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What the Supreme Court's rejection of student loan relief means for borrowers

María Hergueta for NPR

In one of the most anticipated decisions of its current term, the U.S. Supreme Court has struck down President Biden's sweeping plan to discharge some or all federal student loan debt for tens of millions of Americans.

In a 6-3 decision, the high court ruled that the Biden Administration did not have authority under a 2003 federal law to forgive hundreds of billions of dollars of student debt.

"The HEROES Act allows the Secretary [of Education] to 'waive or modify' existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act," the ruling states, "but does not allow the Secretary to rewrite that statute to the extent of canceling $430 billion of student loan principal."

In a decision written by Chief Justice John Roberts, the court ruled in favor of Missouri and five other states, who had argued that the Administration had overstepped its authority to forgive some student loans.

The "modifications" by the Department of Education, Roberts wrote, "created a novel and fundamentally different loan forgiveness program" that "expanded forgiveness to nearly every borrower in the country."

The high court's decision comes after a tumultuous year for federal student loan borrowers, who were told in August by President Biden that the U.S. government would cancel up to $20,000 of debt for anyone who had received a Pell Grant to attend college, and up to $10,000 for the vast majority of remaining borrowers.

That August announcement came after months of speculation that the president would act, and its warm reception by younger voters may have contributed to Democrats' better-than-expected showing in the midterm elections. But the proposal was also beset by a host of Republican legal challenges that ultimately led to the Supreme Court stepping in.

While much can be said about the court's decision – and no doubt will be in the coming days – here are five things to know about what it will and won't mean for borrowers and the country.

1. Millions of borrowers are feeling collective disappointment

Biden's plan would have provided relief to most federal student loan borrowers – as many as 43 million people. That's roughly one in eight Americans. Nearly half of those borrowers, roughly 20 million, could have had their student loans erased completely.

Whatever you think of Biden's proposal, in this moment, the collective disappointment and perhaps disillusionment of so many Americans is palpable and worth acknowledging.

"I feel like it's back to business as usual," says borrower Kurt Panton, with a long sigh. "What else can I do? Go back to paying the student loan that I have been paying for 20-plus years."

Panton took out federal student loans to pay his way through college and dutifully made monthly payments from late 2003 until March 2020, when the pandemic payment pause began.

"There is this mental weight that you carry with a student loan, knowing that [it'll be with you] as far as you can go into your foreseeable future," says Panton, who became a father late last year and says the money he's saved not paying down his loans over the pause has helped support his young family. "I haven't been having crazy parties for the last three years because I'm not paying back my student loans. You know, I'm not eating a goose for dinner every night."

"It's really tragic that student loan borrowers have been stuck in this position as political pawns," says Persis Yu of the Student Borrower Protection Center, "and now are victims to a politicized court that is willing to jeopardize their financial security for political gain."

The Student Borrower Protection Center is one of a handful of advocacy groups that have been vocal in their support of debt relief, and have put pressure on President Biden to be as generous as possible. The NAACP also pushed hard for relief.

"I see it as an unfortunate reality that in a country where we bail out Fortune 100 companies, where we bail out banks that have not been good actors, that this Supreme Court would allow that to happen, and yet," says Derrick Johnson, the NAACP's president and CEO, the court would choose to leave millions of borrowers "stuck in a vicious cycle of debt."

In the lead-up to the court's decision, Johnson sent a letter to Biden, advising him, in the case of an unfavorable ruling, to "pursue all legal pathways" to erase student loan debts.

"Let us be clear," Johnson warned, "absent further, swift action in the wake of an unfavorable ruling from the Court, Black voters stand to be incredibly disillusioned by an Administration who failed to deliver on key campaign promises but succeeded in widening the racial wealth gap."

2. It's a win for Republicans who opposed Biden's loan cancellation plan

Not everyone is disappointed with the court's decision.

Many Republicans had fiercely opposed Biden's plan, calling it an abuse of executive power and an enormously expensive handout to college-educated Americans. The Congressional Budget Office estimated the debt relief plan would cost about $400 billion over the next 30 years.

"I'm very pleased that the Supreme Court is following the Constitution," says Rep. Virginia Foxx of North Carolina, the Republican chairwoman of the House education committee. "What the president has done is take on the role of Congress by deciding through a rule to appropriate money from the taxpayers to people who willingly took on a debt. And I think what he has done is totally illegal."

While Republican opposition was fierce, a majority of the public (55%) supported forgiving up to $10,000 per person in federal student loan debt, according to a June 2022 NPR/Ipsos poll.

3. Borrowers will soon have to start repaying their loans again – and it could get ugly

Tens of millions of borrowers who had hoped to have some or all of their federal student loans erased will soon be asked to resume repayment.

Recent legislation to prevent the federal government from defaulting on its debts included a requirement that borrowers begin repaying their student loans at the end of August. Though even before that legislation, the Biden Administration had committed to a similar timeline.

According to an Education Department spokesperson, student loan interest will resume on Sept. 1, and payments will be due starting in October.

The problem now is, most borrowers are out of the habit. In fact, many have never had to make a student loan payment. According to federal data, roughly 7 million federal student loan borrowers are 24 years old or younger, which means they were at most 21, and in many cases still in college, when the current payment pause began in March 2020.

Making matters worse, many older borrowers will have a new loan servicing company – not to mention they may have forgotten their online portal passwords; some may not have even checked their balances in months, if not years. Those days are coming to an end.

At greatest risk of falling through the restart cracks are borrowers who were given a chance at a so-called "fresh start" during the pandemic. For these roughly 7.5 million borrowers who are in default, the department is offering protections from involuntary collections on their accounts and the chance to regain access to flexible repayment plans. But, to benefit and get out of default, these "fresh start" borrowers must opt-in to the program and contact their loan servicer.

According to the department, these defaulted borrowers are disproportionately likely to be economically vulnerable, first-generation college students. And there is considerable concern among advocates about the department's ability to communicate these opportunities to borrowers in default, and borrowers' willingness to return to repayment after years of default.

That concern stems, in part, from NPR reporting in January that revealed serious funding shortfalls inside Federal Student Aid (FSA), the Education Department office tasked with managing the government's student loan portfolio.

At the very moment FSA and its loan servicers will have to navigate an unprecedented flood of borrowers returning to the system, the agency is actually cutting costs and services.

4. "It is possible that loan servicers may be overwhelmed"

After a political fight between Democrats and Republicans over Biden's debt relief plan, Congress flat-funded FSA for this year, making it all but impossible for it to keep up with its many student loan responsibilities.

Already, the agency has quietly delayed an effort, promised by the Biden administration, to review the loans of millions of borrowers who were unfairly set back by years of mismanagement around income-driven repayment plans. Promised in May, that review has been extended into 2024.

And that review is a logistical cakewalk compared to the Everest of helping millions of borrowers – whose loans have been paused for more than three years – navigate the return to repayment.

Many borrowers' financial situations have changed, and their repayment options will need to change as well. Call centers will need more and better-trained workers in anticipation of the months-long onslaught of calls they'll face from confused and anxious borrowers.

Instead, however, the Education Department has cut funding to loan servicers, according to multiple sources familiar with the cuts, and is allowing them to scale back call center hours.

"We are fully committed to supporting student loan borrowers as they successfully navigate returning to repayment," says a department spokesperson in a statement to NPR. But the statement also acknowledges: "the Department is deeply concerned about the lack of adequate annual funding made available to Federal Student Aid this year. As the Department has repeatedly made clear, restarting repayment requires significant resources to avoid unnecessary harm to borrowers, such as cuts to servicing."

Industry experts outside the Education Department are more blunt.

"It is possible that loan servicers may be overwhelmed with a high volume of inquiries," says the National Association of Student Financial Aid Administrators (NASFAA) in a warning to borrowers. "It is possible you may not reach your servicer via phone the first time you call, and you may need to call a few times before getting connected."

"The consequences of returning to repayment under the current funding system are going to be disastrous," says borrower advocate Persis Yu, who points out that the student loan system functioned poorly even when it was fully funded and there was no need to help borrowers return to repayment.

Yu warns, unless Congress gives FSA more funding, this transition could be a "trainwreck."

On this point there is even some bipartisan agreement.

Foxx, the House education committee chairwoman, says she too worries about the return to repayment because the department is "terribly managed." But, she says, "I don't think there's much sympathy to give more money to the department... It's using its money inappropriately, using people inappropriately. And something has to be done about that."

5. Student loan debt is growing to keep up with college costs — and Biden's plan wouldn't have changed that

Before publishing this story, I pre-wrote two different versions: one if the court had preserved Biden's debt relief plan, another in case it scrapped it. Both versions had the same ending.

Biden's debt relief plan, as generous as it was, would have done nothing to address the growing levels of student loan debt borrowers are taking on. The U.S. government will continue to issue loans to help Americans afford college, even as colleges raise prices, forcing Americans to take out even more loans.

"I recognize that our current system is broken," U.S. Education Secretary Miguel Cardona told lawmakers in May.

Foxx echoes that sentiment: "The system is totally broken and has been broken for a long, long time," she says, highlighting Republican efforts at one fix that would limit interest on student loans.

The inflation-adjusted cost of college has nearly doubled since 1990, from about $15,000 a year to $29,000 in 2020. And students are using loans to keep up. Between 1995 and 2017, federal student loan debt "increased more than sevenfold, from $187 billion to $1.4 trillion (in 2017 dollars)," according to the nonpartisan Congressional Budget Office.

The Biden administration does have a plan to address that brokenness, and it hinges on a newly proposed, much more forgiving income-driven repayment plan – one that has drawn praise from borrower advocates and sharp criticism from Republicans.

Even if the administration is able to roll out this new plan, though, it's unclear how quickly it could be available to borrowers returning to repayment.

What's more, implementing a new income-driven repayment plan that is radically different from the status quo will require incredible investment and support for borrowers. Again, loan servicers' call center employees are the voice of the federal student loan program, and the system will need more of them, and they'll need more training to implement any new repayment plan. The fact that servicers are being told to slash service right now is not a hopeful sign.

Edited by: Nicole Cohen and Steve Drummond
Visual design and development by: LA Johnson

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Cory Turner reports and edits for the NPR Ed team. He's helped lead several of the team's signature reporting projects, including "The Truth About America's Graduation Rate" (2015), the groundbreaking "School Money" series (2016), "Raising Kings: A Year Of Love And Struggle At Ron Brown College Prep" (2017), and the NPR Life Kit parenting podcast with Sesame Workshop (2019). His year-long investigation with NPR's Chris Arnold, "The Trouble With TEACH Grants" (2018), led the U.S. Department of Education to change the rules of a troubled federal grant program that had unfairly hurt thousands of teachers.