Episode Transcript
Brenton: Hey guys. I hope you had a good 4th of July week. Uh, this episode is what I promised you last week, where I was hoping that prior to last Friday, we would have an idea of the fate of the Biden student Loan forgiveness program as it sat before the Supreme Court.
We now know those details. You're probably already aware that it was struck down last Friday. And last Friday night. I recorded an episode for our other podcast, Escape Student loan Debt. Now, you've heard this before for compliance reasons. I have to state that that is a separate entity that's separate and apart from my business as a financial advisor. But it is a podcast where we're going to just much more detail when it comes to federal and private student loans.
So what I thought we would do is, Just do the replay of that podcast episode so you can hear some of the things that I covered last Friday night, some of the next steps that are soon to come when it comes to federal student loans. So after this brief introduction, the next voice that you hear will actually be me again on a [00:01:00] different podcast, the Escape Student Loan Debt podcast.
Hope you guys enjoy it.
Brenton: If you tuned in this morning looking for a new episode, I hope that you will appreciate me asking you to have some patience because today was the day that the Supreme Court issued their decision as it pertains to the Biden Student loan forgiveness program.
Not much of a surprise here. We told you in past episodes, That the overwhelming likelihood was that it would be struck down, and they did strike it down pretty forcefully. If you look at the opinions of some of the justices that cited against the program they didn't pull punches. And I wanted to talk to you about the legality in terms of what they considered the the structure of the program so we can get into what it means for the future of efforts to cancel some of your student loan Debt. So we talked in previous episodes about the [00:02:00] concept of legal standing. And to be clear, I'm not an attorney. A lot of this is stuff that I've picked up just from reading the articles, talking to my brother-in-law.
But when it talks about standing, what they're essentially saying is, if you're going to bring a suit before the court, you have to prove that you have been harmed. You can't do it on behalf of someone that has been harmed.
You have to prove that there has been some type of injury to your circumstance. So there were multiple suits that were brought to the Supreme Court that were challenging this program. One of those suits was on behalf of two student loan borrowers. One who was upset that they weren't eligible for the program at all.
The other was upset because he was only eligible for $10,000 instead of $20,000 of forgiveness. So he just figured I'd rather have none forgiven than just $10,000. As ridiculous as that sounds. The other suit was brought by Missouri on behalf of Mohela, one of the student loan servicers.
And Missouri bringing the suit is interesting because they were not technically the ones who were [00:03:00] injured by the forgiveness program. MOHELA was, but because MOHELA has a portion of their revenue that is repaid to the state of Missouri, missouri applied with the court and said that it constituted standing to bring the suit.
All this is important, because if the Supreme Court had decided that neither party had standing, they would've thrown out the lawsuits without even addressing the merits of what they were asking for.
Now, the good news is at least one of them got thrown out. The suit that was brought on behalf of the two borrowers was thrown out unanimously. They didn't even address it. The bad news is they did decide that Missouri had standing, and as a result, they were able to address the program on its merits.
We're getting to the end of the legal stuff, but this is important and you'll understand why in a second. When they addressed the merits, the reason that they struck it down, I should say the primary reason that they struck it down had to do with something called the Major Questions doctrine.
The major questions doctrine essentially says that Congress controls the power of the purse. When you look at the legislative branch, the judiciary, the [00:04:00] administrative, they're saying that Congress is the entity that gets to decide the major purchases that our country makes that impact us all as citizens.
As a result of that, when one of the parties in the administrative branch, in this case, the Department of Education tries to enact a law or a ruling, essentially, if you spend too much money, you have to go back to Congress and get their approval to do so since they control the power of the purse. And when they struck down the Biden student loan forgiveness program, they essentially said, this costs too much. And if it's going to cost this much, Congress has to approve it.
And since they didn't approve it, we're not gonna allow you to move forward with it.
And that ruling that because it costs too much, you can't do it regardless unless Congress authorizes you to do so is extremely important because it gives you a preview of what their ruling would likely be if the Biden administration tries to get student loans forgiven another way. When they set up this program, the authority that they used to set up the Biden student loan forgiveness program was under the [00:05:00] HEROES Act. They were essentially saying that this was pandemic related relief that was necessary to make sure that student loan borrowers were not harmed financially as a result of the pandemic.
That has been something that people have gone back and forth over to say, is this really pandemic relief? Or is this just something they're using as a conduit to cancel all this student loan Debt without having to go through Congress? So when they come and they say, it's not just that you can't do this under the HEROES Act, it's that you can't do this because of the Major Questions doctrine, they are basically saying, if you try to come back and do this another way, we will still say, this costs too much money. You have to go through Congress in order to do it. Why does that matter? Because people have guessed, and the Biden administration confirmed it this afternoon, that if the student loan forgiveness program was struck down when they tried to do it through the HEROES Act, they would try it again under the Higher Education Act,
which says under their reading that the head of the Department of Education has the broad authority to modify, [00:06:00] and in some cases cancel student loan Debt. So the Biden administration is saying, Hey, that's where we're going next. We're gonna try to do this under the Higher Education Act, even though the Supreme Court essentially said today, if you come back and try to do it that way, we're going to decline in that case as well.
So I would say that it's highly likely that even though they will try to do it, I would say it, it's more lip service than it's something that actually has a chance of passing. I do not see what they're trying to do, being something that actually occurs. So what do we do next? After the break will tell you what.
[00:07:00]
Brenton: Now that we know that the Forgiveness program won't happen under the HEROES Act, and that it's unlikely to happen under the Higher Education Act, we shift to some of the things that we do have available. We've talked in recent episodes about the Income Driven Repayment plan waiver. It is now increasingly important that you follow the steps that are necessary to get Adjusted credits towards your path of forgiveness under those Income Driven Repayment plans, the 20 or 25 years. So if you haven't listened to that episode, you need to go back to that episode because there are some steps where if you are close to that 20 or [00:08:00] 25, or even if you're far away, but think you might be going down the path of forgiveness, there's only one opportunity to have those credits that wouldn't have counted applied. That being said, something that will continue above and beyond all of these temporary fixes would be the new Income Driven Repayment plan that we've discussed, the updated version of Revised Pay As You Earn. Now in past episodes, we've talked about the fact that July was the month where you had to make that permanent decision.
I believe that will be pushed back partially because the Revised Pay As You, Earn updates have actually not been finalized. These are things where they're giving you the I of what the plan may be. Then they have to issue the final rulings. There's the opportunity for some back and forth in negotiation.
So even though we have a crystal clear idea of what they said would happen, the first option is that they could issue it as they have stated. And in that case, we'll be able to have more ideas on how to strategize to use those payments. There's also a second option [00:09:00] that says now that we can't have our student loans forgiven under this Biden student loan forgiveness program, maybe the Department of Education tries to get even more aggressive in terms of how they structured their plan.
Maybe they won't require you to pay as long before your student loans are forgiven. They have already referenced even in their press conference this afternoon that they might drop in more cases, the payment that you have to make towards your loans from 10% down to 5%. And it's a fine line that they have to toe because if you think about it, again, these programs cost a lot of money.
So if they cost a lot of money and another party out there says that they are harmed by this legislation and brings suit, then the Supreme Court could also say this updated version of this payment plan is bumping up against the major questions doctrine. And we're gonna strike that down too.
So there's a chance that they might get too aggressive and put themselves in the same scenario. They might keep their payment plan as is and until that final ruling is issued, we really [00:10:00] just have to wait and see what the final version of this plan will look like.
If it's the final version we've discussed in the podcast prior to this point then we will say, Hey, just go back and listen to those episodes.
If they change it substantially, we'll probably delete those old episodes and put some new ones up just so you have up-to-date information. But I would say that, The updated version of that Revised Pay As you Earn is the Department of Education's backstop, or I should say it's the second option, where they're looking at the amount of forgiveness that people will have under those plans, or the reduction in payments in terms of how severe those reductions will be in many scenarios.
And they're saying this is still providing substantial relief to many families that are out there in this country, burdened by federal student loan Debt.
So we're in a holding pattern there, but I don't think we'll be in that holding pattern for long because I believe that they've simply been waiting to hear what would happen with the student loan forgiveness program before they apply to have the final ruling.
The next thing that [00:11:00] the Biden administration said in their press conference after the Supreme Court decision is that they are now shifting their focus to making sure that borrowers who are thrown into Repayment in October have as seamless of a transition as possible. And here's how they're planning to do it.
The first thing is the dates have not changed. Student loan. Interest will resume in September. In the next episode of this podcast, we're gonna talk about how student loan interest works because you haven't had to deal with it for the past three years. Now that you do have to deal with it, we need to talk about how it works.
So student loan interest will begin accruing on your federal student loan again in September. You will likely get a bill in September for a payment on your student loans that is due in October. October is when student loan payments actually begin. And the Biden administration has said that even though there are a ton of options out there for people who are trying to manage their payment, there's standard plans, extended graduated plans.
There's the Income, Driven Repayment plans, and under those plans, [00:12:00] based on your income status, you could have a payment as low as $0. That still technically counts towards your forgiveness. But even with that being said, there are people out there who may have high incomes, but high Debt.
They may just not be in a position yet to start their student loan payments. And what they have said is that they're going to give essentially a 12 month reprieve in terms of reporting late payments to credit bureaus when it comes to student loans. Essentially what this means is that they're going to give you a period where you can apply if your income is stretched,
if your Debt situation says you can't pay, you can apply for relief and get up to 12 months of additional forbearance. Now, we've also covered the fact that when it comes to your typical student loan status, the pandemic did not count towards this, but typically for a federal student, loan, you can have your loans in forbearance for 12 months consecutively and 36 months cumulatively. The Biden administration is saying that they're going to establish a plan that's a 12 month plan to [00:13:00] stair step people into student loan programs, and there will likely be more announcements as to the details of that plan. But one of the elements we know now is that you'll be able to get up to an additional 12 months of forbearance regardless of how many months you'd had prior to this point.
So some disappointing news for some if you're just tuning into this podcast, may be disappointing. If you are a longtime listener, then disappointing yes, but not surprising. I would say that you definitely. Not that we're trying to plug what we're doing, but the fact of the matter is you definitely need to be signed up for our email updates.
Be signed up so that you can make sure you know when new episodes of this podcast are released. We also have some programming coming up where we've been throwing around the idea of having a cohort of people that we are accepting for almost like a mini class, where we're talking about some things that you need to know as student loan payments resume to make sure that you're in good standing. So there's a lot of stuff coming on the podcast on the email list. Make sure you're signed up for both. [00:14:00] If you like what you've been hearing, leave us a review. We'll try to make sure that we give this information to you as we hear it, and I hope to see you then. Bye.
