There is currently a debate over whether or not student loans should be forgiven, with President Biden announcing a plan in August 2021 to forgive up to $20,000 of student debt for eligible borrowers. However, the plan has faced two lawsuits challenging its legality, and a decision from the U.S. Supreme Court is expected by June 2023. In the meantime, the Biden administration has offered refunds to borrowers who made payments on their loans during the COVID-19 pandemic pause, but borrowers may have to repay the refund amount if the Supreme Court rules against the Biden administration.
It is important for borrowers who received refund checks to hold onto the money until the issue is settled, as they may have to repay it if the forgiveness plan is knocked down. Student loan expert Mark Kantrowitz advises borrowers to put the money in a high-yield savings account to earn interest while keeping the money liquid. Additionally, if the forgiveness plan is knocked down, borrowers would be financially better off if they can immediately reduce their principal amount with the refunded money to lessen the amount of interest that accumulates.
Biden's plan for student loan forgiveness would eliminate up to $20,000 of federal student loan debt for eligible borrowers. Private loans are not eligible for forgiveness under the plan. If the Supreme Court sides against the Biden administration's plan, borrowers will still be required to pay their entire loan, including the refunded portion that was already mailed out. Borrowers will also likely have to resume paying interest on the full loan amount.
Two lawsuits challenging Biden's actions on student loan forgiveness have appeared before the Supreme Court. One of the lawsuits is composed of six Republican-led states, claiming that the Biden administration is overstepping its authority with the program. The other lawsuit was filed by a consumer advocacy group, claiming that the Biden administration failed to complete a notice and comment process before beginning the program. Biden has expressed confidence in his action being lawful, but the court's 6-3 conservative majority raises questions about the likelihood of the plan fending off the legal challenge.
