The Biden administration is planning to use a generous income-driven repayment plan as its main method of easing student loan debt following the Supreme Court’s Friday ruling that blocked the administration’s plan to grant student loan forgiveness to nearly 40 million Americans.
The Supreme Court ruled 6-3 that the Biden administration cannot use executive power in order to cancel up to $10,000 in student loan debt for non-Pell Grant recipients and up to $20,000 for Pell Grant recipients.
To circumvent the Supreme Court’s ruling, the Department of Education (DOE) plans to use the Higher Education Act as well as expand income-driven repayment plans, which would cut payments for those making $32,800 or less annually to $0, according to a Saturday press release.
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“We know that those first few months can be really crucial in making sure that folks get on track and stay on track early,” Brian Denten, a student debt expert at Pew Charitable Trusts, told The Wall Street Journal. “A big part of that is getting the department’s revised repayment plan available to borrowers as quickly as possible.”
Under the DOE’s repayment plans, borrowers who miss payments within the first year, beginning Oct. 1, will not be penalized, reported to credit or collection agencies or put in default, the WSJ reported. The DOE estimates that their expansion of income-driven repayment plans will save all borrowers at least $1,000 per year.
The department’s revamped income-driven repayment plans are estimated to cost taxpayers more than one-time outright forgiveness, according to a Penn Wharton Budget Model report.
The Supreme Court’s Friday ruling involved two cases, Biden v. Nebraska and Department of Education v. Brown, that challenged the Secretary of Education’s emergency authority to cancel student loan debt.
In October, a federal court of appeals had paused the student loan forgiveness program and then in November, Texas U.S. District Judge Mark Pittman ruled that the program was illegal because borrowers did not have an opportunity to comment on the plan before it was launched.
The DOE began to notify applicants that they were eligible to receive relief, despite the pending litigation.
“This new path is legally sound,” President Joe Biden said in a Friday press conference. “It’s going to take longer, but in my view it’s the best path that remains for providing for as many borrowers as possible.”
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