Biden's first plan to cancel student debt would have been
really impactful,
but now you know, 43,000,000 federal student loan borrowers are
in limbo period.
Once again, my name is Ayala Cheffy.
I'm a senior economic policy reporter on the Economy team,
and I cover student debt.
At the end of August in
2022, Biden announced that he would be cancelling up to
$20,000 in student debt for Pell Grant recipients making under
$125,000 a year, and up to
$10,000 in student debt for borrowers who are not Pell
Grant recipients under that same income cap.
Both of these targeted actions are for families who need
it the most.
Working and middle class people hit especially hard during the
pandemic.
The court ultimately ruled that
Biden's plan was an overreach of authority using the HEROES
Act of
2003, a law that basically says that the education secretary
can waive or modify student loan balances in connection with
a national emergency.
Biden used that law to give borrowers financial relief as
a result of the pandemic,
even though the official national emergency declaration is over.
There were two different lawsuits that paused the implementation of
Biden's plan.
And the court ruled that one of those lawsuits actually
did not have standing to sue the Biden administration and
its debt relief plan,
So they threw the case out.
But the second case that they found does have standing,
and this was filed by 6 Republican LED states who
argued that Biden's debt relief would hurt their state's tax
revenues and the revenue of a student loan company called
Mohila. So the court ultimately ruled that those states did
have standing to bring this lawsuit and sue the Biden
administration.
And it also ruled that the HEROES Act was not
the proper law for Biden to use and that if
he wants to try again,
he's going to have to take a different legal path.
A lot of opponents of the court have argued that
the
conservative majority is using politics to influence a lot of
their decisions.
And that especially came to light with,
you know, not only the student debt decision,
but they're ruling to strike down affirmative action.
Of course, if if we go back to the overturning
of Roe V.
Wade as well, a lot of opponents have argued that
the conservative majority on the court is really consequential in
so many major decisions for millions of Americans.
That's why we have a lot of Democratic lawmakers,
even the Biden administration, who have been saying that the
Supreme Court needs to be reformed in some way to
ensure that there are not partisan influences driving these decisions
that have such huge impact.
Just hours after the Supreme Court issued its decision,
President Biden and Education Secretary Miguel Cardona announced what's coming
next.
Today's decision has closed one path,
now we're going to pursue another.
Essentially, what they said is that they have already begun
the process of using the Higher Education Act of
1965 to try again to cancel students at for millions
of borrowers.
And what differentiates the Higher Education Act from the HEROES
Act,
which is what Biden used the first time around,
is that it does not require the reliance of a
national emergency.
However, what's important to note is that using the Higher
Education Act is going to take a lot longer than
using the HEROES Act.
They have begun the process of trying again,
but borrowers don't know when they'll be getting relief and
if they'll be getting relief during Biden's term.
Payments are resuming in October,
which means that over 40 million federal borrowers will be
entering repayment again without the broad debt relief that they
were hoping for.
But the Biden administration also announced a 12 month on
ramp period for borrowers once payments resume in October.
So that means that if borrowers find that they can't
afford these payments when October comes or they miss payments,
their missed payments will not be reported to credit agencies.
However, interest will still be accruing once October begins.
So the Education Department does recommend that borrowers start making
those payments again because their balances will grow if they
miss payments.
A lot of economists have been predicting that it could
be a
pretty significant drag on the economy.
And that's because when these borrowers are dealing with an
additional bill that they haven't been
having for over three years due to the student loan
payment pause,
they'll find that they have a lot less money to
put into the economy,
to buy a house, to make those big investments that
borrowers have been able to do with the freedom of
the payment pause.
So it could really limit consumer spending,
and it could also potentially stimulate the
concerns of a mild recession that economists have been predicting
toward the end of this year.
Interest is a really big issue that makes
borrowers balances grow far larger than they initially borrowed,
and that's because of something called interest capitalization.
So even when borrowers are consistent on making their payments
every month,
interest never stops. Interest always adds on to a borrower's
original balance.
And that's why you hear of all these really horrible
stories of some student loan borrowers who have been paying
off their debt for decades and decades,
and their balance is sometimes 6 figures more than what
they initially borrowed.
It's a really big issue that the Baden administration and
lawmakers are trying to tackle right now because that's the
primary factor that borrowers are in a cycle of repayment
that they can't get out of due to surging interest
rates.
So I think there's a lot of anxiety and a
lot of concern about what's happening next.
And I know that a ton of borrowers are really
worried about if they can financially afford to even restart
these payments without the debt relief that they were promised.