Biden’s student loan forgiveness plan invalidated by Supreme Court

The Supreme Court has delivered a major blow to President Joe Biden’s federal student loan forgiveness plan. In a ruling that aligns with expectations due to the conservative majority on the court, millions of Americans have been denied the opportunity to have up to $20,000 of their debt forgiven.

The ruling, which can be found here, concludes that at least one of the six states that challenged the loan relief program had legal standing to do so.

The 6-3 majority decided that the president did not possess the authority to instruct the Education secretary to cancel such a significant amount of consumer debt without Congress’ authorization.

Chief Justice John Roberts, in the majority opinion for Biden v. Nebraska, wrote, “‘Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?’ We can’t believe the answer would be yes.”

Furthermore, Roberts stated that the president’s plan would harm at least one of the Republican-led states that filed lawsuits to block the relief, as it would have reduced profits for the Missouri Higher Education Loan Authority (MOHELA).

Roberts continued, “Under the Secretary’s plan, roughly half of all federal borrowers would have their loans completely discharged. MOHELA could no longer service those closed accounts, costing it, by Missouri’s estimate, $44 million a year in fees… The plan’s harm to MOHELA is also a harm to Missouri.”

Financial experts are concerned about the consequences for borrowers. The U.S. Department of Education has warned that resuming loan repayments after a pause of over three years, combined with the pandemic’s impact on household finances, could lead to a historic rise in delinquencies and defaults if Biden’s loan forgiveness is not implemented.

Advocates for student borrowers have criticized the Supreme Court’s ruling, accusing the court of bias. Persis Yu, deputy executive director at the Student Borrower Protection Center, described the decision as an “absolute betrayal” for the 40 million borrowers who were relying on an impartial court to determine their financial future based on established laws.

However, the ruling is a significant victory for those who opposed the forgiveness plan and were concerned about excessive government interference in the lending sector. With an estimated cost of $400 billion, Biden’s policy would have been one of the most expensive executive actions in U.S. history.

Republicans are likely to celebrate the ruling, as they recently passed legislation in the House and Senate to overturn the president’s plan. They criticized the policy for burdening taxpayers with improving the financial situations of individuals who benefited from higher education. It is worth noting that nearly half of the U.S. population does not hold a college degree.

Biden vetoed the legislation.

Last August, under pressure from Democrats, consumer advocates, and borrowers, President Biden announced his plan to cancel up to $10,000 in federal student debt for most borrowers and up to $20,000 for those who had received a Pell Grant, a form of aid for low-income families, during college.

The Biden administration released a 25-page memo from the U.S. Department of Justice, asserting that the relief was permitted by the Heroes Act of 2003, which grants the president broad power to revise student loan programs during national emergencies. At that time, the country was operating under an emergency declaration due to Covid-19.

However, the administration’s forgiveness application process was shut down within a month due to legal challenges. Biden’s plan faced at least six lawsuits from Republican-led states and conservative groups, most of which accused him of executive overreach.

Two of these legal challenges reached the Supreme Court, one filed by Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina, all Republican-led states, and another supported by the Job Creators Network Foundation, a conservative advocacy organization.

Although the court’s decision is in line with the predictions of many legal experts, some believed it could go the other way, especially after the court heard oral arguments for the challenges in late February. Fordham law professor Jed Shugerman noted the “brilliant performance” of Solicitor General Elizabeth Prelogar, who argued on behalf of the Biden administration and its relief plan.

Despite skepticism from the justices regarding the Heroes Act of 2003’s scope, which allows for significant student debt cancellation, Prelogar maintained that the president was acting within the bounds of the law to alleviate borrower distress during national emergencies.

“There hasn’t been a national emergency like this in the time that the Heroes Act has been on the books that’s affected this many borrowers,” Prelogar argued. “And so, I think it’s not surprising to see in response to this once-in-a-century pandemic.”

— CNBC’s Kevin Breuninger contributed to this story.

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