3 Alternative Paths To Student Loan Forgiveness If Biden’s Plan Is Blocked

The Supreme Court struck down President Biden's blanket student loan forgiveness plan this week. However, immediately after the ruling, the President said that he plans to pursue other options for student loan relief.

We explore some of the alternative paths to student loan forgiveness now that President Biden's blanket student loan forgiveness plan is blocked by the Supreme Court, including any potential challenges to these alternatives.

Editor's Note: This article's introduction has been updated slightly to reflect that Biden's plan was blocked by the Supreme Court.

Plan A: President Biden Succeeds At The Supreme Court

Note: The Supreme Court struck down Biden's plan on June 30, 2023.

As of November 2022, a total of 26.3 million borrowers had applied for the President’s student loan forgiveness plan. Of these, 16.5 million applications have been processed and approved by the Biden administration.

If the Biden administration wins both cases before the U.S. Supreme Court, they will implement forgiveness quickly. The U.S. Department of Education will tell the student loan servicers to proceed immediately with forgiveness. This can take 1-2 weeks to complete.

Processing the remaining applications, plus any new applications, will likely take a few weeks.

If the cases are dismissed because the plaintiffs lack legal standing, it is possible that a new plaintiff who does have legal standing will file a lawsuit to block the President’s plan. They would likely seek a temporary injunction to stop the Biden administration from forgiving student loans while the case is considered. 

The main plaintiff who has legal standing is MOHELA, since the Biden administration acknowledged during the hearing on February 28, 2023 that MOHELA would have legal standing. But, MOHELA is unlikely to file such a lawsuit, or it would have done so already.

It is also possible that the U.S. House of Representatives could bring a lawsuit to block the President’s plan.

Alternative Paths To Blanket Student Loan Forgiveness?

If the Biden administration loses either case before the U.S. Supreme Court, they will be unable to rely on the Heroes Act of 2003 to implement the President’s student loan forgiveness plan. So, what are the alternatives?

The decision whether to pursue another approach to loan forgiveness may depend more on politics than policy.

The Biden administration may decide to let the U.S. Supreme Court decision be the end of the matter. As a result, the administration may shift their focus to other forms of financial relief for student loan borrowers. 

The new REPAYE plan does provide significant financial relief to struggling borrowers, cutting monthly loan payments in half on undergraduate student loans and providing earlier forgiveness for borrowers who started off with low loan balances. 

But, proponents of forgiveness may pressure the Biden administration to do something further on student loan forgiveness. There are a few options, including a permanent extension to the payment pause and interest waiver, waiver authority under the Higher Education Act of 1965, and using the regulatory authority under income-contingent repayment to create a new forgiveness plan.

None of these options, however, seems like a good solution. 

Plan B: Permanent Payment Pause

Note: The passage of the Debt Ceiling Act prohibited another extension of the student loan payment pause without authorization from Congress.

The President could decide to extend the payment pause and interest waiver indefinitely. Not only does this provide ongoing financial relief to eligible borrowers, but the paused payments count as payments toward public service loan forgiveness and the 20- or 25-year forgiveness at the end of an income-driven repayment plan.

The authority to implement the payment pause and interest waiver is based on the Heroes Act of 2003. The authority to implement the payment pause and interest waiver ends when the national emergency ends. The President has expressed an intention to end the national emergency declaration on May 11, 2023. 

The Biden administration has said that its authority to implement the payment pause and interest waiver will continue beyond the end of the national emergency because the economic impact of the pandemic will continue. That might be sufficient for the current (eighth) extension to reach its conclusion 60 days after the U.S. Supreme Court issues an opinion in the pending lawsuits, but it would be rather awkward for the Biden administration to issue a new extension.

Of course, the President's plans to end the national emergency declaration could change. Perhaps the Covid-19 virus will mutate and cause the start of the Zombie Apocalypse. Or, maybe space aliens will land on the White House lawn. There’s always the potential for an excuse for an extension to the payment pause and interest waiver. There are currently 42 national emergencies in effect.

But, a pending lawsuit may block further extensions to the payment pause and interest waiver.

SoFi filed a lawsuit on March 3, 2023 that seeks to end the payment pause and interest waiver. SoFi, a lender of private student loans and private refinance, argues that the latest extension is not connected to the pandemic and therefore not justified under the Heroes Act of 2003 since it does not relate to the pandemic. SoFi also argues that it is not narrowly targeted to affected individuals. The case is SOFI BANK, N.A. and SOFI LENDING CORP. v. MIGUEL CARDONA and UNITED STATES DEPARTMENT OF EDUCATION, case number 1:2023cv00599, U.S. District Court for the District of Columbia. 

The briefing schedule in the lawsuit runs through June 26, 2023, so it is unlikely to cause an early termination of the current extension. 

If SoFi wins its case, it is likely to be a pyrrhic victory, since borrowers are unlikely to refinance their federal loans with a lender who forced them into repayment. Also, by then the interest rates on private student loans will be much higher than most federal student loans, even for borrowers with excellent credit. 

Plan C: Higher Education Act (HEA) Waiver Authority

Note: In President Biden's press statement after the Supreme Court ruling, it appears that he is going to pursue a path using the Higher Education Act.

Some proponents of student loan forgiveness have claimed that the President has the authority to forgive student loans using the waiver authority in the Higher Education Act of 1965 (HEA). 

There are several problems with this approach.

• It depends on a misreading of the HEA, taking the waiver authority out of context. The preamble of that section of the HEA limits the authority to the authority vested in the U.S. Secretary of Education by the HEA. In other words, they can forgive student loans only as previously authorized by Congress.
• The waiver authority appears only in Parts B and E of the HEA. Part B covers the Federal Family Education Loan Program (FFELP) and Part E covers the Federal Perkins Loan. Part D, which covers the William D. Ford Federal Direct Loan Program (DL), is noticeably absent. To address this, one has to try to rely on the parallel terms clause, but waiver authority is not a term and condition of the loans, but rather external to it. 
• The waiver authority does not use the term “notwithstanding” like the Heroes Act of 2003. This means that this authority may be limited by other statutory and regulatory language. In particular, it is subject to the limits on waiver authority that appear at 31 CFR 902.2, which limit waivers to situations in which a borrower is unable to repay the debt and which require the federal government to collect the loans through wage garnishment and Treasury offset. In addition, federal agencies are required by 31 CFR 901.1(a) to “aggressively collect all debts.”

Also, to the extent that the HEA waiver authority was mentioned in one of the legal briefs, the U.S. Supreme Court may decide to address it. 

Plan D: Forgiveness Through Income-Driven Repayment

The four income-driven repayment plans, ICR, IBR, PAYE and REPAYE, are effectively loan forgiveness plans. They forgive the remaining debt after 20 or 25 years worth of payments. 

Congress provided broad regulatory authority for Income-Contingent Repayment (ICR), sufficient to remake ICR into a broad student loan forgiveness plan by changing the percentage of discretionary income, the definition of discretionary income and the number of years until forgiveness. 

This is not just a theoretical argument, as this regulatory flexibility has already been used twice before in creating the PAYE and REPAYE plans. These new repayment plans cut the percentage of discretionary income from 20% to 10%, the definition of discretionary income from AGI - 100% PL to AGi - 150% PL and the number of years until forgiveness from 25 to 20. 

The law doesn't allow the number of years in repayment to drop below 5, and there's some question whether it could drop below 10, but certainly they could create a means-tested forgiveness plan that forgives the remaining debt after 10 years in repayment.

They could also allow payments in other income-driven repayment plans to count toward forgiveness, so borrowers who had already been in repayment could switch into the new repayment plan and have their loans forgiven. 

The Biden administration did include some ideas along these lines in the updated REPAYE plan. For example, borrowers who initially owed $12,000 in federal student loans will have their loans forgiven after 10 years, instead of 20 years. Each additional $1,000 yields a year until the loans are forgiven. 

They decided to do this instead of delaying the publication of the Notice of Proposed Rulemaking (NPRM) until after the U.S. Supreme Court ruling. Since consensus wasn’t reached during negotiated rulemaking, the U.S. Department of Education could do whatever it wants in the NPRM. But, they decided to go forward with the revised version of REPAYE. The public comment period on the NPRM has ended on February 10, 2023, with 13,635 public comments. If the final rule is published by November 1, 2023, the new version of REPAYE will go into effect on July 1, 2024. (The U.S. Secretary of Education can choose to implement the new regulations sooner.)