What to know about student debt relief ahead of the Supreme Court hearings

The Supreme Court will have its first hearing on President Biden’s student loan forgiveness plan tomorrow, February 28. Biden’s plan would forgive $10,000 of student loan debt for borrowers who made less than $125,000 in 2020 or 2021 and $20,000 for borrowers who meet that criterion and received a Federal Pell grant.

The application opened in October but was quickly closed due to the ongoing legal battle around student loan forgiveness. Meanwhile, the Biden administration has extended the ongoing student loan payment pause until 60 days after June 30 or 60 days after the Supreme Court reaches a final decision, whichever comes first.

Anticipation and anxiety over the fate of student loan forgiveness are high going into the first day of the Supreme Court hearing. Payments on student loans have been paused for nearly three years, and many are concerned that if student loan forgiveness does not pass, we could see a large rise in delinquencies and defaults when payments resume.

It is unclear how long a decision from the Supreme Court will take. Repayments could start as early as May or as late as August or September, depending on how things unfold. Tomorrow’s hearing should shed more light on the exact timeline.

Here is everything you need to know about the legal battle over student loan forgiveness, the end of the repayment pause and how to prepare for the Supreme Court’s decision.

Student loan forgiveness and the payment pause: A timeline

The case against student loan forgiveness

The two cases being brought to the Supreme Court both seek to strike down Biden’s student debt relief program, but the origins of these cases are different.

The Department of Education v. Brown was brought up by two graduate students, Myra Brown and Alexander Taylor, who argued that Biden’s plan does not have broad enough eligibility criteria and that greater debt relief should be provided. They argue that students should have been given notice and able to comment on the plan before it was passed.

This claim was denied by the Northern District of Texas on the basis that the HEROES Act exempts notice and comment requirements. However, the Court separately held that the plan exceeds the authority of the U.S. Secretary of Education, striking it down nationally.

The second case being heard by the Supreme Court, Biden v. Nebraska, was a joint lawsuit brought up by the states of Nebraska, Arkansas, Iowa, Kansas, Missouri and South Carolina. The case also argues that the student loan forgiveness program exceeds the Secretary of Education’s authority. The case was dismissed at first by the district court, but the Eighth Circuit Court of Appeals granted a nationwide injunction. It did so on the grounds that at least one of the states involved in the case, Missouri, had grounds due to the financial impact student loan forgiveness would have on Missouri’s Higher Education Loan Authority (MOHELA).

More than a dozen briefs have been filed with the Supreme Court arguing for and against student loan forgiveness. Notably, over one hundred Republican lawmakers recently filed a brief urging the Court to strike down the plan on the basis that it is an overreach of executive power. There is broad concern that Biden’s use of the HEROES Act to justify executive action on student loan debt is faulty and that the administration will have trouble proving that every student loan borrower experienced direct financial harm due to the COVID-19 pandemic.

There is also concern that the Major Questions Doctrine, which states that Congress must authorize acts with significant political or financial implications, may jeopardize the Biden administration’s case. Experts have expressed doubts that Biden’s student debt forgiveness plan will be approved by the Supreme Court under these circumstances, especially given that the Court has shut down programs by both the Biden and Trump administrations in the past for exceeding their legal authority.

Support for student debt relief

Meanwhile, dozens of briefs have been filed to the Supreme Court in favor of Biden’s student debt relief plan. These briefs were largely filed by legal experts, civil rights groups, labor unions and state governments.

One of the primary arguments made by supporters of the president’s plan is that the states who sued in Nebraska v. Biden do not have the legal authority to do so. One of the briefs, filed by law professors Samuel Bray and William Baude, argues that the student loan servicers in those states that will lose profit should have brought the case forward, not the states themselves.

Another brief, filed by former U.S. Representative George Miller, argues that since the U.S. has been under a state of emergency since March 2020, the HEROES Act should apply, and the Secretary of Education does have the authority to provide relief to borrowers.

The Biden administration and the Department of Education have maintained that the 2003 Heroes Act, which states that the Secretary of Education has the legal authority to change existing legislation to protect borrowers from economic harm during a national emergency, gives them the authority to pass the student loan forgiveness program.

The Department of Education has also argued that denial of the student loan forgiveness program could result in historically high default and delinquency rates when student loan payments restart. These concerns are elevated by data from the Biden administration showing that 26 million people applied and were automatically eligible for student debt relief in the short time the application was open. Many borrowers have echoed these concerns.

How will the Supreme Court’s decision impact borrowers?

If the Supreme Court rules against Biden’s student loan forgiveness program, there is likely to be financial turmoil for borrowers.

Low and middle-income borrowers are likely to suffer the most, given that almost 90 percent of debt cancellation benefits would go to borrowers making less than $75,000 annually. It is also important to note that borrowers who received Pell grants, meaning they come from low-income families, are eligible for the most relief under the plan.

Given the current economic environment of high inflation and high borrowing costs, many borrowers may be in worse financial shape than before the pandemic. Data from the Consumer Financial Protection Bureau shows that 7.1 percent of borrowers are behind on debt payments, compared to 6.2 percent before the pandemic. Similarly, the Federal Reserve Bank of New York has reported that younger borrowers have fallen behind on credit card and auto loan payments in recent months.

In addition to low-income borrowers, people of color and women will be heavily impacted by the Court’s decision. The fate of student debt relief will greatly impact people of color, given that the student loan crisis is one of the primary contributors to the racial wealth gap in the U.S. Women stand to gain the most if student loan forgiveness is passed because they tend to attend college at higher rates than men and hold two-thirds of the country’s outstanding student loan debt. This means they will also be the most affected if student loan forgiveness does not pass.

Sixteen million borrowers have already been approved for student debt relief, and more than 40 million are eligible. If student loan forgiveness is passed, it could drastically change the lives of many for the better. The White House has reported that nearly 20 million borrowers would never have to make student loan payments again if the plan goes through because it would erase all of their debt.

For those who would not have their debt wiped out completely, student loan forgiveness could lower their monthly payments by roughly $63. Student loan forgiveness could also significantly improve the racial wealth gap, according to a brief filed by the NAACP, which notes that Black borrowers are twice as likely as white borrowers to end up owing more than they borrowed.

How to prepare for the end of the payment pause

Whether Biden’s student loan forgiveness plan goes into effect or not, student loan repayments are resuming soon. If you have student loans and are concerned about how the Supreme Court’s decision will impact you, there are several things you can do to prepare.

The first thing you should do is contact your student loan servicer and make sure you have up-to-date information about how much you owe, your repayment plan and when your next payment is due. If you have any questions or want to change your repayment plan, contact your loan servicer early. Once repayments begin, student loan servicers will be overwhelmed with calls and inquiries. It may be harder to get the answers you need quickly.

If you are facing high student loan payments and are worried your income won’t cover them, you should consider applying for an income-driven repayment plan or consolidating your debt.