Student loans: Will law or politics win in Biden’s loan forgiveness lawsuits?

As the U.S. Supreme Court is set to hear arguments this week on legality of the president’s student loan forgiveness plan, the Education Department (ED), borrower advocates, and supporters of cancellation remain confident the law is on their side and litigation should result in a victory.

“If the U.S. Supreme Court applies the law, then student loan debt will be canceled,” Senator Elizabeth Warren (D-MA) said in a town hall sponsored by the Student Debt Crisis Center (SDCC). “What I’m afraid of is a Supreme Court that applies politics.”

However, opponents also argue politics on Biden’s administration.

“The Biden administration’s student loan bailout is a political gambit engineered by special interest groups,” Representative Virginia Foxx (R-NC), chairwoman of the Education and the Workforce Committee, said in a press release. "Abusing the HEROES Act for such a ploy is shameful."

If the highest court in the land strikes down the forgiveness plan, the Biden administration has shared no plan B beyond its already-announced 60-day extension of its payment pause for the millions of borrowers.

That means preparing for a worst-case scenario is necessary for borrowers.

Legal authority vs partisan politics

In the Texas case, Department of Education v. Brown, the Department of Justice (DOJ) argues that the HEROES Act expressly states that the Education Secretary has the authority to act in a national emergency — in this case, COVID-19 — to make sure borrowers are not left worse off with respect to their loans than they were before the emergency.

In the 8th Circuit case, Biden v. Nebraska, the DOJ argues that the state of Missouri lacks standing to sue based on potential harm the forgiveness program may bring to the Missouri Higher Education Loan Authority (MOHELA), a loan servicer in the state, because MOHELA is a separate entity from the state and harm to MOHELA is not harm to the state of Missouri.

“Our lawyers and team are confident in the legal authority,” Bharat Ramamurti, the deputy director of the National Economic Council, told reporters in an embargoed briefing in January, even after members of the press questioned this confidence considering the Biden administration didn’t anticipate Roe v. Wade getting overturned last summer.

“The arguments about the plaintiffs lacking legal standing seem strong, [but] the arguments on the merits are somewhat weaker,” Mark Kantrowitz, author and student loan expert, told Yahoo Finance. “During the hearings we may get a sense as to the direction the Court will take based on the questions asked by the justices.”

Republican opponents believe the law is on their side to stop Biden’s loan forgiveness. Over 100 Republicans filed an amicus brief with the Supreme Court against Biden’s loan forgiveness plan.

“This exploits the original intention of the HEROES Act of 2003, oversteps the authority of Congress, undermines the will of the American people, and would send the country further into a debt spiral,” Representative Jeff Duncan (R-SC) said in the press release. “The Court should invalidate the Secretary of Education’s sweeping student loan forgiveness program since it trespasses on Congressional authority and violates the separation of powers.”

The fact that the lawsuits against forgiveness were filed in October and already made it to the Supreme Court worries some borrower advocates, who also echoed Sen. Warren’s concern of politics outweighing the rule of law.

“This is an extraordinary nearly unprecedented outcome for lawsuits that were filed just a few months ago,” Mike Pierce, a former senior regulator, attorney, and executive director of Student Borrowers Protection Center (SBPC), said at the SDCC town hall. “We’ve skipped through every step of the normal judicial process — no finding of fact by a trial court — to a rapid and hasty rush to get this policy in front of a conservative Supreme Court.”

“This is purely political in a way that many of the cases that come before the Supreme Court are not,” Pierce said. “A reminder that this just isn’t about student debt, it’s a test for democracy and we need democracy to work for the people.”

An unfavorable outcome for Biden is ultimately a bigger loss for more than 26 million borrowers who have already applied for cancellation.

In November, the Education Department (ED) stopped taking applications for student loan forgiveness after a Texas federal district court judge ruled the program is a violation of legislative power and the St. Louis-based 8th Circuit Appellate Court imposed an injunction in a separate case.

Shortly after, the Biden Administration asked the U.S. Supreme Court to reinstate the program. Last month, the DOJ filed its brief on behalf of ED with the Supreme Court.

As a result of the litigation, President Biden extended the payment pause on federal student loans until June 30, 2023. If litigation has not been resolved by then, payments will begin 60 days after that.

Advocates say that Biden has other alternatives for student debt cancellation if he loses in the Supreme Court. The administration announced its reform to income-driven repayment (IDR) plans that could help borrowers qualify for loan discharge sooner, but advocates argue more needs to happen with IDR reform.

In the meantime, borrowers should go to Federal Student Aid’s (FSA) website to make sure their accounts have updated contact information and find out who their loan service provider is, as this may have changed since the beginning of the pandemic.

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government.

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