Personal Finance

What happens if the Supreme Court strikes down student loan forgiveness? Here are 3 predictions


Bloomberg Creative | Bloomberg Creative Photos | Getty Images

‘Historically large’ hike in delinquencies and defaults

U.S. Department of Education Undersecretary James Kvaal said in a recent court filing that if the government isn’t allowed to provide debt relief, there could be a “historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic.”

Despite student loan borrowers being offered forbearances during previous natural disasters, Kvaal wrote, default rates still skyrocketed when payments resumed.

The pandemic-era relief policy pausing federal student loan payments has been in effect since March 2020, and payments aren’t scheduled to resume until after the litigation over the president’s plan is resolved or at the end of August — whichever comes sooner.

″[T]he one-time student loan debt relief program was intended to avoid” skyrocketing default rates, Kvaal added.

President Biden: 22 million people have signed on for student debt relief

The borrowers most in jeopardy of defaulting are those for whom Biden’s student loan forgiveness plan would have wiped out their balance entirely, Kvaal said.

The administration estimated its policy would do so for around 18 million people.

“These student loan borrowers had the reasonable expectation and belief that they would not have to make additional payments on their federal student loans,” Kvaal said. “This belief may well stop them from making payments even if the Department is prevented from effectuating debt relief.”

‘Severe’ political consequences

Astra Taylor

Source: Isabella De Maddalena

Currently, the Biden administration is using the Heroes Act of 2003 to argue that it has the authority to cancel student debt.

That law allows the Education Department to make modifications to federal student loan programs during national emergencies. Critics accuse the administration of using the coronavirus pandemic to fulfill a campaign promise and say the relief is not targeted to those who have suffered financially because of Covid.

Another path the president could take would be to try to indefinitely extend the pandemic-era pause on federal student loan payments, said higher education expert Mark Kantrowitz.

That move, Kantrowitz said, is “more likely to survive legal challenge.”

‘A disastrous blow to Black Americans’

The country’s $1.7 trillion student loan crisis has hit Black Americans especially hard.

Black student loan borrowers owe $7,400 more, on average, at graduation than their white peers, a Brookings Institution report found.

That inequity only gets worse with time: Black college students owe, on average, more than $52,000 four years after graduation, compared with around $28,000 for the average white graduate.

If Biden’s student loan forgiveness fell through, it would be a “disastrous blow to Black Americans,” said Wisdom Cole, national director of the youth and college division at the NAACP.

“The racial wealth gap will widen, and the vicious cycle of economic inequality will continue,” Cole said. “If our leaders truly believe that Black lives matter, they should understand that failure is not an option.”



READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.