In a landmark ruling on June 30th, the U.S. Supreme Court,by a 6-3 vote, strike down President Biden's ambitious plan aimed at forgivingover $400 billion in student loans for up to 40 million Americans.
The conservative majority of the court believed that thedebt forgiveness plan violated the "major questions doctrine," aprinciple that allows the court to deem an administrative policyunconstitutional if it wasn't authorized by Congress. They agreed that Biden'spolicy was too “significant" and ruled it unconstitutional.
In contrast, the Biden administration argued that, under the2003 Opportunity in Higher Education Relief Act, the government has theauthority to forgive student loans. However, Chief Justice John G. Roberts Jr.wrote in the court's decision that this law permits the Secretary of Educationto "waive or modify" regulations in emergency situations but does notauthorize debt cancellation.
Responding to the Supreme Court's decision, President Bidenexpressed disappointment and announced new initiatives for student loanforgiveness. "I believe thatthe Court’s decision to strike down our student debt relief plan is wrong. But I will stop atnothing to find other ways to deliver relief to hard-working middle-classfamilies. My Administration will continue to work to bring the promise ofhigher education to every American," Biden said at the WhiteHouse on the 30th. He announced that he had instructed his team to initiate anew plan to cancel student loans using a different legal authority, the HigherEducation Act of 1965.
According to The Wall Street Journal, the Higher EducationAct grants the Secretary of Education broad power to "partially waive,forgive, or relieve" debt. Some legal scholars believe Biden should haverelied on this law from the beginning, as it would have stood a better chancein the Supreme Court.
Interestingly, the U.S. Department of Education recentlyannounced that it would begin requiring repayment of student loans startingthis October. Since the outbreak of COVID-19, former President Trumpimplemented a policy that allowed Americans to pause their student loanrepayments, a policy that had been extended until now.
CNN reported that the total federal student debt has morethan doubled over the past 15 years, from about $500 billion in 2007 to $1.6trillion today.
Biden's plan to reduce student loans was aimed atindividuals who made less than $125,000 in 2020 and 2021 and married couplesmaking less than $250,000, with a maximum forgiveness of $10,000 per person.For those who received Pell Grants intended for low and middle-income students,up to $20,000 in student loans could be forgiven. The plan, costing over $400billion, qualified 43 million people across the U.S. for student loanforgiveness, with 26 million people having already applied.
With this news as a backdrop, let's dive into understandingmore about Federal Student Loans:
Federal Student Loans are loans provided by the U.S.government through the Department of Education's Federal Student Aid Office tohelp students cover the costs of college or career school.
Types of Federal Student Loans
1. Direct Loans: This is the most common type of federalstudent loan. It includes Direct Subsidized Loans (for undergraduate studentswith financial need, where the government pays the interest), DirectUnsubsidized Loans (for undergraduate and graduate students, where the borrowerpays the interest), Direct PLUS Loans (for graduate students or parents ofundergraduates, requiring a credit check), and Direct Consolidation Loans(which allow you to combine all your eligible federal student loans into asingle loan with a single loan servicer).
2. Perkins Loans: These were loans for undergraduate andgraduate students with exceptional financial need. However, the program endedin 2017.
To receive a Federal Student Loan, you generally need to:
- Be a U.S. citizen or an eligible noncitizen
- Have a valid Social Security number
- Be enrolled or accepted for enrollment in an eligibledegree or certificate program
- Be enrolled at least half-time in an eligible school
- Maintain satisfactory academic progress
- Not be in default on a federal student loan
- Complete the Free Application for Federal Student Aid(FAFSA) form
Federal Student Loans typically have lower interest ratesand more flexible repayment plans than private student loans. For instance,they may offer income-driven repayment plans based on the borrower's income. Insome cases, loan forgiveness may be possible if the borrower works in publicservice or cannot repay the loan after a certain period.
However, Federal Student Loans also have their complexities.For example, they require filling out the FAFSA, which can be complex, andgenerally require repayment to begin after a certain period post-graduation.Understanding all the borrowing terms and rules is crucial.
Federal Student Loans offer several repayment plans,including standard repayment, graduated repayment, extended repayment, andincome-driven repayment plans. The standard repayment plan for Federal StudentLoans is to pay it off in 10 years. However, the repayment period can beextended up to 25-30 years for some income-driven repayment plans.
Loan limits—how much you can borrow—vary depending onseveral factors, including the type of loan, your year in school, and whetheryou're a dependent or independent student. For instance, dependentundergraduate students can borrow up to $5,500 to $7,500 per year in DirectSubsidized Loans and Direct Unsubsidized Loans, while independent undergraduatestudents can borrow up to $9,500 to $12,500 per year.