What’s at stake because the Supreme Court docket weighs pupil mortgage forgiveness

A protest sign outside the Supreme Court in Washington, DC on February 28, 2023.

The Washington Post | The Washington Post | Getty Images

There is no precedent in recent history for the sweeping federal student loan forgiveness policy that President Joe Biden is trying to implement.

A look at the math of the program shows how profound the relief could be for borrowers, many of whom were struggling before the Covid pandemic – when the economy was at one of its healthiest.

Since then, federal student loan payments have been suspended for three years. Biden had hoped to cancel up to $20,000 in debt for tens of millions of Americans before resuming bills, but his policies soon faced a barrage of legal challenges, and their fate now rests with the Supreme Court.

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The outcome of the judges’ decision could have serious consequences for families, said Thomas Gokey, co-founder of Debt Collective, a national association of debtors.

“For a lot of people, that’s life and death,” Gokey said. “What’s at stake is being forced to choose between paying student loans or being able to buy groceries, pay rent and pay medical bills.”

Here’s what’s at stake, by the numbers.

$400 billion in student debt gone

If every eligible borrower applies for the relief, Biden’s student loan forgiveness plan will wipe out an estimated $400 billion in federal student debt, according to the Congressional Budget Office.

That would reduce the country’s outstanding education debt from $1.7 trillion to $1.3 trillion.

Fresh start for 14 million borrowers

According to an estimate by higher education expert Mark Kantrowitz, about a third of those on federal student loans, or 14 million people, would have their balances written off entirely through the president’s program.

Those borrowers probably won’t have to make another student loan payment, Kantrowitz said. The Biden administration has said it will not resume bills until 60 days after litigation over its plan is settled (or late August if challenges are pending).

For many people this is life and death.

Thomas Goke

Co-founder of Debt Collective

“Sixty days will be enough to forgive student loan debt if the president’s plan survives,” Kantrowitz said. “They’ve already approved 16 million borrower forgiveness, so all they have to do is share that information with the loan servicers.

“It should take the service providers a week or two to complete the implementation,” he added.

37 million people receive loan forgiveness

Biden’s relief is limited to borrowers making less than $125,000 per year as individuals or less than $250,000 as couples.

Still, that means about 37 million people would be eligible for loan foreclosure, Kantrowitz estimates — up to $20,000 if they received a Pell Grant, a type of low-income family grant, in college, or up to $10,000 dollars if they don’t.

Monthly bills cut by a third or more

Students prepare to pay off the loan as the US Supreme Court hears the debt-forgiveness case

The US Department of Education has announced that it plans to re-amortise borrowers’ new balances after the writ. It’s a shaky term that means people’s monthly payment is recalculated based on their bottom tab and the number of months they have left on their repayment timeline.

Kantrowitz provided an example: Let’s say a person currently owes $30,000 in student loans at a 5% interest rate. Before the pandemic, they would have paid about $320 a month for a 10-year term.

If forgiveness comes through and that person receives $10,000 of relief, their total balance would be reduced by a third, and their monthly payment will drop by a third to about $210 a month.

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