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Disappointment, and another try, in wake of Supreme Court ruling shooting down student debt relief

In Massachusetts, 380,000 had applied for student debt relief. Now they’re back to square one.

Clover Cardoza is a 47-year-old Winthrop resident who graduated with $80,000 of debt. (It has now ballooned to $130,000 due to interest.)Jonathan Wiggs/Globe Staff

The Supreme Court on Friday struck down President Biden’s controversial proposal to cancel $400 billion in higher education loan repayments, though within hours the president was unveiling a new approach to erase student debt.

In a 6-3 ruling, the court’s conservative supermajority ruled that the Biden administration overstepped its authority by creating its initial forgiveness plan, which would have canceled $10,000 of debt for borrowers earning under $125,000 per year, or $250,000 for a married couple filing taxes jointly. For Pell Grant recipients, the debt relief would have been $20,000.

One-third of all borrowers would have seen their balances wiped out entirely.

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In a news conference Friday afternoon, Biden skewered the ruling and said his administration will instead use its existing authority under the federal Higher Education Act to devise a relief program that is better insulated from legal challenge. Massachusetts Senator Elizabeth Warren and New York Senator Chuck Schumer had urged the government several years ago to use that law in a resolution calling for student-debt cancellation.

In addition, under a revised “on-ramp repayment program,” the Education Department will not refer borrowers who do not pay their bills to credit agencies for 12 months.

“My plan would have been good for the American economy [and] freed millions of Americans from the crushing burden of student debt,” Biden said. “More homes would’ve been bought. More businesses would’ve been started. . . . Millions of people would’ve felt they could get on with their lives.”

Among those whose near-term future was hanging on the court challenge is Clover Cardoza, a 47-year-old Winthrop resident who took out $80,000 for her undergraduate and master’s degree in the belief those degrees would be her path out of poverty. Today, with interest, she owes $130,000.

“My debts are essentially unpayable,” said Cardoza, who works as a shipping customs broker. “The relief would have not made that much of a difference, but it would have been a step in the right direction.”

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The court’s decision is a major setback for the years-long push by progressive lawmakers — particularly in a state full of universities — to tackle rapidly rising higher education debt. More than a half-million borrowers in Massachusetts would have been eligible for loan forgiveness.

The US Supreme Court in Washington on April 21, 2023. KENNY HOLSTON/NYT

But the six conservative members of the high court were swayed by challenges from Republican-led state governments, ruling that the president should have sought congressional approval, rather than acting on his own. In the majority opinion, Chief Justice Roberts wrote that Biden’s proposal modified existing federal laws “in the same sense that the French Revolution ‘modified’ the status of the French nobility — it has abolished them and supplanted them with a new regime entirely.”

Now more than 45 million people nationwide who were expected to qualify for relief are back to square one, just as COVID-era rules deferring student loan payments are set to expire in September.

Meanwhile, rates for undergraduate student loans have risen dramatically during the pandemic. Starting July 1, interest rates for federal loans will rise to nearly 5.5 percent; they were below 3 percent three years ago.

Several borrowers were already awash in disappointment.

Just over 1 million people in highly educated Massachusetts carry student debt, with an average balance of $35,400, according to 2021 figures from the Federal Reserve Bank of New York. Based on income guidelines, more than half would been eligible, and some 380,000 residents had already been approved for relief before the application process closed amid court challenges in January, according to the White House.

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Had the proposal gone through, Mike Schiano would’ve seen his debt eliminated entirely. He has paid back $20,000 in student loans since graduating from Northeastern University in 2014, leaving just under $3,000 still unpaid. He recently bought his first home and would be resuming student loan payments at the same time he takes on a new mortgage. Though Schiano was hopeful to avoid that, it was not to be.

“In my lifetime, we’ve gone through 9/11, the financial crisis, the pandemic, [and] possible world war,” said Schiano, 31. “We can’t really seem to catch a break.”

Jack Beggs agrees. The 36-year-old cybersecurity manager said forgiveness would have wiped out half of his remaining debt balance, providing extra money for his kids and rising expenses in Cumberland, R.I.

“I’m not happy about the way things are going,” said Beggs, who accrued $80,000 in debt at Fairfield University. “The court is not throwing a lifeline to anyone. And I know there are people who need this more than me.”

A September analysis from the Congressional Budget Office found that the relief proposal would have cost the federal government $400 billion and increased the deficit. Meanwhile, a body of emerging research shows that eliminating debt, coupled with the pause in payments during the pandemic, could have a positive impact on Americans’ wallets.

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Laura Beamer, a higher education finance researcher at the Jain Family Institute, said people who were eligible for the COVID debt relief pause saw their credit scores increase and delinquency rates decrease; their other outstanding debt — medical loans and credit card bills, for example — went down. And after years of stagnation from accruing interest, borrowers with six-figure balances were gradually starting to see their debts decline.

Now “that progress may vanish,” Beamer said. “It’s not going to be an immediate cliff, but it will be a slippery slope.”

The forbearance on payments during the pandemic amounted to about $185 billion, according to an analysis by the investment bank Goldman Sachs. That money instead went to other expenses — food, cars, homes, and other necessities.

Now, there are concerns that many will have less cash to cover those new expenses, said Betsy Mayotte, president of The Institute of Student Loan Advisors.

“Call it reverse lifestyle creep,” she said. “The money that people had not counted in their budget [before the pause] has been absorbed. For some people, it’s just going to eggs and lettuce, which cost a lot more today than it did three years ago.”

Erika Giovanetti, a loans expert at US News & World Report, said the economic climate has changed significantly since the student debt pause began. Inflation has driven up the price of many everyday goods, and interest rates have surged.

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Student debt relief activists participate in a rally as they march from the US Supreme Court to the White House on June 30 in Washington, DC.Kevin Dietsch/Getty

“This is going to be a big adjustment for people financially for the average American borrower,” she said. “If they were making payments these past few years, it was zero interest. Now they’re probably looking somewhere between 3 and 5.5 percent for loans taken out the past few years.”

And for some, there’s simply the frustration of having such a big burden lifted off their shoulders, only to see it placed back on.

Blessing Ajaero of Waltham used overtime and other supplemental wages to pay off $14,000 in student loan debt earlier in the pandemic. But when the relief plan was announced, Ajaero requested a refund to put that money to use elsewhere. (Borrowers who made voluntary payments on their student loans during the pandemic pause were able to get that money back when the forgiveness plan was first announced.)

Now forgiveness is off the table, and the 28-year-old clinical systems analyst said she will not be able to make her new monthly payments in full, which will likely result in her balance increasing. It will take her some time to get back to zero.

“When I paid it off, I was over the moon. That was one thing I could cross off my ‘I’m an adult’ checklist,” Ajaero said. “I doubt I will be able to pull off that miracle again.”


Diti Kohli can be reached at diti.kohli@globe.com. Follow her @ditikohli_. Elllie Wolfe can be reached at ellie.wolfe@globe.com. Follow her @elliew0lfe.