Supreme Court rejects Biden plan on student loan debt forgiveness: Here's what borrowers should know

The Supreme Court's decision Friday striking down the Biden administration’s plan to cancel $400 billion in student loan debt for millions of Americans could have massive implications for borrowers who've had their payments on hold since the start of the pandemic.

"I'm very pessimistic about what's going to happen once people who had no loan payments for three years wake up and they have to pay $800 a month out of left field," said Andy Lockwood, owner of Lockwood College Prep in Glenwood Landing, which helps clients obtain loans, grants and scholarships. "I think there's going to be a lot of defaults and a lot of credit problems."

President Joe Biden said later Friday that he will work to begin a new program that will remove the immediate threat of default, The Associated Press reported.

Here's what to know about the court's ruling:

What was Biden's student loan forgiveness plan and how did the Supreme Court rule?

The plan, introduced in August by executive order, would have canceled $10,000 in federal student loan debt for individuals making less than $125,000 annually or households with less than $250,000 in combined income. Pell grant recipients would have received an additional $10,000 in loan forgiveness.

The plan was expected to cost $400 billion over 30 years and applied only to federal loans.

The administration argued it had the authority to cancel student loan debt under the 2003 Higher Education Relief Opportunities for Students, or HEROES, Act, which provided relief to Americans serving in war, military operations or in national emergencies. The Education Department argued that the pandemic qualified under that description.

Six conservative states filed suit against the plan, arguing that it would harm them economically while benefiting an estimated 43 million Americans who would've seen their debt reduced or erased.

The conservative-led court ruled 6-3 against the plan.

When must borrowers begin repaying their loans?

No matter how the court ruled Friday, the loan repayment process, which had been on pause since March 2020, was set to restart Sept. 1 because of the end of the COVID-19 emergency, with regular payments due in October. Biden's plan would have allowed borrowers to see their balances decreased, or in some cases erased altogether.

What will be the impact of this decision on Long Island student loan borrowers?

For Long Islanders expecting a break on their loans, Friday's ruling is extremely disappointing, said Dawn Medley, Stony Brook University's vice provost for enrollment management and student retention. 

"We're going to see people a little more wary to borrow to go to college," said Medley, who anticipates the impact will be felt most on students already in the workforce. "And I think folks are going to really think about the investments they're making in higher education. It was a great opportunity. And a lot of folks saw it as a windfall. So you're gonna see a lot of disappointment. … When the repayments kick in, we will see folks struggling, but we've also seen a big uptick in the economy. And so we're seeing folks working at a higher level than what we had during the pandemic."

Alan Singer, a Hofstra University education professor, said the decision will particularly hurt students from economically depressed communities.

"The student debt system for financing a college education discriminates against lower-income families who have to borrow and are crippled for years by debt payments," Singer said. "Forgiving student loans benefits everyone by stimulating economic growth. It makes it possible for families now crushed by debt to buy cars and homes."

Could we see large numbers of borrowers default?

Biden is offering an alternative plan designed to ease borrowers' threat of default, AP reported. His announcement came hours after the Supreme Court's decision. 

Lockwood, before that announcement, said widespread defaults could have ripple effects across the economy. "I think this is a major, major problem," he said.

Those who are delinquent on their loans also risk the government garnishing their wages, losing the opportunity to receive other government benefits, and damage to their credit rating.

What options are available to those unable to afford their loan repayments?

Education experts insist there are still plenty of ways borrowers can pay off or defer their loans.

For example, low-income borrowers can seek to put their loan into temporary forbearance, Medley said, allowing them to stop or reduce monthly payments for up to 12 months, although interest would continue to accrue. Borrowers also could apply for an "income-driven" repayment plan that bases monthly payments on income and family size.

"And even if they can't pay the full amount, they can start making interest payments, and that's the thing I would tell families right now," Medley said. "If they've borrowed and their child is in college, those interest accruals are going to start again in August. And so they want to start paying those interest payments."

By Robert Brodsky

robert.brodsky@newsday.com@BrodskyRobert

Robert Brodsky is a breaking news reporter who has worked at Newsday since 2011. He is a Queens College and American University alum.