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Supreme Court Nixes Student Loan Forgiveness

New plan would have forgiven some debts, lowered payments for others

spinner image Close up of two college graduates with caps and gowns with the White House in soft focus  in the background.
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The Supreme Court has struck down the Biden administration’s plan to forgive up to $20,000 in student loans for qualifying borrowers under a policy the president announced Aug. 24, 2022. The move would have helped borrowers of all ages, including people 50 and over, who owe nearly 22 percent of all student loan debt.

The court, voting 6 to 3, held that the administration didn’t have the authority under the under the Higher Education Relief Opportunities for Students Act of 2003 to forgive the debt.

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“We hold today that the Act allows the Secretary [of Education] to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up,” Chief Justice John Roberts wrote in the majority opinion.

Justices Elena Kagan, Sonia Sotomayor and Kentanji Brown Jackson disagreed. “Congress authorized the forgiveness plan (among many other actions); the Secretary put it in place; and the President would have been accountable for its success or failure,” Kagan wrote in her dissent. “But this Court today decides that some 40 million Americans will not receive the benefits the plan provides, because (so says the Court) that assistance is too ‘significant.’”

How it would have worked

The administration proposed debt forgiveness for individuals with less than $125,000 in annual income and couples with less than $250,000 in income. Nearly 8 million borrowers could have been eligible to receive relief automatically because the U.S. Department of Education (DOE) already has the income information it needs to determine eligibility.

Students with Pell grants who meet the income limits would have had up to $20,000 in federal student loans forgiven. Pell grants are for students with the greatest financial need. Students without Pell grants would have had $10,000 in federal student loans forgiven.

Payments to resume in October

The moratorium on federal student loan payments began in March 2020 because of the COVID-19 pandemic, and that relief has been extended several times. The DOE says that interest on student loans will begin to accrue on Sept. 1 and that loan payments will resume in October.

Private loans have not been subject to the payment moratorium.

The median student loan payment — half are higher, half are lower — is $222 a month, according to the Federal Reserve. The average payment is $393. For retirees, still having student loan debt can be a particularly difficult problem. The average Social Security retirement benefit for 2023 is $1,827 a month, and for 1 in 4 Americans 65 and older, Social Security represents 90 percent of their family income.

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The DOE has four income-driven repayment plans that cap payments for undergraduate loans at 10 percent to 20 percent of a borrower’s discretionary income — that is, the money left over after necessities, such as taxes, everyday expenses and household bills. The terms run from 20 to 25 years. If borrowers haven’t fully repaid their loan at the end of that term, the balance is forgiven.

Those who work for certain nonprofit organizations, the military, or federal, state, tribal or local government may be eligible to have all of their federal student loans forgiven after 10 years through the Public Service Loan Forgiveness program.

A growing problem for those 50 and older

People may think of student loans as a problem only for younger borrowers, but in 2020, those 50 and older with loans owed $33.6 billion of the $1.6 trillion in student loans outstanding — more than a fivefold increase from 2004. In 1989, 3.1 percent of families headed by someone age 50-plus carried student loan debt, owing an average of $10,073. By 2016, 9.6 percent of families headed by someone age 50-plus carried student loan debt, with the average amount owed more than tripling to $33,053.

Many older Americans took out student loans because they wanted to get more education that could lead to a promotion or higher pay. Others decided to go back to school so they could change careers, particularly after suffering a layoff. And still others are on the hook for loans that paid for their children’s education, either from Parent PLUS loans — federal money borrowed by parents — or as cosigners for debt from private lenders. About 25 percent of borrowers age 50 or older make loan payments on private student loans because their student family member failed to do so.

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