If you are a federal student loan borrower, you may be wondering if your loans will be forgiven. Last year we thought it was going to happen, President Biden passed an Executive Action to forgive up to $20,000 for each qualifying federal student loan borrower. It seemed to be well underway, there was even an application launch. Then, the legality of mass student loan forgiveness was put into question and the program was halted. Now the Biden-Harris Student Loan Forgiveness plan is in the hands of the courts.
What is the Biden Student Loan Forgiveness Plan?
Biden student loan forgiveness is a mass student loan forgiveness program. It would offer up to $20,000 in federal student loan forgiveness for borrowers of federally-held student loans if they received a Federal Pell Grant. Borrowers who did not receive a Federal Pell Grant would only be eligible for forgiveness up to $10,000. To qualify, you would need to have a federally-held federal student loan--basically, those loans that have been on a payment hold and at zero percent interest since March 2020 for COVID-19 relief--and you would have needed to have an income under $125,000 for individuals and under $250,000 for couples and heads of households in 2020 or 2021.
Current Status of Biden Student Loan Forgiveness
While the U.S. Department of Education had a way to apply for forgiveness for several weeks, lawsuits against the forgiveness plan put those applications to a halt. The fate of this forgiveness opportunity is with the Supreme Court. On Feb. 28, 2023, the Supreme Court began to hear the arguments for and against the legality of the forgiveness program. Six states—Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina filed the suit Biden v. Nebraska, and two individuals filed a suit Department of Education v. Brown, and those two lawsuits remain standing. While a handful of other lawsuits were filed, they were dismissed by lower courts.
Arguments of Legality for Biden Student Loan Forgiveness
Biden's Student Loan Forgiveness was authorized under an executive action. The Biden administration, including the U.S. Secretary of Education, has argued that the creation of the program was done to prevent harm caused by the National State of Emergency, the COVID-19 pandemic. While federally-held federal student loans have been on a payment pause since March 2020, there is concern regarding the well-being of borrowers when they must re-enter repayment. The Secretary of Education has made the argument that the HEROES Act of 2003—the Higher Education Relief Opportunities for Student Act—which was enacted by Congress, allows the Secretary of Education to waive or modify existing laws. It is also a requirement that any modifications or waivers made cannot cause harm.
HEROES Act of 2003 and Student Loan Forgiveness
The Biden administration has cited the HEROES Act as its statutory authority—legal authority—to allow for mass student loan forgiveness. The Secretary of Education has indicated concern that borrowers, following the pandemic, may face a higher risk of falling behind on their student loan payments. Especially those borrowers from lower-income households. Providing relief of $10,000 in federal student loan forgiveness, or $20,000 for Pell Grant recipients, should ease the burden of re-entering repayment and reduce the risk of borrowers falling delinquent on their student loans. Essentially preventing harm to borrowers.
The opposition in Biden vs. Nebraska has claimed that the Secretary of Education and the Biden administration have overstepped their power by granting mass student loan forgiveness. They made arguments that the administration was already providing relief to student loan borrowers, and it was a campaign promise to provide student loan forgiveness. Today they made it clear that they do not believe that the HEROES Act allows for this type of authority for mass student loan forgiveness. They believe that forgiveness of approximately $400 billion should be authorized lawfully, i.e., as an act approved by Congress.
Student Loan Forgiveness Causes Harm
In addition, the opposition stated that the student loan forgiveness plan will cause harm. They pointed out that MOHELA—Missouri Higher Education Loan Authority—would be harmed by student loan forgiveness. MOHELA provides several different services to students and borrowers. They are a federal student loan servicer, and they are a state-created agency that provides financial aid opportunities to residents of the state of Missouri.
The argument being made, if student loan forgiveness cuts part of their federal student loan servicing portfolio, they would not be able to provide as much financial aid to the residents of the state of Missouri. However, MOHELA was not present at the hearing. The Supreme Court justices questioned their absence, and it was clear that they were questioning the state of Missouri’s ability to argue on their behalf. It was stated by the opposition of forgiveness that the state had the authority to speak on their behalf, however, the justices pointed out that MOHELA has the power to bring their own lawsuit, yet they haven’t entered a lawsuit against forgiveness.
Method of Establishing Law – the Procedural Claim Against Student Loan Forgiveness
In the Department of Education vs. Brown, it was an interesting argument. Two individuals, who are unable to qualify for Biden Student Loan Forgiveness, claim that the government did not follow the proper procedures in the rulemaking process. In defense of the creation of the forgiveness program, it was stated that the Secretary appropriately created the program under the authority of the HEROES Act.
So what procedures were omitted which caused harm? Specifically, the process of negotiated rulemaking allows notice and comment. However, it was noted during the arguments that the HEROES Act does not require the process of negotiated rulemaking, which is required by the Higher Education Act. What is negotiated rulemaking? If the U.S. Department of Education were to create regulations for the federal student aid programs, they must present notify the public of the intent to create regulations and then allow public comment on the drafted regulations. Once a review of the public comment is completed, the U.S. Department of Education is required to issue a response to the comment received and provide the final rules.
The claim bought in front of the Supreme Court essentially states that the creation of a $400 billion forgiveness program under the HEROES Act not only eliminates, but also circumvents the negotiated rulemaking process, and therefore creates an inability for public comment. And the argument is that this harmed the two individuals/student loan borrowers who brought the case, Myra Brown and Alexander Taylor, who will not qualify for student loan forgiveness under the Biden program. They both claim that the negotiated rulemaking process would have allowed them to provide their concerns to the U.S. Department of Education for consideration, and that may have expanded eligibility to allow them forgiveness of their student loans. Their concern was the fact that the Biden administration explained that forgiveness would be a one-time opportunity, and if they are not eligible for the program, they would never have the opportunity for student loan forgiveness.
What to Expect in the Coming Months?
The arguments have been made, and now it’s in the hands of the Supreme Court. We expect it to take a few months for a ruling. The Supreme Court needs to decide on both lawsuits. For the lawsuit brought by the six states, they need to decide if the Biden administration acted within the legal authority of the HEROES Act to create the student loan forgiveness plan. For the lawsuit brought by the two individuals in Department of Education v Brown, they need to decide if their case has “standing.” To show that the case has standing, Brown, and Taylor would have needed to show that they are financially harmed by the plan.
Student Loan Repayment After Supreme Court Ruling
The Biden administration has indicated that the repayment pause will continue until 60 days after the case is resolved in the Supreme Court, or June 30, 2023, whichever comes first. If the Supreme Court rules in favor of the Biden administration’s student loan forgiveness program, the U.S. Department of Education has indicated that they will move forward with the processing of student loan forgiveness. If the court strikes down the student loan forgiveness program, then forgiveness under this program will not occur.
Borrowers, if you have federal student loans, you should make a plan. There is a worst-case and best-case scenario here. In this situation, it’s best to prepare to repay your federal student loans. Build those payments into your budget, it’s always easier to take a monthly expense than it is to add one in!