How Nonprofits Can Help in the Wake of the Supreme Court's Student Loan Decision

Note: This article was published shortly before the Biden administration released details about an alternate forgiveness/loan-assistance plan. While some borrowers will see immediate forgiveness and others will see adjustments to their payments, the trends and advice below remain relevant.

On Friday, June 30, the U.S. Supreme Court struck down the Biden administration's plans for student loan forgiveness. (The case was Biden v. Nebraska.) This case was hotly debated in the court of public opinion, but the decision will have real-world consequences for many borrowers. The administration estimated that approximately 38.6 million borrowers would have benefited from the plan. While the plan was open to individuals making less than $125,000 a year, the administration claimed that 90% of the forgiven debt would be toward borrowers earning under $75,000 per year.

While the Court's decision will obviously affect certain individuals, how will the decision and the restarting of those loan payments affect nonprofit organizations? And which parts of the nonprofit sector can help folks the most?

As we saw in the aftermath of the 2008 economic collapse, the role of nonprofit organizations can shift based on the economy. When the population has difficulty meeting its basic needs, the nonprofit sector can move to help fill those gaps. While the repercussions from the current decision won't have nearly the impact of what happened in 2008, the decision will have greater repercussions on certain populations.

Predictions about the effect of the Supreme Court's decision on the country's economy vary. Some analysts think it will have a minimal effect, with the chief economist of Moody’s Analytics stating that the decision "should have no meaningful impact on the economy." (In their analyses, several of them have pointed out that "[a]lthough 40 million-plus Americans hold student debt, some 287 million do not." While technically true, the statement ignores the fact that only adults hold student loans. If you remove the nation's 73 million children from the equation, the numbers still show way more non-borrowers, but the ratio isn't nearly as skewed.)

Another economist, Thomas Simons, believes that loan resumption will help push us closer to a recession: "The consumer was running out of gas already, and they weren't going to be able to maintain their current pace of consumption. This is an additional straw on the camel's back. And it might be the one that puts us into a recession." Simons projects that spending on non-essential goods could decrease 2%, which could affect a variety of industries.

On an individual level, the effects of the resumed payments won't be felt evenly. The largest beneficiaries of the loan-payment pause were women and minorities, and those groups will most likely feel the largest strain of resuming payments. For example, "On average, Black borrowers owe 95% of their original student loans 20 years after applying for them, compared to 6% among white borrowers." There are several reasons for this, including the lack of generational wealth to help pay down loans and pay disparities once employed. (The Legal Defense Fund has a good explanation of how loan forgiveness could have helped address the racial wealth gap.)

Moody’s Analytics estimates that the average borrower pays about $275 a month. Families for whom that extra money was essential to meeting their basic needs may now need to rely on services such as food banks or other types of non-monetary assistance. Organizations offering these types of services need to be prepared for an uptick in demand. The need will likely be more acute in areas where most families are already having difficulty meeting their financial obligations.

It has been argued that the overturning of the Biden plan merely returns us to the status quo. Students had debt before the plan was announced, and they have debt now. Nothing has really changed. But these arguments are overlooking the psychological effects of having something that was on the table now being taken away. In addition, with the payment pause about to lapse and payments soon restarting, many households will see the difference between how they were managing to get by during the pause and how it will affect them afterwards. There will be no smooth return to the previous status quo.

Mental health nonprofits can try to step up to help folks dealing with the repercussions of the Court's decision. A survey found that over half of borrowers experience mental health challenges due to their debt, with a third of those individuals dealing with depression and another half dealing with anxiety. The ups and downs of the debt relief plan's release and eventual overturning could further exacerbate those issues.

There will also be an increased need for assistance from nonprofits dealing with financial planning and financial services. The same survey that looked into mental health challenges also found that many borrowers are putting off major life decisions, such as purchasing a home or starting a family.

The Court's ruling did leave one program that would affect nonprofit organizations untouched. The federal government offers the Public Service Loan Forgiveness (PSLF) program, which allows loan forgiveness for individuals who work for government agencies or nonprofit organizations. However, the program hasn't really worked the way it's been advertised. In 2018, data from the Department of Education showed that 99% of applications for loan forgiveness under the program had been denied. (The current administration has taken steps to improve on this disastrous outcome.)

Despite the fact that most loans weren't being forgiven under the program, in a separate lawsuit, the Cato Institute, a rightwing think tank, argued that forgiveness of debt would hurt recruitment efforts by nonprofit organizations, since the PSLF program wouldn't be seen as such a benefit by potential job applicants. However, we may end up seeing the opposite result. Individuals who may have considered pursuing a lower-paying career in the nonprofit sector may now look for higher-paying positions elsewhere, as they look to get out from under their debt. Trust in loan forgiveness programs has likely been diminished by recent events.

The Supreme Court's decision is a blow to millions of Americans, and we do not yet know its full repercussions. However, the work of nonprofit organizations can help cushion that blow for many of our citizens.