Supreme Court strikes down Biden's plan to forgive student loan debt

The US Supreme Court shot down the Biden administration’s controversial plan to forgive billions of dollars in federally-backed student loan debt, a decision that means millions will have to start making repayments later this year.

In a 6-3 decision down ideological lines, the justices held that the administration wasn't authorized to offer the debt relief under a 2003 law known as the HEROES Act. The Biden administration invoked that act during the initial stages of the COVID-19 pandemic as authorization for the student loan relief.

"The text of the HEROES Act does not authorize the [Education] Secretary’s loan forgiveness program,"Chief Justice John Roberts wrote in the majority opinion.

Power given to the secretary under the law to “modify” student loan programs, the justices held, does not permit “basic and fundamental changes in the scheme” designed by Congress.

The Biden administration estimated that 20 million borrowers would have had their student loans forgiven as part of its plan. The total number of borrowers with student loan debt is 43 million. More than 26 million borrowers applied for relief before the court disputes brought the program to a halt.

Those who were granted a pause will have to resume making interest payments on Sept. 1 and regular payments due starting in October.

The forgiveness plan, launched by the Biden administration last October, was estimated by University of Pennsylvania's Wharton School to cost US taxpayers between $300 billion and $980 billion over 10 years. The Congressional Budget Office estimated that the program would cost US taxpayers $400 billion over the next three decades.

Eligibility under the administration's plan included up to $10,000 in forgiveness for federal loan borrowers with annual incomes under $125,000, or $250,000 per household. Eligible borrowers who received Pell Grants were eligible to receive another $10,000 in relief.

The US Department of Education estimates in that federally-backed student loan debt now totals more than $1.7 trillion.

The ruling was prompted by two cases argued before the high court in February — Biden v. Nebraska and Department of Education v. Brown – both of which disputed whether or not the administration could legally offer the forgiveness by invoking The HEROES Act.

The act, as amended in 2003, allows the US Education Secretary to waive or modify laws or regulations concerning federal student loan programs for student loan recipients who suffer "direct economic hardship as a direct result of war, military operation, or national emergency.”

The law further specifies that the secretary’s authority is meant to ensure that student loan borrowers experiencing an emergency-caused economic hardship “are not placed in a worse position financially” in relation to their loans.

A dissent from Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson stated the court should never have decided the states’ case because the states failed to show a concrete injury tired directly to the debt relief. Even so, Kagan wrote, the education secretary legally both waived and modified the HEROES Act.

“That may have been a good idea, or it may have been a bad idea. Either way, the Secretary did only what Congress had told him he could,” Kagan wrote.

A former Justice Department official and partner with Boies Schiller, Jesse Panuccio, said borrowers’ loss is also the taxpayers’ gain.

“Holders of student debt are obviously interested in the outcome of these cases, but so are taxpayers who would have to foot the bill for any cancellation of debt owed to the federal government," he said. "The bottom line is that Congress is the only body empowered to make these difficult decisions, not the president acting unilaterally.”

Mike Pierce, Executive Director for Student Borrower Protection Center, an advocate for debt relief, blames the government for allowing student debt to become such a significant financial hurdle.

"The high court is asking people with student debt to pay the price for decades of government mismanagement and industry abuses across the student loan system—making it clear that, once again, the wealthy and powerful play by a different set of rules from the rest of us," Pierce said.

"A real mixture of Covid and non-Covid-related things'

During oral arguments in February, Chief Justice John Roberts, and Associate Justices Elena Kagan and Justice Amy Coney Barrett questioned whether the Covid-19 pandemic was directly responsible for placing all student loan borrowers entitled to forgiveness under the relief plan in a financially worse position.

“[I]t seems, you know, a real mixture of Covid and non-Covid-related things,” Justice Kagan said.

Chief Justice Roberts also questioned the administration's reliance on an unpublished, pre-pandemic survey from the Philadelphia Federal Reserve Bank, as justification for who is eligible for debt forgiveness and who is not. The 2019 data showed that a significant percentage of student loan borrowers in income brackets that qualify for relief had a history of regularly repaying their loans.

“Didn't half the borrowers say they would not have any trouble paying their loans without regard to the forgiveness program?” the Chief Justice asked about the borrowers in the survey who earned between $55,000 to $74,000 in annual income.

One of the two cases challenging the plan, Biden v. Nebraska, led to the court's decision. It was brought by six Republican state attorneys general — Arkansas, Iowa, Kansas, Nebraska, Missouri, and South Carolina — who said the administration's forgiveness plan required, yet never received, Congress' authorization.

The court held that Missouri, which benefits from profits earned through a quasi-private loan servicing arrangement, Missouri Higher Education Loan Authority (MOHELA), had standing — a strong enough connection to potential impacts of the loan forgiveness plan — to keep its case in court. Missouri argued it would be deprived of its right to collect interest as planned on its already-furnished loans.

Missouri and the other state AGs obtained an injunction temporarily blocking the plan, granted by the Eighth Circuit Court of Appeals. They claimed that with fewer loans on their books, future state tax revenues would suffer.

In the other case, Department of Education v. Brown, filed by two student loan debtors, the court held the litigants lacked standing. One borrower did not qualify for relief under the Biden plan and the other qualified for partial forgiveness.

The two borrowers argued that the Education Department required Congressional approval to adopt the relief plan, and that they were improperly denied the opportunity to comment on its provisions. Their case was backed by the conservative advocacy group, Job Creators Network Foundation.

Carolyn Shapiro, professor of law for IIT Chicago-Kent College of Law said the majority decision relies on the court’s recently adopted and controversial “major questions doctrine,” which says that agency actions of vast economic and political significance must be backed by clear congressional authorization.

“This is a dramatic shift of power from the elected branches of the federal government — Congress and the executive — to the Court,” Shapiro said.

Alexis Keenan is a legal reporter for Yahoo Finance, an attorney, and co-creator of the documentary, Valley of Hype. Follow Alexis on Yahoo Finance and Twitter @alexiskweed.

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