If the Supreme Court strikes down student loan forgiveness, borrowers would have to repay debts while facing more financial pressures than before the pandemic.
The court is deciding whether President Joe Biden overstepped his authority by ordering the Department of Education to cancel up to $20,000 of student loan debt per borrower. If the court rules against forgiveness, millions of student borrowers could face financial hardship when the pandemic-era pause on student loan payments ends, research shows.
No matter which side wins, student loan payments are set to resume two months after the court makes its ruling, and the outcome of the case will dictate who pays and how much.
Repayment will look a lot different if the Supreme Court upholds Biden's forgiveness plan. More than 40 million people will get a break on their loans, costing the government $400 billion.
A defeat for the program would mean borrowers would resume payments in a financial landscape that has grown harsher since the pandemic hit, with many likely unable to catch up on their loans.
Forgiveness Defeat Would Ratchet Up Financial Pressure On Households
If student loan forgiveness is defeated in court, the Biden administration would likely be out of good options for providing further relief to borrowers, student loan expert Mark Kantrowitz said.
It’s unlikely that Biden would extend the pandemic-era payment pause again since the national emergency caused by the pandemic is slated to end in May, Kantrowitz said.
Payments would resume in a different financial landscape than existed before the pandemic. Because of high inflation and higher borrowing costs for consumer loans, many borrowers are worse off today than they were before the pandemic, despite the ongoing pause on loan payments.
As of September, 7.1% of student loan borrowers were behind on their other debt compared to 6.2% before the pandemic hit, according to research from the Consumer Financial Protection Bureau.
Economists at the Federal Reserve Bank of New York voiced similar concerns in a report last week that found more younger borrowers—the ones most likely to have student loans—are falling behind on their credit card and car payments in recent months.
“Once payments on those loans resume later this year under current plans, millions of younger borrowers will add another monthly payment to their debt obligations, potentially driving these delinquency rates even higher,” the New York Fed researchers said.
To be sure, borrowers do have a few advantages now that did not exist before the pandemic. As part of its student loan relief efforts, the government removed all negative effects from loans currently in default, enabling borrowers to resume payments without any past-due balance.
The Department of Education has also said it won’t resume collections until a year after the pause ends. Furthermore, borrowers will be able to enroll in a new income-driven repayment plan that has terms far more generous than existing payment plans—in many cases, low-income borrowers will be able to discharge their loans with $0 monthly payments.
Student loan forgiveness has come a long way since becoming a discussion topic on the campaign trail. See a timeline of the key events that brought the plan to this turning point.
Even so, a negative ruling would be a blow to the 26 million borrowers who have applied for student loan forgiveness thinking their debts would be wiped out, 16 million of which have already been approved.
Ironically, the Department of Education could eventually use the information that students provided in their forgiveness applications—email and mailing addresses—for collections purposes once the one-year grace period ends, Kantrowitz said.
When asked if the information would be used in this way, a Department of Education spokesperson responded via email, “We are confident in our legal authority to provide relief for working families and we are anticipating a favorable outcome in this case.“
Biden administration could still attempt to avoid that outcome by creative methods—either creating a new, extremely generous income-driven repayment plan that would effectively serve as a form of loan forgiveness, or finding a reason to extend the national emergency and suspend payments again, Kantrowitz said.
“They could say the pandemic is still ongoing, or there's a new variant that is of concern, or unemployment is starting to rise or inflation is still too high, or space aliens landed on the White House,” Kantrowitz said. “There's always an excuse.”
Update, Feb. 23, 2023 - This story has been updated to include the Department of Education's response to the question on student loan collections. The story was originally published on Feb. 22, 2023.