SCOTUS Blocked Student Loan Forgiveness, Now What?

Last week, SCOTUS blocked the Biden Administration from canceling over $400 billion dollars in student loan debt.

In response, the Biden administration is taking the following actions:

1. Instead of trying to pursue student loan forgiveness through the HEROES Act of 2003, which was the legal basis for the plan denied by SCOTUS last week, the Administration will pursue a new forgiveness plan through the Higher Education Act.
2. The administration is introducing a new, more advantageous repayment plan called the Saving on a Valuable Education (SAVE) Plan.
3. Adding a 12 month transition period to help borrowers avoid default when repayments restart in October.

‍Pursuing Forgiveness through a Different Legal Authority

Instead of trying to pursue student loan forgiveness through the HEROES Act of 2003, which was the legal basis for the plan denied by SCOTUS last week, the Administration will instead try to pursue a new forgiveness plan through the Higher Education Act.

While some experts believe that broad cancellation would be lawful and permissible under this existing law the process for pursuing forgiveness via the Higher Education Act is expected to be lengthy.

‍Introducing a New, More Advantageous, Repayment Plan - Saving on a Valuable Education (SAVE) Plan

The administration has released final regulations for its new income-driven repayment (IDR) plan, known as the Saving on a Valuable Education (SAVE) Plan, in an attempt to make student loan payments more affordable and help more borrowers avoid delinquency and default.

Highlights of this plan include:

• Payments on undergraduate loans will be cut in half, from 10% to 5% of a borrower's discretionary income.
• The Department will stop charging any monthly interest not covered by the borrower's payment on the SAVE plan.
• Single borrowers who earn less than $32,805 a year will not have to make payments.
• Married borrowers who file their taxes separately will no longer be required to include their spouse's income in their payment calculation for SAVE.

‍Adding a 12 Month Transition Period to Help Borrowers Avoid Default

When payments resume, borrowers who miss a payment or who make partial or late payments will not have their accounts marked as delinquent or go into default.

This “on-ramp” period will last for 12 months, starting in October and it’s the hope of the administration that this will help borrowers transition more easily back into repayment. Any missed payments during those months will not count towards IDR forgiveness or PSLF.