U.S. Supreme Court Strikes Down President Biden's Student Loan Forgiveness Plan

The U.S. Supreme Court has ruled against the Biden administration’s student debt forgiveness plan in a blow to millions of borrowers.

By , Attorney

On June 30, 2023, the U.S. Supreme Court struck down President Biden's debt cancellation plan. Under this plan, announced last August, $10,000 in federal student loan debt, or $20,000 if you went to college on Pell Grants, would have been canceled for those earning less than $125,000 per year or households earning less than $250,000.

However, in the case of Biden v Nebraska, six Republican-led states—Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina—argued that Congress should have approved any student loan debt cancellation plan. They also claimed that the Biden administration and the U.S. Department of Education abused their emergency authority under the 2003 Higher Education Relief Opportunities for Students (HEROES) Act, which the administration used to justify the plan. In a 6-3 decision, the Court found that the HEROES Act didn't grant the legal authority for the debt relief program.

In addition, the student loan payment suspension, which began in March 2020, will end soon. Student loan interest will start accruing on September 1, 2023, and payments will be due beginning October 2023.

Responding to the Court's ruling, President Biden announced he directed the Secretary of Education, Miguel Cardona, to begin a process using the Secretary's authority under the Higher Education Act to provide debt relief to borrowers. The Department of Education also finalized an affordable repayment plan. Under this plan, many borrowers won't have to make monthly payments, and those that do will save more than $1,000 a year.

The administration is also introducing a 12-month "on-ramp" repayment program when student loan payments resume. Beginning October 1, 2023, and for a year after that, the Education Department won't report borrowers who miss payments to the credit bureaus, consider them delinquent, place them in default, or refer them to debt collection agencies. (But interest will accrue.)

These new debt-relief initiatives are also likely to face legal challenges.

Effective date: June 30, 2023