Biden’s Student Loan Forgiveness Plan Faces the Supreme Court Test, But The Clock Is Ticking for Many Borrowers, Too
As Mass. Dems push for Biden’s debt relief program, some of the people most buried by debt may end up with fewer answers—and potentially less money—than they started with.
Flora Meng
One borrower lamented taking on mountains of debt to attend college. Another revealed a deep-rooted shame for their inability to repay what they took out for a seat in higher education. These were just a few of the frustrations shared by participants of a recent focus group conducted by New Americans on the experiences of student loan borrowers in the daunting default system.
Across the nation, 7.5 million people have defaulted on their student loans. As a whole, an estimated 43 million Americans are student loan holders, with countless borrowers taking extraordinary steps to keep up with their loan payments. From working additional part-time jobs to seeking family support, many borrowers find that no amount of assistance seems to make them financially stable.
A shared sentiment among numerous focus group participants was a growing sense of hopelessness. Borrowers often fail to receive the benefits promised by higher education—such as adequate employment support—and must navigate a complex repayment system that increases the likelihood of default.
This is why many borrowers saw a glimmer of hope when President Biden announced his student loan forgiveness program in August. Yet, since the program was launched, it has incurred numerous legal challenges, including a Supreme Court hearing scheduled to take place in just two months.
With the plan’s fate in limbo, most eligible recipients may find themselves back to square one, while others may find their already dire finances in worse conditions.
Notable Massachusetts Democrats Weigh in
Around 800,000 student loan borrowers and 400,000 Pell Grant recipients in Massachusetts are eligible for student debt relief, according to the White House.
The plan would cancel $10,000 in debt for those making less than $125,000, while Pell Grant recipients would receive an additional $10,000 in relief. As longtime proponents of student debt cancellation, Warren and Pressley went on a four-city speaking tour in late October to promote Biden’s student relief proposal, although they both originally lobbied for up to $50,000 in canceled debt.
Biden and Warren have not always been in agreement on the issue of student loan cancellation. “I’m prepared to write off $10,000 debt, but not [$50,000] because I don’t think I have the authority to do it by signing the pen,” Biden said in a February 2021 town hall.
Meanwhile, the program has been paused by various court orders in the past months. The pause began on November 1 when a federal judge in Texas blocked Biden’s relief program, ruling that it was “unlawful”. Four days later, a federal appeals court decision issued a nationwide injunction, adding another temporary pause to the plan, after six conservative states argued that the program would threaten their future tax revenues and bypass congressional authority in a lawsuit.
Following these challenges, the Supreme Court announced it would hear oral arguments in a case challenging the Biden administration’s forgiveness plan next February. Many legal scholars say this move will likely end the program given the Court’s conservative majority.
Despite these grim projections, Warren told NBC that she doesn’t “have any doubt that the president has the legal authority to cancel this student loan debt,” a position she has consistently defended.
Pressley echoed Warren’s views, claiming that Biden “has the legal authority to cancel billions in student debt with the stroke of a pen and he must meet the moment by using that authority,” she wrote in a press release in September.
Yet, this relentless faith may turn out to be a projection of overconfidence with tangible consequences to millions of borrowers.
A Red Herring For Some, A Disaster for Others
If the Supreme Court strikes down Biden’s loan forgiveness program, many people will be back where they started, but one group may actually be worse off than before the program was announced: people who took out loans through the Federal Family Education Loan (FFEL) program before 2010.
FFEL loans are federal loans issued by private banks and state lenders. The Obama administration shut down the FFEL program in 2010 in an effort to save money by cutting out the middleman. But in an unanticipated move of federal oversight, those who still hold these old loans have become a separate class of borrowers excluded from a number of debt relief efforts over the years.
When Biden announced his “student loan relief for those who need it most”, these individuals fit that description. From repayment plans to debt cancellation for public servants and most recently, the pandemic payment pause, FFEL borrowers have been unabashedly left out.
Today, student loans are only given out as Direct Loans. But more than a decade after the FFEL program ended, over 4 million borrowers still hold these old loans, held by private lenders.
This is why when Biden announced a debt cancellation plan, FFEL borrowers hoped that they would finally be on the receiving end. When they asked the Department of Education about eligibility requirements shortly after the plan’s release, loan officers and officials consistently told them to “sit tight” and wait.
Amidst the vague instructions surrounding eligibility requirements, the Department of Education simultaneously told FFEL borrowers that if they consolidated their loans into one Direct Loan, they would automatically qualify for Biden’s relief plan.
With a new consolidated loan, borrowers would incur higher interest rates and the clock would reset on the number of years they have left to pay up. But holding on to their faith in Biden’s plan and believing in the legitimacy of the Education Department’s authority, many borrowers decided to bite the bullet and consolidate to secure a coveted spot in the program.
After all, the higher interest rates would be a temporary cost that would be offset by the cancellation later on, borrowers thought.
Other FFEL borrowers waited. Familiar with the unpredictability of the student loan system over the years, some felt that they needed an official confirmation about what to do to qualify before taking any action.
On the morning of September 29, the confirmation finally came: the Education Department’s F.A.Q. page was discreetly updated, with no prior notice, to say that only FFEL borrowers who consolidated their loans before that very day would qualify for debt cancellation. Just like that, 700,000 borrowers were suddenly no longer eligible for relief.
Frustration and disappointment spread like wildfire. Thousands affected turned to Twitter to voice their discontent with the agonizing process. “What about #FFELP recipients?” one user wrote to Secretary of Education Miguel Cardona. “No pause and you unfairly made these loans ineligible [from] relief. Very cruel!! Those are federal loans too. It’s unfair that you’ve abandoned and forgotten about older federal loans. We need help.”
Another user also commented on the swift change. “The Biden administration told everyone with FFEL loans to HOLD TIGHT and wait for guidance,” the user wrote. “Then today they announced an arbitrary deadline that is..*checks notes*.. yesterday. #ffel #FFELP.”
It turns out that between the time Biden launched the loan forgiveness plan and the late-September announcement, his administration realized that third-party financial entities still holding the FFEL loans could take legal action against the federal government if a flood of FFEL borrowers moved their loans. This was because such a move would reduce the income those private actors could earn from interest.
Few noticed: When asked about the updated policy for FFEL borrowers by a reporter in late September, Senator Warren expressed no knowledge of the fact. "I don't know what you're talking about, so I can't comment on it," she said.
Some took to Twitter to point out the irony, “It is truly astonishing how FFELP folks like me are getting screwed over again @POTUS,” one user wrote. “Shocking how silent @SenSanders @SenWarren @AOC @AyannaPressley have been about this too. They have been our student loan mouthpieces and allies but now silence from them too. #betrayal #FFELP.”
One Step Forward or 3 Steps Back
So what about those FFEL borrowers who did consolidate their loans as directed?
Graduating from Fairfield University in 2009 with some loans under the FFEL program, Massachusetts resident Emily Fitzmaurice consolidated her FFEL loans as soon as she learned that this would qualify her for relief. But with a possible Supreme Court override on the horizon, her consolidation may prove more costly than if she’d left the loans as they were.
To this day, Fitzmaurice, who works as policy director at The Hildreth Institute in Boston, believes in the spirit of Biden’s plan. “When I say that it took me a day to kind of think about it, it was mainly because the student loan process over the last dozen years or so has been really difficult in terms of dealing with predatory servicers,” Fitzmaurice told the Student Dispatch. “I do still feel like this was done in a really thoughtful way and I felt strongly that I could trust that this would go forward and not be thrown out by a political court.”
Fitzmaurice’s new Direct Loan carries a higher interest rate and a longer payment term than her other loans. This means that if she doesn’t qualify for relief, she’ll have to pay back $39,000 over 20 years, an additional $20,000 more than the $19,000 she currently owes and was set to pay off in the next 7 years.
Burdened with anxiety about the implications of a hefty Supreme Court decision, Fitzmaurice described her emotional journey. “It’s just a roller coaster of emotions,” she said. “Assuming that you're gonna be left out, then you're brought in and you do everything right. You do what the government tells you to do. You fill out the forms, you meet the deadlines.”
As a Pell Grant recipient, Fitzmaurice has been chipping away at her student loans for 14 years. But the additional interest she might accrue with her new Direct Loan would be a substantial, long-term burden on top of her existing debt.
Fitzmaurice discussed the stigma surrounding student debt and the hardship that comes with it. “It's really taken me a long time to even be comfortable talking about my debt with people that I know and love,” Fitzmaurice said. “Because we have this undo notion in society that we shouldn’t have taken on the debt. But, unfortunately, I went to college and my family dynamics changed and I had to take out really large loans to cover unmet need.”
Fitzmaurice said she has been tirelessly navigating this loan forgiveness process in hopes of a modicum of support. “It’s not like I felt like I was hitting the jackpot or like I was gonna go out and buy… some jewelry or a boat,” she said. “It's just that the burden is a little bit less knowing that there was a real possibility for forgiveness.”
But even that ounce of help may be at risk of evaporating now, with the potential of added financial strain for millions of others.
What’s Next for Borrowers?
If the Supreme Court rules against the Biden administration, Fitzmaurice hopes there will be measures to protect FFEL borrowers who were misdirected. “I really hope that if this is really struck down, that the next step is—and I know that this is another part of the overall reform effort—changing other types of waivers and [making eligibility] changes to the Public Service Loan Forgiveness,” she said. “Right now, my loans don't qualify for that.”
Fitzmaurice also suggested allowing borrowers to undo their consolidation and return to their previous FFEL loans, if legally possible. “I think that if there is an option for people to—don't even know if this is legally allowed—but undo the consolidation, so that I go back to my seven year $19,000 credit payment projectory,” she said.
“I followed the instructions of the Department of Education,” Fitzmaurice said sorrowfully. “I just, I feel like there has to be some kind of hold harmless clause.”