The Supreme Court is meeting Tuesday to hear two cases challenging President Joe Biden’s student loan forgiveness plan. At stake: forgiveness of up to $20,000 in debt for more than 40 million Americans. Nearly half of those people could have their federal student debt wiped out entirely.
Already, about 26 million people have applied for debt forgiveness, and 16 million applications have been approved. However, because of court rulings, all the relief is on hold. The Education Department stopped taking applications in November because of legal challenges to the plan.
The Supreme Court will have the ultimate say on whether Biden can wipe out student loan debt, fulfilling a campaign pledge he made in 2020. Here’s what to know if you’re waiting for debt relief.
WHO QUALIFIES FOR BIDEN’S STUDENT LOAN FORGIVENESS?
The plan Biden announced last August would cancel $10,000 in federal student loan debt for those earning less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically come from lower-income households, would receive an additional $10,000 in debt forgiveness, for a total of $20,000.
Borrowers qualify if their federal student loans were disbursed before July 1.
HOW IS THE SUPREME COURT EXPECTED TO RULE ON STUDENT LOANS?
So far, Republican-appointed lower court judges have kept Biden’s plan from going into effect. The Supreme Court is dominated 6-3 by conservatives, but it remains to be seen how the justices will rule. Their questions in the oral arguments Tuesday, starting at 10 a.m. Eastern, will give insight into what they’re thinking.
WHEN WILL THE SUPREME COURT DECIDE THE STUDENT LOANS CASES?
The Supreme Court hears arguments Tuesday, but there won’t be a decision for months. The court usually issues all of its decisions by the end of June.
HOW DO I KNOW IF MY STUDENT LOANS WILL BE FORGIVEN?
Debt forgiveness, if it goes ahead, is for borrowers holding federal student loans, not private loans.
To determine what kind of loans you hold, log in to the Federal Student Aid website, studentaid.gov. Direct loans, including Parent Plus loans, qualify. Some older FFEL and Perkins loans are also eligible if owned by the Department of Education. For people holding older FFEL loans, consolidating those loans can lead to credit for forgiveness under certain income-driven repayment plans.
WILL THE PAUSE IN STUDENT LOAN PAYMENTS CONTINUE?
During the pandemic, two presidential administrations paused payments for those holding federal student loans. The pause has been extended to as late as this summer.
Payments are set to resume, along with the accrual of interest, 60 days after the court cases are resolved. For example, if legal issues remain at the end of June, payments would restart at the end of August. If the court issues a ruling in March, repayment could restart as early as May or June.
If the cases haven’t been resolved by June 30, payments will start 60 days after that.
IS IT POSSIBLE BIDEN’S STUDENT LOAN FORGIVENESS WON’T HAPPEN AT ALL?
Yes.
Biden’s administration is not saying whether it is exploring other options for canceling debt if it loses its court appeals. But advocates point to other ways the debt might be forgiven, including through the Higher Education Act.
HOW SHOULD I PREPARE FOR STUDENT LOANS PAYMENTS TO RESTART?
Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put your payment amount into a savings account.
“Then you’ve maintained the habit of making the payment, but earning a little bit of interest as well. There’s no reason to send that money to the student loans until the last minute of the 0% interest rate.”
Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find the payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.
“I really want to emphasize the long-term,” Mayotte said.
Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.
CAN I SET UP A PAYMENT PLAN FOR MY STUDENT LOANS?
Yes, but some advocates encourage borrowers to wait for now, since there’s no financial penalty during the pause on payments and interest accrual.
That said, Katherine Welbeck of the Student Borrower Protection Center recommends logging on to your account and making sure you know the name of your servicer, your due date, and whether you’re enrolled in the best income-driven repayment plan.
If your budget doesn’t allow you to resume payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. Both can hurt your credit rating, which would make you ineligible for additional aid.
If you’re in a short-term financial bind, you may qualify for a deferment or a forbearance — allowing you to temporarily suspend payment.
HOW CAN I REDUCE COSTS WHEN PAYING OFF MY STUDENT LOANS?
— If you sign up for automatic payments, the servicer takes a quarter of a percent off your interest rate, Mayotte says.
— Income-driven repayment plans aren’t right for everyone. That said, if you know you will eventually qualify for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest monthly payments possible, as the remainder of your debt will be canceled once that decade of payments is complete.
— Reevaluate your monthly student loan repayment during tax season, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it?” Mayotte said.
— Break up payments into whatever ways work best for you. You could consider two installments per month, instead of one large monthly sum.
ARE STUDENT LOANS FORGIVEN AFTER 10 YEARS?
If you’ve worked for a government agency or a nonprofit, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.
Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs. You can find out more about those plans here.
Borrowers who have been defrauded by for-profit colleges may also apply for borrower defense and receive relief.
These programs won’t be affected by the Supreme Court ruling
Justice Amy Coney Barrett, a conservative, questioned whether a group of Republican-led states can legally challenge President Joe Biden's student-loan forgiveness, similar to points raised by the Supreme Court's three liberals on Tuesday.
The nation's highest court heard oral arguments in two high-profile challenges to Biden's plan that would cancel up to $20,000 in student debt for federal borrowers. The first case heard on Tuesday involved six states, which argued that the debt relief would hurt their states' tax revenues, along with the revenue of Missouri-based student-loan company, MOHELA.
The Biden administration claims that the six states – Arkansas, South Carolina, Iowa, Kansas, Nebraska, and Missouri – lack standing, or the power to block Biden's relief by showing they suffered an injury from it. MOHELA previously denied having any involvement in the case, and the Biden administration argued in a court brief that the company can sue and be sued on its own, and the states do not have the standing to declare harm to MOHELA as harm to themselves.
Barrett scrutinized the relationship between Missouri and MOHELA, repeatedly questioning whether the states could sue the Biden administration over the debt relief.
"It would be hard to see how a win for the state would benefit MOHELA, or a win for MOHELA would benefit the state, if the assets are completely separate – you don't get any money out of it," Barrett told Nebraska Solicitor General James Campbell, who's representing the states.
"If the state wanted money from MOHELA right now," Barrett added, "Does the state have the authority to do that?"
Campbell defended that Missouri has an "ultimate interest in the property of MOHELA" and that the state legislature could take action to request money. Yet Barrett continued to question the states' position, saying "all of this would be a lot easier" had MOHELA filed a lawsuit against the Biden administration.
"Do you want to address why MOHELA's not here?" Barrett asked Campbell.
Campbell then claimed that "the state has the authority to speak for" MOHELA, but Barrett again pushed back.
"Why didn't the state just make MOHELA come then?" she said. "If MOHELA is an arm of the state, why didn't you just strong arm MOHELA and say, 'You've gotta pursue this suit'?"
"That's a question of state politics, but we believe as a matter of law that the state has the authority to assert its interests," Campbell said.
While a majority of the court's conservatives largely focused on whether Biden exceeded his legal authority by enacting the debt relief, Barrett mostly turned her attention to the issue of standing, which the court's three liberals, Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson, likewise scrutinized.
"If MOHELA is being injured as a result of the plan, or at least if that's the allegation, MOHELA has the ability to defend itself and its interests, correct?" Jackson asked US Solicitor General Elizabeth Prelogar, who argued on behalf of the Biden administration.
Jackson also raised concerns about the consequences of the Supreme Court potentially expanding the principles of standing by weighing in on the legality of Biden's plan.
"I feel like we really do have to be concerned about jumping into the political fray unless we are prompted to do so by a lawsuit that is brought by someone who has an actual interest," Jackson said. "So this is why I'm sort of pressing really hard on the standing point."
MOHELA's mention in the case has fallen under scrutiny. David Nahmias, a staff attorney with the UC Berkeley Center, previously told Insider that "on one hand, when the state created MOHELA over 40 years ago, it made clear that MOHELA is separate."
"But now with this lawsuit, Missouri is trying to argue that the state will lose income by virtue of the fact that student debt cancellation possibly could cause MOHELA to lose some loan servicing revenue that possibly could be passed along to the state of Missouri," Nahmias said.
Josh Blackman, a South Texas College of Law professor, previously told Insider that the standing question is "the biggest hurdle" for the states because Biden's plan isn't "hurting people" but "helping them."
Lower courts have temporarily blocked Biden's plan from taking effect. The Supreme Court is expected to hand down its decision by June.