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Supreme Court Blocks Biden's Student Loan Forgiveness Plan — Here's How It May Affect the Economy Constitutional questions surrounded the looming decision on President Biden's student loan forgiveness program that would have eliminated federal student loan debt for about 20 million people.

By Madeline Garfinkle

Key Takeaways

  • The Supreme Court blocked President Biden's student loan forgiveness program, deeming it an unlawful overreach of executive power.
  • Biden's plan aimed to eliminate up to $20,000 in debt for eligible borrowers, costing an estimated $400 billion.
  • Economists warn that the resumption of student loan repayments may have a significant impact on the economy, potentially reversing progress made during the repayment pause.

Opinions expressed by Entrepreneur contributors are their own.

Al Drago | Getty Images
The Court has ruled to block Biden's plan to relieve student loan debt.

In a long-awaited ruling by the Supreme Court on President Joe Biden's student loan forgiveness program, the court blocked the plan in a 6-3 decision on Friday.

The program would have allowed eligible borrowers to eliminate up to $20,000 in debt but was deemed an unlawful overreach of executive power. The plan carried an estimated cost of $400 billion.

The Supreme Court's decision is significant for Biden, who made tackling student loan debt a key pillar of his 2020 campaign. However, the court's decision hinges on the plan being an overstep of authority, arguing that such a program cannot be implemented without authorization from Congress.

The Biden administration formerly defended the motion by citing the Higher Education Relief Opportunities for Students Act (HEROES Act) of 2003, which allows the government to provide relief during a national emergency. Still, the court has ruled that the language in the HEROES Act is not specific enough to authorize a plan as broad as Biden's.

Related: Supreme Court Rules Against Affirmative Action at Harvard and UNC

"The Secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal. It does not," Chief Justice John G. Roberts Jr. wrote in the ruling. "We hold today that the Act allows the Secretary to 'waive or modify' existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up."

The Biden administration disagrees with the decision, a source familiar with the matter told CNN, and that it wants to make it "crystal clear to borrowers and their families that Republicans are responsible for denying them the relief that President Biden has been fighting to get to them."

How will the decision affect the economy?

The student loan repayment process, which was paused during the pandemic, is set to resume in August, with monthly payments beginning in October. While the pause was always going to end regardless of the court's decision, millions may have been banking on Biden's plan to eliminate their student loan debt, and experts have expressed concerns about the potentially wide-ranging impact on the economy.

Laura Beamer, a researcher specializing in higher education finance at the Jain Family Institute, told the New York Times that any progress made during the repayment hiatus — such as improving borrowers' credit scores, which enabled them to make significant purchases like cars and homes — may be swiftly undone as the pause ends.

Related: 9 Million People Were Told By Mistake Their Student Loan Forgiveness Was Approved

"It's going to quickly reverse all the progress that was made during the repayment pause," Beamer, told the outlet, "especially for those who took out new debt in mortgages or auto loans where they had the financial room because they weren't paying their student loans."

In early June, Mark Zandi, the chief economist at Moody's Analytics, expressed similar concerns to CNBC.

"It'll shave a couple of tenths of a percent off the GDP over the coming year. Now, in a more typical time, that's not really that big a deal. The economy can digest that gracefully. But in the current environment with the economy as weak as it is, recession risks as high as they are, a couple of tenths of percent can matter," Zandi said.

Related: FTC Cracks Down on Student Loan Schemes That Scammed Borrowers Out of $12 Million

Madeline Garfinkle

News Writer

Madeline Garfinkle is a News Writer at Entrepreneur.com. She is a graduate from Syracuse University, and received an MFA from Columbia University. 

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