Supporters of student debt relief demonstrate in front of the US Supreme Court on June 30, 2023 in Washington, DC
Olivier Douliery | AFP | Getty Images
The Supreme Court on Friday rejected President Joe Biden’s state student loan forgiveness plan, denying tens of millions of Americans the ability to cancel up to $20,000 of their debt.
The verdict, which was in line with expert forecasts given the conservative majority of the judges, comes as a major blow to borrowers who were promised a loan forgiveness by the Biden administration last summer.
The 6-3 majority ruled that at least one of the six Republican-led states that challenged the credit-facilitation program had the proper legal basis, known as legal standing, to do so.
More from Personal Finance:
Borrowers must prepare for student loan payments to resume
Millions of borrowers are said to have a new student loan servicer
One in five student loan borrowers could face problems when payments resume
The Supreme Court said the President had no authority to order his Secretary of Education to cancel such a large amount of consumer debt without Congressional approval.
“‘Can the Secretary use his powers to abolish $430 billion in student loans and wipe the loan balances of 20 million borrowers entirely as a pandemic comes to an end?'” Chief Justice John Roberts wrote in the majority opinion Biden vs. Nebraska. “We can’t believe the answer would be yes.”
Roberts also said the president’s plan would hurt Missouri because it would have reduced the profits of the Missouri Higher Education Loan Authority (MOHELA).
“Under the Secretary’s plan, about half of all federal borrowers would pay off their loans in full,” Roberts wrote. “MOHELA could no longer service these closed accounts, which it estimated was costing Missouri $44 million a year in fees… The damage the plan did to MOHELA is also damage to Missouri.”
Legal experts and advocates have recently thwarted states’ arguments that Biden’s plan would diminish MOHELA’s bottom line. They pointed out that the lender’s revenue was actually expected to increase as some student loan servicers had recently exited the field and it added additional accounts.
“I was surprised that the court found that Missouri has standing,” said college researcher Mark Kantrowitz. “MOHELA’s debts are not government debts. And MOEHLA can sue itself, so why didn’t it file its own lawsuit?”
In a statement Friday, Biden called the Supreme Court’s decision wrong and accused Republicans of hypocrisy.
“They have had no problem with billions in pandemic-related loans to businesses — including hundreds of thousands and in some cases millions of dollars for their own businesses. And those loans have been made,” Biden said. “But when it came to helping millions of hard-working Americans, they did everything in their power to prevent it.”
“An absolute betrayal” for borrowers, proponents say
Consumer advocates criticized the verdict and accused the court of bias.
“Today’s decision is an absolute betrayal of the 40 million student borrowers who trust an impartial court to decide their financial future based on the established rule of law,” said Persis Yu, deputy executive director of the Student Borrower Protection Center, an advocacy group.
Astra Taylor, co-founder of the Debt Collective, a union of debtors, called the decision “a travesty for debtors and for democracy.”
“Foreclosure on student loans is perfectly legal, and these baseless and bad faith claims should have been dismissed long ago,” Taylor said.
The US Department of Education recently warned that the Covid pandemic has put millions of borrowers in a worse financial position and that alleviating it is necessary to prevent a historic spike in defaults and delinquencies.
Critics say plan is ‘expensive’ and ‘immoral’
The Supreme Court decision is a major victory for plaintiffs who worked to block the enactment and were concerned that the executive branch could interfere in the credit sector. At an estimated cost of $400 billion, Biden’s policy would have been one of the costliest executive actions in US history.
“The president’s unilateral student-debt relief plan was expensive, inflationary, poorly targeted, and would have done nothing to improve the affordability of higher education,” Maya MacGuineas, president of the Federal Budget Governance Committee, said in a statement. “With today’s Supreme Court decision, it’s time to put these costly cancellation plans behind us.”
Republicans also celebrated the verdict.
Sen. Tim Scott, RS.C., a Republican presidential candidate, called the loan forgiveness plan an “illegal and immoral” attempt to “transfer student debt to taxpayers.”
“When you take out a loan, you pay it back,” Scott said in a statement.
Conservative lawmakers recently passed legislation in the House and Senate repealing the president’s plan, criticizing policies that force taxpayers to improve the personal finances of those who benefited from higher education. About half of people in the US don’t have a college degree, which research shows leads to higher incomes.
Biden vetoed this bill.
How the student loan waiver made it all the way to the Supreme Court
Supreme Court justices listen to arguments.
Artist: Bill Hennessey
Last August, under pressure from other Democrats, consumer advocates and borrowers to fix a credit system they described as broken and predatory, Biden announced that he would give up to $10,000 in federal student debt to most borrowers and those who do , received up to $20,000 in college on a Pell Scholarship, a form of support for low-income families.
As the Biden administration rolled out its credit relief plan, it also released a 25-page memo from the US Department of Justice claiming that relief was permitted under the Heroes Act of 2003 — a product of the September 11 terrorist attacks, which grants The President has broad powers to revise student loan programs in the event of national emergencies. The country was under a declaration of emergency due to Covid-19 at the time.
But the government’s forgiveness process had been going on for less than a month when a series of legal challenges forced it to close. At least six lawsuits have been filed against Biden’s plan by Republican-backed states and conservative groups, most of which accuse him of executive abuse.
Two of those legal challenges made it all the way to the Supreme Court: one was filed by six Republican-run states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — and another was supported by the Job Creators Network Foundation, a conservative advocacy group.
While the judges’ decision was broadly in line with many legal experts’ predictions, some saw a different direction, particularly after the Supreme Court heard an oral hearing in late February.
Jed Shugerman, a law professor at Fordham, said at the time he was impressed by the “brilliant performance” of Attorney General Elizabeth Prelogar, the attorney who argued on behalf of the Biden administration and its relief plan.
“Maybe she snatched victory from defeat,” Shugerman tweeted.
When judges expressed skepticism that the Heroes Act of 2003 would allow for such large-scale student debt relief, Prelogar insisted the president was acting strictly within the law to avoid borrower troubles in national emergencies.
“In the time that the Heroes Act has been in effect, there has not been a national emergency like this that has affected so many borrowers,” Prelogar said. “Therefore, I don’t think it’s surprising to see in response to this once-in-a-century pandemic.”
— CNBC’s Kevin Breuninger contributed to this story.
This is breaking news. Please check again for updates.
Comments are closed.