus pandemic in March 2020—is that borrowers who are unprepared for their payments to resume may fall into delinquency or default. This can result in wage garnishment and borrowers losing eligibility for additional financial aid.
The Biden Administration claimed about 16% of student loan borrowers were in default prior to the pandemic, including nearly a third of senior citizens with student debt.
Further complicating matters is that over the last 3 years, several large loan servicers have exited their contracts with the Department of Education, resulting in large numbers of loan transfers. The Consumer Financial Protection Bureau said this change could complicate the transition to repayment for the 44% percent (or more than 14 million) of borrowers in its sample who will have to work with at least one new servicer after more than 3 years of suspended payments. So far, more than 17 million accounts for federal student loans have been transferred, and more transfers—either to different servicers or different servicing technology platforms—are expected in the coming months, ultimately reaching more than 30 million accounts.
It is also important to remember that under a much-anticipated provision of SECURE 2.0, starting in 2024, employers may also make matching contributions to retirement plans including 401(k), 403(b), 457(b) government plans, and SIMPLE-IRA plans based on the employee’s qualified student loan payments.
This removes the difficult decision for many student loan borrowers of whether to make a bigger loan payment or contribute to their plan to capture the employer match. In the past, this decision has resulted in many participants missing out on the company match.
AOC: Debt cancellation coming regardless of ruling
The Congressional Hispanic Caucus held a press conference on June 21 to voice support for President Biden’s student loan forgiveness plan, where Rep. Alexandria Ocasio-Cortez (D-NY) said that even if the Supreme Court rules against it, progressive lawmakers will work to ensure borrowers will receive debt cancellation, one way or the other.
“We are prepared in the event of any outcome in this ruling,” Ocasio-Cortez said during the press conference. “We are here to fight, and we are here to make sure, and encourage, and have the president’s back, in making sure that this cancellation goes through for the millions of people in the United States.”
Ocasio-Cortez has been among a group of Democratic lawmakers who have urged President Biden to prepare a backup plan should the Supreme Court rule against his debt-relief plan, but the White House has not yet publicly commented on any alternate routes it would consider in the event the student loan forgiveness plan was struck down by the Justices.
Rep. Vicente Gonzalez (D-TX), who also spoke during last Wednesday’s press conference, tweeted, “Higher education is an investment in the creation of a better society, a better workforce, and better opportunities. Student loans hold back our people from achieving their full potential and living the American Dream. We need student loan forgiveness now.”
According to a May 10 poll from USA Today/Ipsos, 47% of Americans support Biden’s plan, including 83% of education loan borrowers, while 41% oppose the plan and 12% said they are undecided.
SEE ALSO:
• Supreme Court Ruling on Biden’s Student Loan Forgiveness Expected by End of Week
• Debt Ceiling Deal: Student Loan Payments to Resume
• SoFi at Work Launches Student Loan Debt Repayment Service
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
