Student debt fight ends year on disappointing note

(The Hill) -- Student loan borrowers began 2023 with money and hope. The year will end with resumed monthly payments and only limited debt relief.

At the start of the year, student loans remained in their pandemic pause, as President Biden’s debt relief plan headed to the Supreme Court. But the administration decided that once the Supreme Court ruled on the legality of his loan forgiveness plan — regardless of the outcome — borrowers should have to restart their payments.  

In June, the conservative-majority court ruled Biden’s plan to forgive at least $10,000 for all student loan borrowers was illegal.

“I think the low point is definitely the loss at the Supreme Court and, with that, payments coming back on. I think that's actually in some ways equally as bad to see [loans turned back on] after we fought so long to keep them off,” said Natalia Abrams at the Student Debt Crisis Center (SDCC).

The White House moved forward from the loss by announcing a new income-driven repayment (IDR) plan and intentions to work toward an alternative route for widespread debt relief.

Debt relief plan spurs lawsuits

At the end of 2022, making good on its campaign promise of giving at least $10,000 in loan forgiveness to all borrowers, the Biden administration opened up debt relief applications.

Multiple lawsuits were filed soon after, and two made it to the Supreme Court.

In the first half of the year, borrowers anxiously waited for the court to announce its decision on the case, which came June 30.

“The Secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal. It does not,” Chief Justice John Roberts wrote in the majority opinion.  

The case turned a tide, and student loan borrowers went from hopeful to panicked, as they had 60 days after the ruling to prepare for the restart of interest and student loan payments. 

"I think the honest answer is, it didn't go as well as it could of, and I'm sure that it feels like a shock honestly to student loan debt holders or borrowers to be in this position, especially at the end of the year,” said DeNora Getachew, CEO of DoSomething.org, a group dedicated to youth activism.

Next step: Revamped repayments

The Biden administration had two plans after the Supreme Court ruling: working on an alternative loan forgiveness program and revamping income-driven repayment programs.

In August, the White House announced the Saving on a Valuable Education (SAVE) IDR plan, which it touted as the “most affordable repayment plan in history.” 

“The SAVE plan is another huge step forward in President Biden’s tireless efforts to fix the broken student loan system, reduce the burden of student debt on working families, and put borrowers first,” Education Secretary Miguel Cardona said.  

For those enrolled in the SAVE IDR plan, when payments resumed, the income exemption for monthly payments increased from 150 percent above the poverty line to 225 percent, and unpaid interest would not grow. The Department of Education has said more than 5 million borrowers have enrolled in the plan.

Going into summer 2024, changes to the SAVE plan will slash payments from 10 percent of discretionary income to 5 percent.  

“I guess on the positive we can expect to see payments for undergraduate borrowers cut in half on July 1. That will be beneficial to so many people because a lot of people had increased payments on the SAVE plan at first, but hopefully with that being cut in half, it will be a good thing,” Abrams said.

Biden's 'Plan B'

After the Supreme Court ruling, Biden also announced his “Plan B” for his student loan plan, which requires him to go through the Higher Education Act’s negotiated rulemaking process.  

That requires public comments and multiple meetings with stakeholders — which have begun — to determine what the plan could look like. The plan discussed so far at meetings would target only certain categories of borrowers, if approved. This process takes months, and it won’t be known until well into next year what the final plan will become.

The stakeholders are looking at five groups in the plan: Borrowers who entered repayment decades ago; borrowers whose balances are greater than what they originally owed; borrowers who are eligible for relief under specific programs but didn’t apply; those under financial hardship; and those who went through programs that didn’t give financial value. 

"I think they could have done more, especially because they were using the [Higher Education Act] process,” Abrams said. “And I know that our organization flooded with more than like 20,000, 25,000 comments demanding full debt cancellation, so it still needs to be much stronger and much more universal for all borrowers.” 

However, this plan will still be more widespread than what the Biden administration has been doing to give student debt relief to some borrowers.  

The administration has forgiven $132 billion in student loans by targeting specific groups such as those on the Public Service Loan Forgiveness program (PSLF) or those who had claims with the Borrower Defense program.

But it is unclear if these efforts will be enough to satisfy student loans borrowers to whom Biden promised $10,000 in relief during his campaign.

The Biden administration is “doing the best they can given the recent Supreme Court decision to relieve as much debt as possible and to continue, I think, to keep coming back to the table to come up with proposals to ensure that they're reducing the burden on as many borrowers as possible,” Getachew said.

Going into 2024, she said for borrowers she is "hopeful that they will have a better sense around their economic certainty.”