Student debt relief activists participate in a rally at the US Supreme Court on June 30, 2023, in Washington, DC. | Kevin Dietsch/Getty Images
There’s still time to help student debtors before loan repayment begins — but it means changing course.
When Chief Justice John Roberts vaporized Joe Biden’s half-trillion-dollar student loan forgiveness plan in June, he used some dramatically non-legal words to explain why. Writing for the Supreme Court’s six-member conservative majority in the case of Biden v. Nebraska, Roberts declared that the truly offensive and unacceptable thing about the Biden plan, which would have wiped out the loan balances of nearly 20 million people, was the sheer size of it.
The economic and political significance of the scheme was “staggering by any measure,” wrote Roberts, and thus ran afoul of the Court’s radical new doctrine of limiting presidential power.
Later that day, an angry Biden responded from the White House. His administration had been accused of being unprepared for other seismic court actions, like the Dobbs decision overturning Roe v. Wade. This time was different. The president announced that the Department of Education would immediately begin re-implementing the loan forgiveness plan using a different legal rationale. Progressive lawmakers and grassroots activists, who had been pressing the administration to continue the fight, cheered in response.
But Biden’s so-called “Plan B” for mass loan cancellation comes at a perilous moment for student borrowers. For the last three and a half years, federal student loan payments and interest charges have been suspended because of the pandemic. Under the terms of the last-minute debt ceiling deal struck between the White House and congressional Republicans in June, the Department of Education is required to turn the loan repayment system back on in September. Monthly payments are due starting in October.
Meanwhile, some of the same scholars who laid the legal groundwork for the original mass cancellation plan are saying that the Supreme Court will likely kill the new plan, too.
The Biden administration is urging people to start paying their loans this fall. But it has also announced a year-long “on-ramp” to making payments that works much like the grace period borrowers face after leaving school, while simultaneously telling millions of borrowers their loans will be entirely forgiven by “Plan B.”
The resulting confusion, stoked by student loan advocates who demand mass loan forgiveness with no compromises, could wreck the administration’s efforts to successfully restart the student loan collection system. By pushing a politically potent but legally dubious mass forgiveness strategy, President Biden may well be setting a debt trap for the same vulnerable borrowers he is trying to help.
The new Biden student debt relief plan — and why it’s doomed to fail
While the White House has been short on details, all signs suggest that its next push for expansive forgiveness is essentially the same as the court-nullified Plan A, but based on statutory authority from a different law. The plan thrown out by the Supreme Court was based on the 2003 HEROES Act, which gives the Secretary of Education authority to waive or modify student loans during a national emergency, like a pandemic. The plan would have subtracted $10,000 from the balance of nearly every outstanding federal student loan. Women and people of color in particular would have benefited because they are more likely to borrow, and an additional $10,000 in relief would have gone to low-income students.
Plan B will be based on the Higher Education Act (HEA), which was first enacted in 1965 and is the main law governing federal college grants and loans. The HEA gives the Secretary of Education the authority to “compromise” or “modify, waive, or release” student debt obligations. These are collectively called “settlement authorities.”
To block Plan B, Biden’s opponents will need legal standing to sue. Biden v. Nebraska began with the court deciding that the state of Missouri had that standing. Missouri’s argument was weak, but the Court accepted it anyway, as courts do when they like a plaintiff’s case. Which means the same plaintiffs would very likely have standing to oppose the new Biden plan.
Biden’s lawyers will then have to grapple with the so-called “major questions doctrine,” a legal standard that has been brewing in conservative jurisprudence for several decades and was fully conjured into existence barely a year ago in the case of West Virginia v. EPA. The doctrine says it’s unconstitutional for federal agencies to do things of vast economic and political significance without clear congressional authorization — “vast” and “clear” meaning whatever the court wants them to mean. Critics have called this a “fake” doctrine with “no basis in any law or any provision of the Constitution,” and Justice Elena Kagan excoriated the majority’s reasoning in her dissent. But Roberts et al disagreed. That’s where the “staggering by any measure” part comes in. The Biden plan was too big to not fail.
Which means the outcome of the next lawsuit will hinge less on the exact meaning of the Higher Education Act and more on whether the plan once again offends Justice Roberts’s sense of inappropriate vastness. And the White House has given every indication that vast is exactly what it has in mind. Perhaps anticipating Plan B, Roberts even made a point of declaring that the HEA only authorizes loan forgiveness in “certain limited circumstances,” which is pretty much the opposite of “subtract $10,000 from every loan.”
Legal experts say the major questions doctrine is an enormous barrier for Biden to overcome. While studying for a PhD at Yale Law School, Luke Herrine wrote an influential 2020 law review article arguing that the Secretary of Education could use the settlement authority granted by the Higher Education Act for mass debt cancellation. Herrine also served as legal director of the Debt Collective, a student loan forgiveness advocacy group, before joining the law faculty at the University of Alabama.
In the wake of Biden v. Nebraska, he now says, “The Supreme Court has given every indication that it’s not inclined to look favorably on novel uses of the HEA’s settlement authorities” to cancel student debt.
In other words, Plan B will almost certainly meet the same fate as Plan A.
The debt forgiveness trap
For student loan advocates, a loss in the Supreme Court is no reason to give up the fight.
Mass student loan cancellation is a case study in how grassroots activism can move a social justice idea from the ideological fringe to the halls of power. With roots in the Occupy movement and a critical boost from Bernie Sanders’s insurgent 2016 presidential campaign, advocates used a combination of old-fashioned politicking and modern social media to shove debt cancellation into the center of the 2020 Democratic primary debate.
Biden was reluctant. His official position as a candidate was that he’d support a plan to forgive the first $10,000 of people’s loans if it came in the form of a bill passed by Congress. But when Democratic control of the Senate was still in doubt in the months after the election, advocates immediately began pressing for unilateral executive action on loans, and they never let up. Indebted college-educated millennial voters had been a key to victory, they argued, and the White House risked alienating them without bold action on loans. When Biden announced his mass cancellation plan in August 2022 and the midterms went relatively well for Democrats shortly thereafter, the strategy seemed vindicated.
But the plan itself had been doomed since at least September 18, 2020, when Ruth Bader Ginsburg died in time for Donald Trump to seat a sixth conservative on the Supreme Court. The lawsuits from Biden opponents were inevitable, and all hopes that the same court that willfully discarded decades of precedent in recent decisions on abortion and affirmative action would approach the loan question with mercy and restraint came to naught.
For student loan activists, the post-defeat course was clear: press onward with the same uncompromising tactics that had driven their success. Activists worked closely with the White House to push for the original mass forgiveness plan and to make sure that Plan B would be immediately launched in the wake of a Supreme Court defeat. The extent of their influence over Biden administration policy is well-represented in this recent Politico article, in which former Sanders campaign staffer and founder of the loan activist group We, the 45 Million Melissa Byrne says of former White House chief of staff Ron Klain, “We all loved Ron. He was personally invested.”
Now Byrne is telling her followers, “No one needs to make a payment until October 2024 thanks to the on-ramp. Literally no one pay.” The Debt Collective says, “Student debt strike begins Oct 1.” It’s a strategy that Astra Taylor, a filmmaker and co-founder of the Debt Collective, has described as “economic disobedience.”
When asked for comment, Byrne invited this author to “Go shill for student loan companies elsewhere.” (Under reforms implemented during the Obama administration, companies haven’t made federal student loans since 2010.)
The Biden administration is officially telling people to start making the payments that stopped in March 2020. But it is simultaneously telling those very same people that their loan payments are soon going to be reduced or, in the case of nearly 20 million people below the $10,000 and $20,000 thresholds, eliminated entirely. And thanks to the recently announced Department of Education “on-ramp” policy that Byrne cites, people who don’t make payments won’t be penalized or reported to credit agencies for at least another year.
For borrowers, this is enormously confusing. Payments are due, but there is no penalty for not paying, and you might be paying down a loan balance that is going to be forgiven under a Plan B whose terms have yet to be announced and might not happen — or might, depending on who you believe.
For loan advocates, the critical thing is to continue the struggle. Mike Pierce, a lawyer and the executive director of the Student Borrower Protection Center, says no one can know for sure how the Supreme Court will treat Plan B and that the normal rules of crafting policies based on the likelihood of them being thrown out in court no longer apply.
“We’re at an inflection point with this administration’s relationship to a corrupt and unethical right-wing court,” he says, arguing that obstructionist Supreme Courts in the past have eventually bent to public pressure. To Pierce, Biden backing away from mass debt cancellation would amount to “unilateral disarmament.”
It’s time to get the loan system ready for repayment
The pandemic wasn’t the first time federal student loan payments have been paused. In 2017, payments were automatically suspended for borrowers living in areas affected by wildfires and hurricanes. When the pause ended the following year, federal officials who monitor the loan program began to notice a troubling pattern.
When people miss a student loan payment, they descend into a kind of limbo called “delinquency.” If they miss nine months’ worth of payments, they fall down another level into default, where their wages, tax refunds, and even Social Security checks can be garnished. When the disaster-area borrowers were required to start making payments again in 2018, the number of delinquencies began to rise. This continued for nine months and was immediately followed by an increase in the number of defaults. Some people may have fallen out of contact with the loan system and didn’t know they owed money again, or they couldn’t afford it or had lost the habit of making monthly payments.
The risk now is a similar default crisis on a massive scale. About two-thirds of undergraduates use debt to pay for their degrees. Over 5 million people have left college since 2020 who have never made a single payment on their loans. They may have changed addresses, switched phone numbers, or given loan servicers college email addresses that are now defunct. A recent study found that many borrowers used the payment pause to “increase borrowing on credit cards, mortgages, and auto loans.” If those debts are ongoing, borrowers may struggle to find room in their monthly budgets to make loan payments once again.
For the Biden administration, Plan B creates a potent issue for the 2024 election. For advocates, it provides another year or two to be part of a righteous cause. But the price of all that will be paid by debtors in the form of ballooning balances, ruined credit, and more.
Meanwhile, the agency within the Department of Education tasked with managing the federal government’s massive $1.6 trillion student loan portfolio has been rocked by an acute budget crisis. At odds over the Biden administration’s approach to loan forgiveness, Democrats and Republicans in Congress have been unable to agree on increasing the agency’s funding, hamstringing its ability to tackle the largest and most complex logistical challenge in the history of student loans.
The Biden administration should be relentlessly focused on helping 40 million student borrowers successfully resume payments and avoid the delinquency trap that has befallen past borrowers. It has a powerful tool at its disposal: a new, very generous program for reducing monthly loan bills and accelerating loan forgiveness, called SAVE. This plan is — confusingly! — entirely separate from the plan the Supreme Court just jettisoned. It is also built on much firmer legal ground and has not been challenged in court.
To ease the transition back to making loan payments, the Department of Education has announced an “on-ramp” policy, which functions much like the standard grace period that borrowers get after leaving college. For a year, starting in October, people can start making payments, but if they don’t, nonpayment won’t trigger reports to credit agencies or the ticking clock of delinquency and eventual default.
The on-ramp makes a lot of sense — if it’s accompanied by an all-out effort to get student debtors back on track to repay their loans. Instead, the Department of Education has simultaneously kicked off a complex, multi-step regulatory process to implement Plan B, requiring a morass of meetings, public notices, and comment periods. The inevitable lawsuit blocking the plan can’t be filed until after that process is complete.
That puts debt forgiveness opponents, including Biden’s rival in the presidential election, in the position of having to very publicly block tens of millions of people from getting their loans forgiven, again, just as the 2024 campaign reaches fever pitch. The inevitable defeat in court won’t come until 2025, after Biden has been reelected, or not.
The political calculus is obvious. But there are 20 million people out there who were told they would never have to make another student loan payment. Now they’re being told they don’t really have to start paying their loans back for another year, after which the we-promise-it-will-work-this-time Plan B will take effect. If they take President Biden’s word at face value, why would they start making payments in October?
Meanwhile, the same student loan advocates that the White House looks to for policy and political advice are actively discouraging their many followers from enrolling in repayment plans that reduce monthly payments and provide an accelerated, legally defensible path to loan forgiveness. The Debt Collective says, “Anyone who tries to sell you on IDR” (another acronym for the SAVE program) “is not your friend. The program does not work.”
For anyone who takes this advice or is just confounded by the Biden administration’s confusing and contradictory student loan messaging, interest charges will pile up. To its credit, the Department of Education has largely ended “interest capitalization,” which means most borrowers won’t pay interest on their interest. But interest will still accumulate, and loan balances will grow. And every month without a payment delays when people can have their loans forgiven under SAVE, which the department has the legal authority to implement.
Speaking on background, an education department spokesperson said, “The Department has already been directly in touch with borrowers and made clear that anyone who can make payments should do so when the payment pause ends later this year. The Department plans to do additional direct outreach with enhanced communications for borrowers who become delinquent after payments resume.”
The White House still has the option of not obstructing its own education department’s efforts to restart the student loan collection system. Legal expert Herrine believes a new forgiveness plan might survive Supreme Court scrutiny if it’s narrowly focused on certain distressed borrowers — “a more targeted form of cancellation might make it through,” he says.
That could also clear space and focus political energy on other initiatives to prevent students from being saddled with unrepayable debt, like long-gestating rules for reining in abusive for-profit colleges. And it would make it easier to strike a congressional budget deal to properly fund the education department professionals charged with the gargantuan task of turning on a loan system that wasn’t designed to be turned off.
Everyone could then turn to the challenge of redesigning the higher education financing system from the ground up so we don’t have so many loans that need forgiving. Debt scholars have proposed ideas like a new federal university system, affordable and open to all.
For now, though, President Biden has the unenviable responsibility of telling 40 million people they have to write him a monthly check starting in October. But that’s his job, and doing it successfully will require copious amounts of coordination, discipline, and expertise. Instead, he’s sabotaging his own education department for political purposes — and sowing doubt and chaos along the way.
Kevin Carey writes about education and other issues. He is a vice president at New America, a think tank in Washington, DC.