Supreme Court hearing on Biden student loan forgiveness: What to know if you've applied

The Supreme Court is set to hear oral arguments on Tuesday over President Biden’s student loan debt relief plan, which aims to wipe away up to $20,000 of student debt for more than 40 million Americans.

The existence of that program now hinges on the high court. The nine justices, with a 6-3 conservative majority, will consider two cases that challenge Biden's plan, with a decision expected this summer.

The case of Biden v. Nebraska was brought by six Republican-led states: Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. They argue that Biden’s plan, expected to cost $400 billion, threatens a loss in tax revenue for each state.

A lower court had dismissed the lawsuit, ruling that the states didn't have the standing to sue the federal government. But last November, a federal appeals court issued a nationwide injunction, placing a hold on Biden's program. The appeals court said Missouri, one of the six states, had the standing to bring the suit on behalf of the Missouri Higher Education Loan Authority (MOHELA), which services federal student loans and funds state scholarships. The ruling found that MOHELA would lose revenue if Biden's program went forward.

The second case, Department of Education v. Brown, was filed by the Job Creators Network Foundation on behalf of two Texas student loan borrowers who don’t completely qualify for debt forgiveness under Biden’s plan.

The plaintiffs in both cases argue that the Biden administration’s Department of Education is overstepping its authority to provide one-time debt relief under a 2003 law.

Under the Heroes Act of 2003, the education secretary has the ability to modify student loan balances in the instance of a national emergency. The Biden administration says the COVID-19 pandemic qualifies as such an emergency. But the GOP states' lawyers say the administration was using the pandemic as "a pretext to mask the president's true goal of fulfilling his campaign promise to erase student loan debt," according to court documents.

Meanwhile, the Biden administration has repeatedly said that borrowers are continuing to recover from the pandemic and that providing debt relief under the Heroes Act is lawful. It's the same authority both Biden and then-President Donald Trump used to pause student loan payments during the height of the pandemic. Biden extended the pause for a sixth time through the end of June 2023.

“Forty-five million [Americans] owe a collective $1.7 trillion of federal loan debt,” Natalia Abrams, president and CEO of the Student Debt Crisis Center, told Yahoo News. The 26 million Americans who applied for the program face uncertainty along with 16 million who have had their applications approved.

In an effort to unpack what all this means for borrowers going forward, Yahoo News spoke with Abrams and Cody Hounanian, executive director of the Student Debt Crisis Center. Some responses have been edited for length and clarity.

If the Supreme Court rules that the Biden administration’s student debt relief plan can be implemented, who would qualify and what type of relief would they receive?

Natalia Abrams: Biden's student debt cancellation plan that he proposed in August was to cancel $10,000 for all federal student loan borrowers that have loans owned by the Department of Education. Borrowers are eligible for this relief if their individual income is less than $125,000; $250,000 for married couples. There were some, what we call ED-held loans that were excluded — these were borrowers with older Federal Family Education Loans that were not held by the Department of Education.

A good rule of thumb is, if your loans haven't been a part of the payment pause during the COVID pandemic, then they probably won't be a part of cancellation. However, the defaulted ED-held loans do qualify. But in terms of federal loans, it includes Parent Plus Loans, graduate loans, undergraduate loans —anyone with a direct loan is completely fine. So that’s $10,000 across the board, and then an additional $10,000, so total $20,000 if the borrower had a Pell Grant. Some borrowers never exhausted their Pell Grant, but even if you took a dollar of a Pell Grant, that means that you would get an additional $10,000, equaling $20,000.

When would borrowers have to resume making payments after Biden extended the pause?

Abrams: Federal student loan payments would resume 60 days after a Supreme Court decision, or June 30, whichever comes first. And to our knowledge, if the decision comes on June 30, it would be 60 days after that.

What if a borrower submitted their application prior to the pause on the program and has not received a letter yet?

Cody Hounanian: If you've submitted an application and you have not received a communication, I would definitely encourage folks to continue to monitor the messages they're receiving. Some of this is just the fact that the Department of Education and the student loan servicing companies somewhat have a monumental task — they have to communicate updates with tens of millions of people. So it happens in waves.

I'll also add, while folks are waiting for their approval letters and other communications related to all sorts of programs, we are seeing from our supporters and from borrowers everywhere that they're getting letters in the mail, they're getting phone calls, they're seeing on social media these opportunities to apply for programs, and these opportunities are coming from third-party companies that are often “get relief” scams.

How soon would borrowers see relief if Biden’s plan is given the green light by the Supreme Court?

Abrams: I would assume it would be very soon after the decision. They've already approved 16 million borrowers, and we would expect to see relief instantly.

Hounanian: The entire reason the department has processed these applications is precisely so the Department of Education can immediately begin canceling student debt once this clears these legal hurdles. So it will be quick.

Does the Biden administration have a plan B if the Supreme Court rules against the plan?

Hounanian: I'm not sure if the administration itself has their backup plan. I think they are steadfast in their fight right now to protect the president's plan as is. But as advocates and part of a broad coalition that have been fighting for debt cancellation for several years now, we have identified several means in which the president can use different authorities to cancel student loan debt.

The president for his proposal chose to lean on a piece of legislation that allows them to issue relief because of the emergency aspect of the COVID-19 pandemic. But we also know that the president has the legal authority to cancel student loan debt broadly through settlement compromise, which is a part of the Higher Education Act. So there are other opportunities.

What other options do borrowers have besides Biden’s student debt relief plan?

Hounanian: There are a host of other opportunities and programs available to borrowers that can help them access relief — and for some to have their entire student loan debt erased. We worked really hard this year to enroll borrowers in a public service loan forgiveness program that has been on the books for over a decade now. This year had an expanded set of rules that made it even easier for folks to apply. That is something we will continue to spread awareness around.

There are going to be what are called the account adjustments next year, meaning there's borrowers who will be closer to completing an income-driven repayment plan or public service loan forgiveness and will be able to access relief either immediately or sooner.

And there's also the continued work on fixing the existing programs for totally and currently disabled borrowers, and those who were victimized by for-profit colleges. So there’s a host of opportunities.