What’s ahead for student loan forgiveness? 

On June 30, the U.S. Supreme Court ruled in a 6-3 decision that President Biden’s executive order to forgive student loans was unconstitutional, Higher Ed Dive reports. Around 26 million borrowers applied for the program, and 16 million had been approved, according to The Hechinger Report.

The plan proposed to forgive $10,000 for borrowers currently earning less than $125,000 per year (or $250,000 for married couples or heads of households) and up to $20,000 for borrowers who met income requirements and were Pell Grant recipients while attending college. While the average borrower has over $30,000 in student loan debt, women, especially women of color, owe much more, according to The 19th News

The Biden Administration used the 2003 Higher Education Relief Opportunities for Students (HEROES) Act as the legal basis for their plan. The Act gives the federal government power in times of war and other emergencies to revise the federal student loan program for those at risk of default while bypassing the traditional regulatory or legislative processes.

The Biden Administration argued that the economic downturn caused by the COVID-19 pandemic was the emergency that gave the Education Department the power to forgive loan debts, noting that the Trump Administration had used the same reason to pause student loan repayments. However, the Supreme Court ruled that the HEROES Act does not authorize the administration to cancel student loans through executive order.

The plan faced legal challenges from two lawsuits: one from six Republican attorneys general that claimed the loan forgiveness would hurt the income of the Higher Education Loan Authority of the State of Missouri (MOHELA), and a second case, thrown out by the Court, that was led by two student loan borrowers who could not qualify for the relief. 

A new path forward

On the same day the Court announced its decision, President Biden said he would start new regulatory proceedings to cancel student debt through the Higher Education Act (HEA). The Court’s “decision has closed one path,” he said. “Now we’re going to pursue another,” according to Politico.

The proceedings will undergo a negotiated rulemaking process, which brings together stakeholders that would be affected by regulatory changes in Title IV financial aid programs and the HEA. After the completion of that process, the Education Department would draft a rule that would allow it to forgive loans. The first negotiated rulemaking meeting is set for July 18.

Some experts say the new plan may face similar legal challenges that plagued the Biden Administration’s original student loan forgiveness program, with critics arguing that such large-scale executive actions need congressional approval.

With student loan repayments scheduled to resume Oct. 1, the administration also announced that the Education Department is enacting a “temporary on-ramp repayment program” from Oct. 1, 2023, to Sept. 30, 2024, to protect struggling borrowers from defaulting on their loans, although interest will continue to accrue.

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