If the Supreme Court strikes down the president’s student loan forgiveness program, the Biden administration has no plan B for the millions of borrowers who would 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 the administration would extend the federal student loan payment pause that expires in June or would make the requirement for forgiveness under a particular income-driven repayment plan easier if Biden’s relief plan was overturned. A few even thought the president could assert his authority under a 1965 act to push through debt cancellation.
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 February and likely delivers a ruling on forgiveness in June.
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.
“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,” Mark Kantrowitz, author and student loan expert, told Yahoo Finance. “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.
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,” Eden Iscil, a public policy manager at the National Consumers League, told Yahoo Finance. “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.”
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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