Student loan forgiveness ruling: What happens next for borrowers? What did Biden announce?

The Supreme Court on Friday struck down President Joe Biden’s student loan debt forgiveness plan, saying his administration did not have the authority to wipe out student debt for millions of Americans.

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The justices voted 6-3 in the ruling.

The administration had proposed forgiving up to $10,000 in debt for borrowers earning less than $125,000 a year (or couples who file taxes jointly and earn less than $250,000 annually). Pell Grant recipients would have been eligible for $10,000 more in debt relief.

Chief Justice John Roberts in the majority opinion said the administration did not have the authority, as it claimed, to forgive billions of dollars of federally backed student loans.

According to the White House, the president will “announce new actions to protect student loan borrowers.” It is unclear what those new actions will be, or when he will announce them. Biden is expected to speak later Friday.

So what happens for borrowers after the ruling? Here’s what we know now.

Borrowers will have to begin repaying loans by the end of summer.

Federally backed student loan payments and interest charges have been paused nine times since they were initially put on hold in March 2020 as the COVID-19 pandemic erupted.

A provision in the debt ceiling deal passed by Congress requires that payments be restarted 90 days after a June 30 deadline. The payments may not be paused again unless Congress approves it.

The DOE confirmed earlier this month that interest on student loans will resume on Sept. 1 with payments due beginning in October.

Biden announces a ‘new path’

Biden on Friday afternoon said he would employ a “new path” on student loan debt relief that will rely on the Higher Education Act of 1965, a different law than the one that the supreme court struck down today.

“I’m announcing today a new path consistent with today’s ruling to provide student debt relief to as many borrowers as possible as quickly as possible. We will ground this new approach in a different law than my original plan, the so-called Higher Education Act. That will allow (education secretary Miguel Cardona) … to compromise, waive, or release loans under certain circumstances,” the president said.

Biden said the path is legally sound, and the best option after the Supreme Court’s ruling.

“We’re not going to waste any time on this,” Biden said. “We’re getting moving on it. It’s going to take longer, but we’re getting at it right away.”

The plan also includes a temporary 12-month “on-ramp repayment program,” aimed at helping borrowers when payments resume in October.

Rather than letting people who miss payments go into default, Biden said the on-ramp will temporarily remove the threat of default which damages a person’s credit for years.

“This is not the same as the student loan pause,” Biden said. “Monthly payments will be due,” bills will go out and interest will start accruing.

“If you can pay your monthly bills, you should,” the president urged.

The third program the president referenced is a new income-driven repayment plan whose outline was announced in January. Student loan servicers are waiting for the Education Department to finalize the regulation, The New York Times reported.

The plan ties borrowers’ monthly payments to their income and family size, and after 20 years of payments, any remaining debt is forgiven. The president promised that no one will pay more than 5% of their discretionary income in monthly student loan payments.

Click here to see a detailed explanation of the plan.