Is student loan forgiveness in trouble after Supreme Court hearing?

By |2023-02-28T13:48:25-07:00February 28th, 2023|Student Loans|

The Supreme Court held a hearing on Tuesday, Feb. 28,  on President Joe Biden’s plan to enact mass student loan forgiveness keep reading to learn the newest twists and turns.

In a nutshell, several justices expressed major concern about Biden’s proposal, suggesting that it could be in trouble, according to a news article in Forbes.

Here’s what borrowers need to know:

Biden’s Student Loan Forgiveness Plan; and 2 Legal Challenges

Biden’s unprecedented student loan forgiveness proposal would cancel up to $20,000 in federal student loan debt for up to 40 million borrowers. The initiative was blocked by lower federal courts last fall in response to two legal challenges. The Biden administration appealed to the Supreme Court, which agreed to take up the two cases.

For example, a group of Republican-led states argued that Biden’s student loan forgiveness plan would deprive states of revenue by encouraging borrowers with commercial FFEL-program loans (an older federal student loan program where privately-issued federal loans are backed or guaranteed by state-related nonprofit agencies) to consolidate those loans into the Department of Education’s Direct lending program. The states focused primarily on MOHELA, an FFELP guaranty agency and loan servicer that was not an actual party in the lawsuit.

In the second, a conservative-leaning legal organization representing two borrowers argued the administration improperly established the program with arbitrary eligibility rules without following normal regulatory procedures requiring periods of public comment.

Dispute

The Biden administration disputes these challenges, stating the program is legal, and that Congress authorized the relief under the HEROES Act of 2003. This statute provides broad authority for the Education Department to “modify” or “waive” federal student loan programs in response to a national emergency, such as the COVID-19 pandemic.

The administration has also said the challengers are unable to demonstrate the student loan forgiveness plan results in a sufficiently concrete injury that would let them have “standing” to sue in the first place.

Justice Department attorneys and administration allies who submitted supporting briefs argue the suggestion that Biden’s student debt relief proposal harms FFELP agencies like MOHELA and, in turn, state treasuries, is weak. The administration also argues the two borrowers in the second challenge cannot show they were harmed by Biden’s plan — one is still entitled to student loan forgiveness (albeit a smaller amount), and the other would receive no student loan forgiveness under the eligibility rules, but this is not a cognizable injury, they argue.

 

Supreme Court Justices Express Skepticism

Several members of the Supreme Court’s conservative majority expressed skepticism of Biden’s student loan forgiveness plan at the hearing.

On the issue of standing, Chief Justice John Roberts seemed to dismiss the idea that courts should not have the ability to weigh in on such a significant program, suggesting that the cases present “extraordinary concerns” about the separation of powers. “Most casual observers would say if you’re going to give up” hundreds of billions of dollars “on a subject of great controversy, that would be something for Congress to act on,” not something for the Education Department to implement unilaterally, according to the Forbes article.

“Cancellation of $400 billion in debt, in effect, is a grant of $400 billion,” said Justice Clarence Thomas, while parsing the language of the HEROES Act and trying to determine what Congress meant by “waive” or “modify” federal student loan programs. Similarly, Justice Brett Kavanaugh noted that Congress “could have in 2003 referred to ‘loan cancellation’ and ‘loan forgiveness’ ” in the text of the HEROES Act, but did not include those specific phrases, saying that “seems problematic.”

Justice Neil Gorsuch and Justice Samuel Alito expressed concerns about fairness, suggesting that the Education Department should have considered the broader impacts of mass student loan forgiveness, including for people who repaid their student loans or never took on such debt.

Solicitor General Elizabeth B. Prelogar, representing the Biden administration, argued that the program falls squarely within the authority of the HEROES Act and that Congress contemplated such broad relief when it enacted the legislation in 2003. She argued Congress knew exactly what it was doing when it established sweeping authority for a secretary of education to waive or modify provisions of federal student loan programs, including those related to loan repayment and discharge. Prelogar noted the HEROES Act confers no authority on the secretary to consider non-student loan borrowers, the Forbes article added.

The Court’s three liberal justices said of the challengers on the issue of standing: “MOHELA isn’t here,” said Justice Sonia Sotomayor. “We don’t allow someone else to step in on behalf of someone else” in a federal lawsuit.

“There is no financial gain to the state or loss to the state based on anything MOHELA does,” continued Justice Elena Kagan, noting that the state of Missouri established MOHELA to be a completely separate and independent entity that can sue or be sued in its name, with the state not responsible for the agency’s revenues or debts. “It is very hard for me to say” that there can be any sufficient relationship between MOHELA and the state of Missouri for MOHELA to have standing, she said, the Forbes article said.

Justice Ketanji Brown Jackson expressed “worry” and “concern” about the “ability to govern” if the Court’s precedent on standing is eroded to allow a “dormant” or “minor” state interest to become the basis for intervention in a federal program, arguing that doing so could open the floodgates to litigation, the Forbes article added.

Justice Amy Coney Barrett, the Court’s newest conservative appointee, appeared to share the three liberal justices’ skepticism about whether the challengers have standing, at one point asking, “Why didn’t the state make MOHELA come if MOHELA is an arm of the state?” as the GOP-led states had suggested, according to the Forbes article.

But even if Justice Barrett joins with all three liberal justices, it would still fall short of a majority of the Court.

What Borrowers Seeking Student Loan Forgiveness Can Expect

Since the oral arguments have concluded, the Supreme Court could issue a decision at any time, but it is widely expected that the Court will issue a decision in May or June.

If the Court rules in favor of the administration, it could be solely on the issue of standing, or on the underlying merits of the administration’s legal authority. A favorable ruling could result in approved borrowers receiving student loan forgiveness within a matter of weeks of a decision. An adverse ruling, however, would force the Biden administration back to the drawing board, and officials have publicly stated there is no backup plan, the article said.

Administration officials have expressed confidence that the student loan forgiveness plan is legal. “While challengers of this program try to deny relief to tens of millions of working & middle-class Americans, @POTUS and I are fighting for you,” said Education Secretary Miguel Cardona in a tweet on Tuesday. “We are confident that this program is legal.”

Meanwhile, Biden extended the ongoing student loan payment pause to 60 days after either June 30 or the Supreme Court’s ruling date.