Biden student loan forgiveness is a hotly debated topic. If you are one of the millions of Americans who have student loan debt, you may be wondering if President Joe Biden student loan forgiveness plan will help you. In this blog post, we will explain what the plan is, who is eligible, how it could affect your finances and credit, and what could happen if the Supreme Court strikes it down.

What is Biden Student Loan Forgiveness Plan?

Biden student loan forgiveness plan is a three-part initiative that aims to provide relief to borrowers who need it most. The plan was announced in August 2022 and includes the following components:

• Canceling $10,000 or $20,000 of federal student debt for low- to middle-income borrowers. Borrowers who earned income within program guidelines could receive $10,000 or $20,000 in loan forgiveness on government-held federal student debt, depending on whether they received a Pell Grant for their education. Pell Grants are a form of federal student aid provided to low-income students that do not have to be repaid. The Education Department had approved over 16 million borrowers for Biden student loan forgiveness last summer after the initiative was first unveiled.
• Making it easier to discharge student debt through bankruptcy. While certain student loan borrowers can use the bankruptcy process to have their loans discharged, the process has been very cumbersome and rarely successful. The Biden administration issued new guidelines that would make it easier for borrowers to prove that repaying their loans would cause them undue hardship and qualify them for bankruptcy relief.
• Extending the pause on federal student loan payments and interest until September 2023. The pause on federal student loan payments and interest was first implemented in March 2020 as part of the CARES Act, a stimulus package to help Americans cope with the economic impact of the COVID-19 pandemic. The pause was initially set to expire in September 2020 but was extended several times by former President Donald Trump and President Biden. The latest extension will give borrowers more time to prepare for resuming their payments and benefit from the interest savings.

Who is Eligible for Biden Student Loan Forgiveness Plan?

Biden student loan forgiveness plan only applies to federal student loans. Private student loans are not eligible for forgiveness. If you have private student loans in default, the only way to remove the default is to pay the accounts off in full, even if the loans are forgiven.

To qualify for the $10,000 or $20,000 forgiveness amount, you must meet the following criteria:

• You must have received a Pell Grant for your education. Pell Grants are awarded based on financial need and do not have to be repaid. You can check if you received a Pell Grant by logging into your Federal Student Aid account or contacting your school’s financial aid office.
• You must have earned income within program guidelines. The exact income thresholds have not been released yet, but they are expected to be based on a percentage of the median household income in your state. For example, if the median household income in your state is $60,000, you may qualify if you earned less than $30,000 (50% of median) or $45,000 (75% of median).
• You must have government-held federal student loans. These include Direct Loans, FFEL Loans that were transferred to the Department of Education, and Perkins Loans that were consolidated into Direct Loans. If you have FFEL Loans or Perkins Loans that are not owned by the Department of Education, you can consolidate them into a Direct Consolidation Loan to become eligible.

The Department of Education will notify eligible borrowers by email or mail once the program is ready to launch. You do not need to apply or submit any documents to receive the forgiveness.

How Will Biden Student Loan Forgiveness Plan Affect Your Finances and Credit?

Biden student loan forgiveness plan could have a significant impact on your finances and credit, depending on your situation. Here are some possible scenarios:

• If you have more than $10,000 or $20,000 in federal student debt and qualify for forgiveness, you will see a reduction in your outstanding balance and monthly payment. This could free up some cash flow and help you save money on interest over time. However, you will still be responsible for paying off the remaining balance of your loans according to your repayment plan.
• If you have less than $10,000 or $20,000 in federal student debt and qualify for forgiveness, you will see your entire balance wiped out and your loans closed. This could eliminate a major source of debt and stress from your life and improve your debt-to-income ratio. However, you may also see a temporary drop in your credit score, as closing an account can reduce your credit history and credit mix, two factors that affect your score. To minimize the impact, you should continue to pay your other bills on time and keep your credit card balances low.
• If you do not qualify for forgiveness but benefit from the pause on payments and interest, you will see your balance remain the same until September 2023. This could help you avoid accruing interest and falling behind on your payments during the pandemic. However, you should be prepared to resume your payments once the pause ends and consider making extra payments if you can afford to do so, as this could reduce your interest and shorten your repayment term.
• If you do not qualify for forgiveness or the pause on payments and interest, you will see no change in your situation. You will have to continue making your regular payments and interest will continue to accrue on your loans. However, you may still be able to lower your monthly payment or interest rate by switching to a different repayment plan or refinancing your loans with a private lender.

What Could Happen If the Supreme Court Strikes Down Biden Student Loan Forgiveness Plan?

Biden student loan forgiveness plan is facing two legal challenges that have reached the Supreme Court. The Court is expected to issue a ruling soon, which could determine the fate of the program.

One challenge was brought by a coalition of Republican-led midwestern states (headed by Nebraska and Missouri) arguing that the program would cause a state-affiliated loan servicer to lose money. The states claim that they have standing to sue because they have a financial interest in the student loan system.

The other challenge was brought by two borrowers who contend that they were harmed by being excluded from participating in a public comment period about the program’s details and requirements. The borrowers claim that they have standing to sue because they have a personal interest in the student loan forgiveness program.

The Supreme Court could rule in favor of the Biden administration and uphold the program, or it could rule in favor of one or both of the challengers and strike down the program partially or entirely. The Court could also dismiss the cases on procedural grounds without reaching the merits of the arguments.

If the Supreme Court strikes down Biden student loan forgiveness plan, millions of borrowers who were expecting to receive debt relief would have to repay their loans in full. This could create financial hardship for many borrowers who are already struggling with the economic fallout of the pandemic.

However, some advocates and legal scholars see another possible way for Biden to cancel student debt, even if the Supreme Court blocks his current plan. They argue that Biden has the authority to cancel student debt under a different statute, Section 432(a) of the Higher Education Act of 1965, which gives the Secretary of Education broad power to modify or compromise student loans.

Biden has not indicated whether he would use this authority if his current plan is struck down. He has said that he supports canceling $10,000 of student debt per borrower, but he has also expressed doubts about his legal authority to do so without congressional approval.

Conclusion

Biden student loan forgiveness is a complex issue with no easy answers. There are many factors to consider, including the cost of the program, the impact on the economy, and the fairness to those who have already paid off their loans. Ultimately, the decision of whether or not to implement Biden student loan forgiveness is a political one.

Biden student loan forgiveness could provide relief to millions of Americans who are struggling with student loan debt. Biden student loan forgiveness plan is a major step towards addressing the student debt crisis in the United States. The plan could provide relief to millions of borrowers who are struggling with their loans and help them achieve their financial goals. However, the plan is not a one-size-fits-all solution and may not benefit everyone equally. Moreover, the plan is facing legal challenges that could derail it or limit its scope. If you have student loans, you should review your options carefully and consult a professional if you need guidance.

Disclaimer: This blog post is for informational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial advisor before making any decisions regarding your student loans.