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What You Need to Know About Biden’s Student Debt Plan and the Supreme Court

President Joe Biden announced in 2022 that he would use executive action to forgive many government student loans. The move was meant to alleviate the weight of $1.8 trillion in federal education debt, a figure that has more than tripled in the last 15 years. But the plan faces two challenges before the Supreme Court, and a pause in student debt payments imposed during the pandemic is set to expire. Whatever the court’s ruling, millions of Americans are expected to fall behind on their debt and millions more to struggle to keep up once the pause ends. 

1. What is Biden’s plan?

The relief package is limited to those with annual incomes of less than $125,000 for individuals or $250,000 for households. It provides as much as $10,000 in debt relief for most borrowers and more — as much as $20,000 — for those who received Pell grants, federal awards to undergraduates who displayed exceptional financial need. As many as 43 million borrowers are eligible to benefit from the plan, according to the White House, which said the relief would cancel the remaining balances for almost half of them. The New York Federal Reserve estimated that the plan would wipe out more than $400 billion in debt. 

2. Who would be left out?

According to Education Department data as of the end of 2022, 15.1 million borrowers owed $10,000 or less and 27.4 million borrowers had debt of between $10,000 and $100,000, though some of them were Pell Grant recipients and therefore eligible for as much as $20,000 in relief. Only 3.4 million owed more than that, including about 1 million who had debt exceeding $200,000, a group that likely included many current or former graduate students. The forgiveness would also extend to Parent PLUS loans, which are awarded to parents whose children need help paying for their undergraduate studies beyond any financial aid they’ve received. Overall, 3.7 million parents are carrying $108.5 billion of their childrens’ student debt.

3. What else has Biden done?

On his first day in office, he directed the Department of Education to extend a freeze on federal student-loan payments and to keep the interest rate at 0%, which means no interest accumulates during the freeze. Biden extended that moratorium, which does not apply to private loans, when he announced the debt relief plan in August 2022. The payments were first suspended in 2020 as part of the pandemic relief effort. The Education Department says that payments will resume by the end of August, or 60 days after the litigation is resolved. Biden’s administration has already been forgiving targeted amounts, including the $5.8 billion in debt for students who the government said were defrauded by the defunct Corinthian Colleges Inc., a for-profit college chain. 

4. What’s the argument in favor of the debt-canceling plan?

When the idea was first floated during the 2020 campaign, part of the rationale for both debt cancellation and the payments pause was to support a pandemic-weakened economy. That seems less apt now, as the US is confronting the steepest inflation in decades. Some forgiveness could help keep struggling borrowers from defaulting, which can scar credit reports. Some advocates see the issue as generational fairness, saying no previous cohort had to enter adulthood with such a debt burden. There’s also a racial equity element: Forgiving $10,000 in debt to all borrowers regardless of income would have zeroed out loan balances for 2 million Black borrowers and reduced the Black-White gap in the share of individuals with student debt from 9 to 6 percentage points, according to data Senator Elizabeth Warren cited from the University of California Merced and Princeton University. Also, according to the White House, Black borrowers are twice as likely to have received Pell Grants than White ones.

5. What is the court case about? 

Six Republican-led states are challenging the plan, saying it exceeds the president’s authority. A federal trial judge blocked the program, and the Supreme Court agreed to hear the administration’s appeal on a fast-track basis. The court later expanded the case to include arguments from two borrowers who say they are being unfairly excluded from the full benefits of the program. Some outside legal experts have expressed skepticism that Biden’s plan will prevail. The administration is using a 2003 law called the Heroes Act to argue that it has the legal authority to cancel debt due to the financial hardship caused by the pandemic. The court’s conservative majority has blocked a number of measures the administration based on emergencies caused by the pandemic, and has used what it calls “the major questions doctrine” to rein in what it’s called expansions of agency authority not explicitly authorized by Congress.

6. What else do critics say? 

Some say that the plan would be unfair to those who have already paid back student loans or who worked their way through college to avoid debt. Some progressive activists, like Warren, have called for forgiving up to $50,000 in loans, while others have pressed for deeper relief for targeted groups, like students who didn’t finish their degrees. Some student loan advocates stress the importance of making forgiveness automatic, or at least lowering the bureaucratic hurdles that have plagued other student loan repayment programs to help struggling borrowers. And people on all sides of the issue point out that forgiving debt does nothing to alter the economics of education that produced the borrowing in the first place — the rising price tag for higher education.

--With assistance from Josh Wingrove and Alex Tanzi.

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