Supreme Court Blocks Biden’s Student Loan Forgiveness Plan — What Happens Now?
Key takeaways
- The U.S. Supreme Court voted 6–3 against Biden’s student loan forgiveness plan using the HEROES Act
- It’s back to the drawing board for the government, which will instead try again with the 1985 Higher Education Act
- Impact of higher interest rates on student loans could mean trouble for the economy
The Supreme Court sent President Biden’s lofty dreams of forgiving federal student loans crashing back to Earth with a 6–3 ruling against the idea. While the Biden administration gears up to try again with a different approach, there’s a silver lining for those disappointed graduates out there. Keep reading.
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What did the Supreme Court decide?
In a blow to the roughly 44 million Americans paying off student loans, at the end of last week the Supreme Court put the brakes on President Biden’s ambitious plan to forgive all student loan debt.
The official ruling was that the HEROES Act, a 2003 law letting the government waive federal student loans if there’s a war or national emergency, wasn’t correctly used in this case. Chief Justice John Roberts, who delivered the ruling, said the Act’s power to waive provisions “doesn’t remotely resemble how it has been used on prior occasions”.
Census data confirmed nearly 30% of federal loan borrowers would have had their balances entirely wiped out. To add salt to the wound, the loan forbearance first introduced during the pandemic is set to come to an end in the fall.
What happens next?
President Biden has already confirmed he intends to pursue another route — a new student loan forgiveness plan that uses the 1965 Higher Education Act instead. Looking forward to the Supreme Court rejecting that one too…
Joking aside, resuming student loan repayments is a concern, given the state of inflation. Interest will begin to accrue from September onwards at a much higher rate than it was three years ago, given the Fed’s raised interest rates to a target of 5% to 5.25%. One Moody’s analytics expert puts the economic pullback from student loan payments resuming at $86 billion.
A small silver lining is the Secure 2.0 Act which was signed into law last year, which created a way for employers to make matching contributions to employees’ 401(k) plans that would be tied to loan debt repayments, so people won’t have to choose between the debt and their future.
The bottom line
It was a definite, if not unsurprising, blow from the Supreme Court when so many paying back student loans were hoping for some kind of reprieve. But the road hasn’t ended yet, and there are ways to build wealth in the meantime, such as AI investing which can help you weather the economic downturn.
Q.ai’s Foundation Kits use a state-of-the-art AI algorithm to trawl through data and spot high-performing assets each week. The Kits are centered around different themes, like tech and global trends, with varying risk levels suitable for expert investors and beginners. The AI then dynamically realigns your investment in the holdings to help you stay one step ahead.
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