Millions of borrowers in Connecticut and across the country are in limbo as the fate of President Joe Biden’s plan to forgive up to $20,000 in federal student loan debt remains unclear amid legal challenges that will go before the U.S. Supreme Court.
The program — providing between $10,000 to $20,000 depending on income — was announced in August, fulfilling one of Biden’s campaign promises and offering a scaled-back version of a progressive priority. The application period was open for about a month before a federal appeals court halted the program last fall. Since then, borrowers have been waiting to see if the relief will come to fruition.
Cristher Estrada-Perez, executive director of New Haven-based nonprofit Student Loan Fund, said the situation over debt relief has been “confusing on all angles,” including an unpredictable timeline for when the years-long freeze on student loan repayments will end. She noted Connecticut ranks as the fifth-highest state when it comes to students graduating with debt, with an average of $35,000.
“A lot of borrowers find themselves not knowing what the status of their applications are, not knowing when they’re going to have to start repayment,” Estrada-Perez said. “They find themselves sort of just in the waiting game, which has been really overwhelming for borrowers.”
The Supreme Court will hear oral arguments about two cases on the matter on Tuesday, with a decision expected this summer that will have significant ramifications. Borrowers expecting relief could get long-awaited support from the federal government as other relief stemming from the pandemic phases out. But if the court strikes it down, many will lose that assistance, especially low-income borrowers and people of color who typically take out more loans.
On top of that looming decision, borrowers will need to resume making loan repayments when the moratorium — which has been extended over the course of three years — ends some time this year. Biden has tied restarting those payments and interest accrual to the timing of the high court’s ruling.
Who is eligible for federal debt relief?
Under the plan, borrowers could have $10,000 forgiven in federal student loan debt and qualify depending on their annual income. The amount doubles to $20,000 specifically for those who received a Pell Grant.
They are eligible if an individual earned less than $125,000 a year during the pandemic or under $250,000 for married couples who jointly file taxes. Most Pell Grant recipients are from families who earn less than $60,000 a year and require greater financial assistance to attend school.
Data from the White House shows overall that nearly 71% of Black undergraduate borrowers and 65% of Latino undergraduate borrowers received a Pell Grant.
But as the program started to come under legal scrutiny, Biden’s administration modified who qualifies for debt forgiveness and largely excluded those who have Federal Family Education Loans (FFEL) or Perkins loans that are commercially held — borrowers whose loans were guaranteed by the federal government but a private bank served as the lender.
Some of those, however, could still qualify if they consolidated their loans into the Direct Loan program before Sept. 29, 2022.
Who could benefit in Connecticut?
More than 321,000 borrowers in Connecticut applied for the relief or were automatically eligible, according to data from the U.S. Department of Education. Of that number, over 208,000 were fully approved for their debt to be discharged. The number would have been higher if lawsuits filed against Biden’s order did not stop the department from accepting applications.
That data was further broken down by congressional district. Of the state’s five districts, Connecticut’s 3rd District — which is based in New Haven and home to Yale, Quinnipiac, Southern Connecticut State University, Albertus Magnus and Wesleyan — had the highest number of people in the state who applied or automatically qualified as well as the largest amount of applications that were approved for a loan discharge.
Overall, 13.8% of Connecticut residents have student loan debt, according to 2022 data from the Education Data Initiative. There are 497,700 borrowers that have about $17.5 billion in debt with the average for each borrower around $35,162. The state also has more than 77,000 Pell Grant recipients.
While more than half of borrowers in the state are under the age of 35, Estrada-Perez pointed out that student debt cuts across multiple generations, including for seniors, whether it is their own to pay for school or loans to help afford their children’s education.
Supreme Court to rule on program’s fate
After a federal appeals court blocked the nationwide implementation of the program while the lawsuits were ongoing, the Supreme Court agreed to take up two cases last year and leave in place the injunction.
Tuesday’s hearing will consolidate the pair of cases — one brought by two individual borrowers from Texas and the other by six GOP-led states in opposition to the broad debt relief. The justices will examine whether the respondents have standing to sue and whether the program “exceeds the secretary’s statutory authority or is arbitrary and capricious.”
Attorneys representing the Biden administration argue that the groups and individuals that filed the lawsuit have no standing, which is the ability to bring about a lawsuit and show injury or harm.
They are leaning on the executive branch’s authority to cancel debt, pointing to a law called the HEROES Act of 2003 that they argue allows the Education secretary — in this case Miguel Cardona — to alter student loans during national emergencies.
Opponents of the plan, meanwhile, believe Biden did not have the ability to unilaterally cancel student debt without action from Congress. They argued that the administration was “unlawfully invoking COVID-19” when implementing and making the case for the program.
In one of the cases, GOP officials argued that they have standing to sue because the policy would hurt certain tax revenues in their states as well as the revenues of major loan authority agencies that support higher education in their areas.
“Canceling hundreds of billions of dollars in student loans — through a decree that extends to nearly all borrowers — is a breathtaking assertion of power and a matter of great economic and political significance,” the Republican state officials wrote in a brief to the high court.
“The Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) — which the secretary has never used to cancel student loans — does not authorize the program, much less with the clarity this Court’s precedent requires,” the brief continued.
Connecticut Attorney General William Tong joined two dozen other attorneys general in support of the administration’s forgiveness policy. They argued that the biggest implication of not following through on broad relief would cause more students to default on their debt, especially coming out of a pandemic, and have a ripple effect of harm in other parts of their lives.
“Defaulting on federal student loans causes borrowers’ credit scores to crater and remain depressed for years, with long-lasting consequences that tend to compound,” Tong and the other Democratic state attorneys general wrote in a brief. “Defaulted borrowers are more likely to face housing and employment insecurity due to their low credit scores and may also be unable to obtain a car loan, set up utilities, purchase insurance, or secure an affordable line of credit for emergency expenditures.”
If the Supreme Court rules in favor of the administration, whether on standing or the substance of the program, eligible borrowers would once again receive relief, and many of them likely quickly, since millions of applications have already been approved. That ruling would also prompt the reopening of the application process.
But a ruling against the program means it would be shuttered. It is unclear how the Biden administration would proceed and if it would find another way to enact broad relief or further defer repayments.
Unless Biden changes his mind, payments toward student loans will resume 60 days after the court’s ruling. If a decision comes in late June, they will restart by the end of August.
Where else can borrowers seek relief and support?
Biden’s student debt plan has not been the only form of federal relief available to those paying off their loans.
The Public Service Loan Forgiveness (PSLF) program has been in place for years to give major relief to those who work in the public sector. Those workers can have the remainder of their debt erased — no matter the amount — if they have made payments for 10 years. The waiver has now expired, but some permanent changes will go into effect in July that aim to broaden eligibility for some relief.
In the past, the program has had a high rejection until the Biden administration established a one-year waiver that expanded eligibility through the end of last October. More than 110,000 borrowers in Connecticut were estimated to qualify for the expansion.
Estrada-Perez’s Student Loan Fund nonprofit, which is run by educators who also have their own debt, helps provide information on loan cancellation, especially for the PSLF program. The organization backs full student debt cancellation, which is something Biden does not support.
Another form of federal assistance includes a new proposed regulation from the Education Department that would lower the cost of income-driven loan repayment plans by cutting it in half for many undergraduate borrowers while also preventing unpaid interest from accruing.
At the state level, advocates insist that more needs to be done to at least help borrowers navigate a tricky process of applying for relief and loan support.
Connecticut passed the first borrower bill of rights in 2015, but organizers like Estrada-Perez are pushing for the state to fund a student loan ombudsman that would act as an advocate for them.
“Student debt is a racial justice issue, it’s an economic justice issue, but it’s also a mental health issue. We know the student debt crisis is a big deal,” Estrada-Perez said. “And in the meantime, Connecticut needs to be able to provide more resources to borrowers, to access reliable information, to access more grants so that they don’t have to take out as many loans.”
The Connecticut Mirror/Connecticut Public Radio federal policy reporter position is made possible, in part, by funding from the Robert and Margaret Patricelli Family Foundation and Engage CT.