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Blog

The Current State of Student Loan Forgiveness

VerifyInvestor.com

On the final day of February, the Supreme Court of the United States (SCOTUS) began hearing arguments in the case against the student loan forgiveness plan set forth by President Biden  last year.

The SCOTUS decision will determine if the 43 million Americans with federal student loans will have to pay them back in full or not. 

Without the burden of student debt, graduates could have more income available to put towards income growth opportunities, such as investing. Verified investing is one such opportunity for those who meet certain wealth and/or education criteria. Qualified investors are called “accredited investors” and can take part in private offerings. If the pool of qualified investors were to expand, it would make it easier for companies offering such opportunities to find accredited investors and fund their businesses.

That said, there are many nuances to student loan forgiveness, including not only how it would impact borrowers, but also lenders. Let’s dive into the details.

How did we get here?

In 2020, the Trump administration paused student debt payments to help aid Americans during the COVID-19 pandemic. The pause on loan repayments has since been extended by both Trump and Biden.

After much speculation and pressure over the years since President Biden announced a plan to cancel up to $20,000 USD in federal student loan debt for qualified borrowers in August of 2022. However, a few states challenged the plan in November of 2022.

This brings us to the ongoing Supreme Court hearing.

The challenging states claim that the president exceeded his legal executive authority when he implemented the program. In addition, these states say the plan could hurt state revenue as well as Americans who already paid off their student debt or didn’t take on debt.

The Biden administration is defending the program, saying that the president had the legal authority to enact the plan because of the HEROES Act, a law that is meant to ensure that federal student loan borrowers will not be economically clobbered in a national emergency, such as the COVID-19 pandemic.

What’s Next

The Supreme Court is set to decide on the student loan forgiveness program come March. They will decide whether the HEROES Act gives the president and his secretary of education the power to authorize federal student loan forgiveness and if the states have the right to sue in the first place.

If they rule in favor of student loan forgiveness, the plan will go into effect and more than 40 million Americans will be granted some relief—up to $10,000 USD for Americans earning up to $125,000 and up to $20,000 USD for economically disadvantaged Americans. The cost to the government would be $300 billion over 10 years.

While the government has yet to pay out any relief, 16 million student loan borrowers have already been approved for some loan forgiveness since the time the Biden administration announced the student loan forgiveness program in August.

Payments on student loan debt are still currently paused but are supposed to restart come August of this year or sooner if the court decides in March.