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Student loans: Biden has no plan B yet if Supreme Court strikes down loan forgiveness

If the Supreme Court strikes down the president’s student loan forgiveness program, the Biden administration has no plan B yet beyond its already-announced 60-day extension of its payment pause for the millions of borrowers who would otherwise be eligible for cancellation.

“[We’re] not deliberating or considering any other approach,” Bharat Ramamurti, the deputy director of the National Economic Council, told reporters in an embargoed briefing on Thursday. “Our lawyers and team are confident in the legal authority. [We’re] not exploring other alternatives.”

Borrower advocates hoped that, if the relief plan was overturned, the administration would further extend the payment pause that expires two months after the end of June or when litigation is resolved. Others said the administration could make the requirement for forgiveness under a particular income-driven repayment plan easier, or potentially assert authority under a 1965 act to push through debt cancellation.

"If the Supreme Court follows the law, there is no need for a plan B,” Eden Iscil, a public policy manager at the National Consumers League, told Yahoo Finance. “The White House has also demonstrated a commitment to protecting borrowers by pausing repayment until litigation is resolved. This payment and interest pause should stay in effect until debt cancellation is implemented to prevent waves of confused borrowers from falling into delinquency and default."

The revelation leaves the more than 26 million borrowers who have already applied for cancellation or have been automatically approved on edge before the highest court in the nation hears arguments at the end of February and likely delivers a ruling on forgiveness in June.

"Most currently do not know when they will start making payments again, whether any of their debt will be forgiven, or what their next monthly payment will be," said Katherine McKay, associate director of insights and evidence at the Aspen Institute Financial Security Program. "Waiting for the Supreme Court to rule on the case is nerve-wracking for millions of borrowers who need help and are looking for reassurance."

US President Joe Biden speaks about student debt relief at Central New Mexico Community College Student Resource Center in Albuquerque, New Mexico, on November 3, 2022. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
US President Joe Biden speaks about student debt relief at Central New Mexico Community College Student Resource Center in Albuquerque, New Mexico, on November 3, 2022. (Photo by SAUL LOEB/AFP via Getty Images)

In November, the Education Department (ED) stopped taking applications for student loan forgiveness after a Texas federal district court judge ruled the program is a violation of legislative power and the St. Louis-based 8th Circuit Appellate Court imposed an injunction in a separate case.

Shortly after, the Biden Administration asked the U.S. Supreme Court to reinstate the program. Earlier this month, the DOJ filed its brief on behalf of ED with the Supreme Court. In the Texas case, the DOJ argued that the HEROES Act of 2003 gave the Education Secretary the authority to cancel the debt, while the state of Missouri lacks standing to sue in the 8th Circuit case.

Despite the obstacles, borrower advocates were confident the administration could pursue other avenues of relief if forgiveness fell through.

“The U.S. Department of Education has done a very good job of demonstrating that the plaintiffs lack legal standing [and] if a plaintiff lacks legal standing, the case cannot be considered on the merits,” Mark Kantrowitz, author and student loan expert, told Yahoo Finance. “However, if the U.S. Supreme Court were to consider the case on the merits, the U.S. Department of Education is more likely than not to lose its case.”

“Even if the Biden Administration loses in court, there are options for a Plan B or Plan C to provide some amount of financial relief,” Kantrowitz said. “Plan B is to continue the payment pause and interest waiver indefinitely for as long as President Biden is in office.”

“Plan C is more complicated,” he said.

What plans B and C could be

As a result of the litigation, President Biden extended the payment pause on federal student loans until June 30, 2023. If litigation has not been resolved by then, payments will begin 60 days after that.

Plan B would simply extend federal forbearance while Biden is in office, even though that's an imperfect solution, according to advocates.

The major reason proponents have argued for loan forgiveness is that historically default increases 20-fold after periods of nonpayment — such as during the payment pause — making economic hardship worse with longer periods of non-payment.

“This is exactly what student debt relief plans to avoid — a projected wave of delinquency and default," Abby Shafroth, a staff attorney at the National Consumer Law Center (NCLC) and director of the Student Loan Borrowers Assistance Project, said in a separate press call for advocates filing amicus briefs.

WASHINGTON, DC - AUGUST 25: Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022 in Washington, DC. (Photo by Paul Morigi/Getty Images for We the 45m)
WASHINGTON, DC - AUGUST 25: Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022 in Washington, DC. (Photo by Paul Morigi/Getty Images for We the 45m)

A Plan C could provide forgiveness under the income-contingent repayment plan offered by the federal government after five to 10 years of on-time payments instead of the current 25 years using the Education Department’s regulatory rule-making authority, according to Kantrowitz.

“This is not a theoretical exercise because it’s been done before” with repayment plans, he said. “This is more likely to survive a court challenge because it’s through the regulatory process.”

Kantrowitz’s proposal could greatly increase the number of borrowers who achieve forgiveness through this income-driven payment (IDR) plan, some advocates said.

“Since the first IDR plan became available in 1995, only a few dozen individuals have received debt cancellation,” Iscil said. “To put this in comparison, there's roughly two million borrowers who have been in repayment for over 20 years and still have outstanding debt.”

Still, that would fall far short of the amount of relief Biden’s forgiveness plan that’s being litigated would bring since this plan only applies to certain federal loans.

“This is not a substitute for addressing the underlying structural problems with debt repayment that burdens millions of individuals nationwide,” Iscil said.

A ‘much weaker’ plan D

In addition to the HEROES Act, Iscil said the administration has the authority to implement debt cancellation under the Higher Education Act of 1965.

“The administration has not yet utilized the Higher Education Act's authority to achieve widespread debt cancellation,” Iscil said. “This is an option available to them.”

Not all borrower advocates agree.

“The claims that the president has the authority to forgive student loans are based on a misreading of the Higher Education Act of 1965 [and] taken out of context,” Kantrowitz said. “When Congress authorizes a loan forgiveness program, the U.S. Secretary of Education has the authority to forgive student loans as authorized under the terms of these loan forgiveness programs.”

“Without authorization by Congress of a specific loan forgiveness program, the president does not have the authority to forgive student loan debt under the Higher Education Act,” Kantrowitz said. “That claim is much weaker.”

Many advocates believe if the Supreme Court follows the law, there will be no need for a Plan B, C, or D.

“I am confident that the court will see through these sham lawsuits,” Persis S. Yu, deputy executive director of Student Borrower Protection Center (SBPC), told Yahoo Finance. “As more than a dozen amicus briefs attested to just two weeks ago, cancellation is both legal and necessary to help millions of our most vulnerable student loan borrowers bounce back from the economic challenges of the pandemic and help build an economy that works for all workers and families.”

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government.Follow her on Twitter @writesronda

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