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Decision on Student Loan Forgiveness Expected Next Month: What to Know Now

Michael Baum, CFP®, RICP®
Vice President & Associate Financial Advisor 

The movement to forgive a portion of the skyrocketing student loan debt started over a decade ago, but it’s accelerated quickly in the last year with President Biden’s student loan forgiveness plan, which may or may not move forward in the months to come.

That plan, which would forgive up to $20,000 in student loan debt per borrower, depending on certain factors, was rolled out last fall and then was forced to stall as a result of pending legal action. 

Here's a brief timeline of events regarding the plan and a look at when borrowers might expect to have an answer as to whether or not some of their debt will be forgiven or not. 

January 2021 

President Joe Biden is inaugurated and begins working toward his campaign promise to "forgive all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities and private HBCUs and MSIs for debt-holders earning up to $125,000."1 

August 2022 

President Biden announces that he would cancel $10,000 per borrower and $20,000 for Pell Grant recipients. The loan forgiveness was limited to Americans earning under $125,000 per year, or $250,000 for married couples. The relief was also capped at the amount of a borrower's outstanding eligible debt.2, 3, 4 

September 2022 

Six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) sue President Biden and the Department of Education, claiming that Congress never approved massive student loan cancellation and that the Biden Administration and the US Education Department misused their emergency authority. They argued that the administration improperly used the HEROES Act, a 2003 law that "vests the Secretary of Education with expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies."5, 6 

For the next month or so, various other parties sued the Department of Education and President Biden, including the Brown County Taxpayers Association in Wisconsin, college graduates Myra Brown and Alexander Taylor, and the Cato Institute. 

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October 2022 

On October 17, 2022, student loan forgiveness applications opened, despite rising legal challenges. Also in October, the Supreme Court dismissed the six states' lawsuit, saying it lacked standing. Shortly after, the 8th Circuit Court of Appeals in St. Louis gave an emergency order temporarily blocking the forgiveness plan after the six states appealed the decision.7, 8  

November 2022 

Throughout October and November, there were various appeals and dismissals from both sides and on November 11, the Department of Education stopped accepting student loan forgiveness applications. On November 22, the student loan repayment pause was extended to June 2023, or until the debt relief program is implemented or the litigation is resolved. 

Looking Ahead to June – And Beyond 

The Supreme Court is widely expected to deliver its decision on the legality of President Biden’s student loan forgiveness plan by late June. If the plan is allowed to move forward, the Department of Education will likely reopen the student loan forgiveness website and begin processing applications.  

But regardless of whether the plan goes forward or is struck down, the pause on federal student loan payments will be lifted 60 days after the decision is made, or 60 days after June 30, 2023 if the case has not been resolved, whichever comes first. If you have outstanding student loans, be sure to begin making those payments once again at that time. 

In the meantime, if you would qualify for forgiveness, there’s one thing you should definitely not do between now and the expected Supreme Court decision in June, if you can help it. Do not refinance or consolidate your federally-owned student loans. (These include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation Loans or FFEL Loans owned by the U.S. Department of Education.)  

Why? By refinancing or consolidating the loans with a private lender, you will lose the ability to apply for forgiveness should the plan go forward – costing you anywhere between $10,000 and $20,000 in debt that you otherwise wouldn’t have had to pay. 

If you’d like to learn more about our Plan Well, Invest Well,  Live Well™ strategic process and how we can put it to work to help you create an investment portfolio tailored to meet your goals and reflect your values, contact us at (860) 928-2341 or request a complimentary consultation on our website.

 

 

Presented by Vice President, Associate Financial Advisor, Michael Baum, CFP® RICP®. Securities and advisory services are offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com. 

  1. https://www.politifact.com/truth-o-meter/promises/biden-promise-tracker/promise/1595/forgive-student-loan-debt-public-colleges-and-univ/
  2. https://www.cnbc.com/2022/08/24/biden-expected-to-cancel-10000-in-federal-student-loan-debt-for-most-borrowers.html
  3. https://www.cnbc.com/2022/08/24/who-qualifies-for-biden-student-loan-forgiveness.html
  4. https://studentaid.gov/debt-relief-announcement/
  5. https://nebraskaexaminer.com/2022/09/29/nebraska-ag-joins-five-others-in-suing-the-biden-administration-to-stop-student-debt-cancellation/ 
  6. https://www.justice.gov/olc/file/1528451/download#:~:text=%C2%A7%C2%A7%201098aa%E2%80%931098ee
  7. https://storage.courtlistener.com/recap/gov.uscourts.moed.198213/gov.uscourts.moed.198213.44.0_2.pdf
  8. https://www.foxbusiness.com/personal-finance/biden-student-loan-forgiveness-blocked-appeals-court
  9. https://studentaid.gov/ 


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