The United States Supreme Court has struck down President Joe Biden’s student loan forgiveness programme.
The apex Court in its ruling on Friday, held that Biden’s administration didn’t have the authority to cancel up to $20,000 per federal loan borrower.
This means that millions of federal borrowers are now set to resume student-loan payments in October — with interest beginning to accrue again in September — without a reduction to their balances, according to CBS News.
With their proposed relief revoked, borrowers are barreling towards a painful resumption of payments that will have significant implications for the whole country.
Much of the worry is around what the restart will do to consumer sentiment and spending. With inflation still historically high, many experts are worried that a spending slowdown could portend a broader economic slowdown and possible recession.
In the 6-3 ruling, the court’s conservative majority sided with six states who sued to stop the programme on the grounds that the education secretary did not have the grounds to make sweeping changes under the HEROES Act,
The ruling the paper reports is a blow to as many as 43 million people with federally-held student loans who would have seen relief under the plan, including 20 million whose balances would have been wiped out completely. The ruling thwarts—at least for now—a progressive push for student loan forgiveness.
The idea gained momentum during the 2020 presidential election and became a part of the government’s efforts to provide financial support to individuals amid the pandemic’s economic fallout.
The Biden administration did not immediately say what, if anything, it would do in response to the ruling or if it would try to implement some form of student loan debt relief through other means. The three-year pause on required student loan payments and interest is set to end, with interest resuming in September and payments restarting in October.
Out of 43 million borrowers, 26.6 million are currently in forbearance—the group that will be impacted by the end of the student loan pause. The rest are either still in school, in deferment, have loans held by private lenders not subject to the pandemic forbearance, or have defaulted on their loans already, according to data from the Department of Education.
Many borrowers will come under serious financial pressure when that day comes. The cost of living has soared since the pause took effect, with the consumer price index going up 17% between February 2020 and the most recent measure in May 2023, meaning many student loan borrowers will be harder-pressed to fit payments into their budgets.
As many as 5.9 million borrowers are at high risk of struggling to resume payments, the Consumer Financial Protection Bureau estimated this month.
Many borrowers have dim hopes of being able to resume payments. Indeed, 62% of U.S. adults with student loans said they expected to miss at least one payment, and 52% said they expected to default entirely, according to a Morning Consult poll of 1,069 borrowers taken in late May.
The resumption of payments will also impact the broader economy, stifling an estimated $5.3 billion to $8 billion of consumer spending, economists at Morgan Stanley estimated last week. Resilient consumer spending has been one of the forces preventing the economy from slipping into a recession as inflation and high interest rates set by the Federal Reserve weigh it down.
Opponents of student loan forgiveness argued it wasn’t fair to people who had paid off their loans or who had never gone to college in the first place. The plan’s significant cost to the government, which ranged from $305 billion to $519 billion over the next 10 years, depending on who was estimating, was a major factor in the case.
The states seeking to overturn forgiveness argued the cost was so great that Congress would have had to pass a law specifically authorizing the expenditure.
The administration had contended a 2003 law called the HEROES Act gave Biden’s secretary of education broad authority to take actions, including canceling student loan debt, in an emergency such as the pandemic.
