Explainer: What’s new about Biden’s US student loan forgiveness?

(Reuters) – US President Joe Biden’s plan to forgive federal student loans, first announced in August, has been blocked by two legal issues. On Tuesday, the Supreme Court will take a close look at it, which clouds the financial future of millions of American students and graduates.

In November, Biden said he was confident the plan was legal and announced a new temporary relief for borrowers that could mean their next loan payment doesn’t have to be made until August 2023.

LAST NEWS?

Today, nine US Supreme Court justices are hearing arguments in the Biden administration’s appeal of two lower court rulings. The court is expected to rule on the case this spring.

The court said Dec. 1 it would hear Biden’s proposal to reinstate his plan after being challenged by six states that accused his administration of abuse of power.

On Nov. 22, Biden said he would extend the COVID-19 era student loan pause no later than June 30, 2023, to allow the court to review his administration’s requests.

According to Biden, payments will resume 60 days after the end of the pause.

WHAT HAPPENS NEXT TO LEGAL CASES?

The Supreme Court agreed to hear the Biden administration’s motion to stay the Nov. 14 decision of the 8th U.S. Circuit Court of Appeals in St. Louis, Missouri, which granted an injunction motion from Republican-led Arkansas, Iowa. Kansas, Missouri, Nebraska and South Carolina.

The administration on Dec. 2 also asked judges to set aside a separate Nov. 10 ruling from a Texas judge appointed by former Republican President Donald Trump that declared the debt relief plan illegal. The administration did so after the 5th U.S. Circuit Court of Appeals in New Orleans earlier this week refused to uphold the judge’s decision.

WHO IS ELIGIBLE FOR CREDIT FORGIVENESS?

The program forgives $10,000 of federal government debt to individuals earning less than $125,000. It also forgives $10,000 of debt for couples who earn less than $250,000 and forgives up to $20,000 of debt for Pell Grant holders who are mostly low income borrowers.

The story goes on

WHAT IS THE STATUS OF APPLICATIONS?

About 26 million Americans have applied for student loan cancellations since August, and the US Department of Education has already approved requests from 16 million. The government stopped accepting new applications on November 11 after a Texas judge blocked Biden’s ruling.

Borrowers who have not yet applied can sign up for email updates.

WHAT ARE THE VOTERS SAYING?

American voters support debt relief by a narrow margin; about 15% of voters say the plan could affect them, an Economist/YouGuv poll found.

The six Republican-led states that have sued to block Biden’s executive order allege that it circumvented the powers of Congress and the plan threatens future tax revenue and money made by state agencies that invest or service student loans.

Deep South states stand to benefit the most per borrower from Biden’s order, including South Carolina, one of the six parties that filed the lawsuit, New York Federal Reserve research shows:

Financial advisers warn that a handful of states may consider forgiven student loan debt as taxable income.

WHY IS STUDENT DEBT SO HIGH IN THE US?

The cost of higher education has skyrocketed in the United States over the past three decades, doubling at private four-year colleges and universities and even more than at public four-year schools, according to a study by the not-for-profit organization College Board. Student loan outstanding balances almost quadrupled from 2006 to 2019.

US borrowers hold about $1.77 trillion in student debt, according to the latest data from the Federal Reserve. The vast majority of them belong to the federal government.

Economists estimate that Biden’s plan to write off student loans could add $300 billion to $600 billion to the federal debt.

(Reporting by Heather Timmons in Washington and Nate Raymond in Boston; editing by Josie Kao, Matthew Lewis and Alistair Bell)

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