Student loan hearing explained

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.

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.

Federal student loans taken out for both undergraduate and graduate school, including Graduate PLUS loans, can qualify for forgiveness under the plan.

Borrowers would qualify if their federal student loans were disbursed before July 1.

Under the plan, if you paid off your loans during the pandemic, you can request a refund and then apply for forgiveness.

The Supreme Court is dominated 6-3 by conservatives, and those justices’ questions in oral arguments Tuesday showed skepticism about the legality of Biden’s student loans plan. The court seemed likely to rule in a way that would doom the student loan forgiveness plan.

Several conservative justices suggested the administration had exceeded its authority with the program. Chief Justice John Roberts mentioned the program’s cost — an estimated $400 billion over 30 years — and its wide impact on millions of Americans. Most observers, he said, would think “that’s something for Congress to act on.”

Conservative Justice Brett Kavanaugh pointed out Congress had declined to pass student loan relief, so Biden did it himself. That, he said, “seems problematic.”

The only hope for Biden’s plan appeared to be a legal technicality. The oral arguments left a slim possibility that the court finds the states and people challenging Biden’s plan lacked the legal right to sue. We won’t know for sure how the court is going to rule until the decision is announced.

The Supreme Court heard arguments Tuesday, but there won’t be a decision for months. The court usually issues all of its decisions by the end of June.

All federal student loan borrowers are waiting for the Supreme Court either to strike down Biden’s forgiveness plan or allow it to go ahead. The relief under Biden’s plan is on hold until the court cases finish — even for people who applied for student loan forgiveness before courts blocked it.

If the justices allow the plan to proceed, Biden’s debt forgiveness 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.

If you’ve already applied and been approved, you should have received an email telling you this. But you’ll still have to wait for the Supreme Court ruling to find out whether those loans will be wiped out for good.

Ultimately, the cost would become part of the equation used to figure the federal deficit. Biden’s plan for student debt cancellation would cost the federal government about $400 billion over the next 30 years, according to the latest estimates from the Congressional Budget Office. The office cautioned that its estimates are “highly uncertain” because it’s hard to know exactly how much borrowers would have paid in the future without Biden’s action.

Biden has said those costs would be offset by other measures to reduce the federal deficit. He has pointed to a bill signed into law in August that’s estimated to raise around $740 billion over a decade, from a combination of government savings from lower drug prices, higher taxes on large corporations, levies on companies that repurchase their own stock and stronger IRS tax collections.

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.

Though, Biden’s student loan forgiveness might not happen, period. (Other loan forgiveness programs, such as those for teachers or nonprofit workers, or for people who have been defrauded by a for-profit college, would continue.)

The administration has not given insight into a Plan B if it loses the Supreme Court cases, which appeared likely during oral arguments Tuesday.