The U.S. Supreme Court on Friday struck down President Joe Biden’s signature policy initiative to wipe away mass amounts of student loan debt, a blow to higher ed advocates who presented the cancelation as life altering for tens of millions of borrowers.
In a 6-3 decision, the high court’s conservative wing declared unlawful his proposal to cancel up to $20,000 in student loan debt for individual borrowers earning less than $125,000.
But in a twist, the same day the court invalidated the plan, Biden announced he would start regulatory proceedings to forgive loans under the Higher Education Act, or HEA.
This process will take longer, Biden said in remarks Friday. But he said it’s “the best path” to relief for struggling borrowers.
He also said the U.S. Department of Education, from Oct. 1 to Sept. 30 next year, will enact a “temporary on-ramp repayment program” as monthly student loan payments restart, ending a pandemic-era freeze.
Biden said this means borrowers should still make their monthly payments, which are due to resume in October, and interest will still accrue, but the U.S. Department of Education won’t flag the debt for collections, protecting borrowers from default.
Still, the Supreme Court ruling will likely complicate the restart of monthly loan payments, pundits say.
What is Biden doing now?
The Education Department is starting a process known as negotiated rulemaking, in which it will bring various parties to the table that would be affected by regulatory change — in this case, they’d be discussing Title IV financial aid programs and HEA.
Afterward, the department plans to draft a rule that would allow it to forgive loans en masse.
Rebecca Natow, an educational leadership and policy professor at Hofstra University, said she’s unsurprised the Biden administration wants to go through negotiated rulemaking. It drew criticism for not pursuing regulatory proceedings for the first loan forgiveness program announced last year.
She also said it appears the administration is trying to move as quickly as possible, as the first negotiated rulemaking meeting is happening July 18. A timeline for a final rule is unclear, but Natow said it is unlikely to be a multi-year process.
However, there could be some legal hangups. Friday’s ruling referenced a Supreme Court case last year, West Virginia v. EPA, which essentially found the executive branch needed congressional approval to take major executive action. The court intimated that the original loan forgiveness program would require congressional authority, and likely this new one would too, Natow said.
Jesse Panuccio, former acting associate attorney general at the U.S. Department of Justice said that likely the Biden administration will be ensnared in the same legal issues as in Friday’s ruling.
Chief Justice John Roberts, writing for the conservative majority, argued the Biden administration was essentially attempting a rewrite of a post-9/11 law, called the Heroes Act. It gives the U.S. secretary of education powers to rework the federal student loan program in times of emergency, like war, and bypass the traditional regulatory or legislative processes.
The Biden administration said the Heroes Act gave the education secretary authority to waive loan debt because of the continued economic fallout of the COVID-19 pandemic.
Panuccio said the opinion speaks to the need for Congress to remedy flaws in the student loan system.
Federal lawmakers across the political spectrum have proposed legislation to tackle rising federal student loan debt, which has ballooned to about $1.6 trillion. Republicans want to standardize financial aid offers, require students applying for loans to participate in annual financial counseling and trim down options for repayment plans.
Meanwhile, Democrats are trying to invest significantly more in federal Pell Grants, a primary vehicle of financial aid, and rework the Public Service Loan Forgiveness program, which wipes away the debt of nonprofit and government workers after a decade of qualifying payments.
Another policy storm is approaching, too, when monthly loan payments resume later this year.
Robert Kelchen, a higher education professor at the University of Tennessee, Knoxville, wrote in a post on his website that he doubted before Friday’s ruling that the Education Department and loan servicers could smoothly transition, partially because Congress didn’t earmark funding to help with it.
Now, additional challenges will come because borrowers who banked on their entire loan debt being wiped out will need to repay it, Kelchen wrote.
The freeze instituted by the Trump administration in 2020 had been continually extended, until the White House struck a legislative bargain earlier this year that raised the U.S. debt ceiling. Loan payments kick back in as a part of that arrangement.
The U.S. Consumer Financial Protection Bureau warned in June that many borrowers are shouldering other debts that could make repaying their student loans difficult. As of March this year, 2.5 million student loan borrowers were delinquent on other forms of debt, the agency found.
Twin lawsuits, one rejected
The Supreme Court, which began weighing in on loan forgiveness during oral arguments in February, issued decisions in two lawsuits. It ruled in favor of one brought by six red states, led by Nebraska, that alleged the plan would harm their finances.
The other was from two student loan borrowers who claimed they couldn’t take full advantage of the plan, though the high court unanimously ruled Friday that the borrowers did not have standing to sue.
Standing was also a key issue in the states’ lawsuit. During February oral arguments over the cases, debate centered on one of the states, Missouri, and its standing to sue. Attorneys for the states alleged potential harm to an entity known as the Higher Education Loan Authority of the State of Missouri, or MOHELA.
MOHELA is one of the largest federal government loan servicers and is charged with collecting student debt payments, as well as funding state scholarships. Conservative-led states said that MOHELA would lose out on revenue from servicing Direct Loans, which are those the federal government makes and owns, if they were canceled.
The high court’s conservative bloc held that Missouri in fact had standing, leaving the question of whether the Heroes Act could authorize Biden’s loan forgiveness program.
It does not, justices ruled.
“The authority to ‘modify’ statutes and regulations allows the Secretary to make modest adjustments and additions to existing provisions, not transform them,” Roberts wrote in the opinion. “Prior to the COVID–19 pandemic, ‘modifications’ issued under the Act were minor and had limited effect. But the ‘modifications’ challenged here create a novel and fundamentally different loan forgiveness program.”
Who could have benefited?
College access advocates have been particularly concerned about vulnerable borrowers, including those who are Black and Hispanic.
Black borrowers on average owe almost 50% more in student loan debt upon graduation versus their White peers, according to 2016 research from the Brookings Institution. Four years after graduation, Black borrowers owe almost twice as much in student loans.
Kristin McGuire, executive director of advocacy organization Young Invincibles, said Friday the debt forgiveness would have transformed some borrowers’ lives. But Friday’s Supreme Court ruling, coupled with Thursday’s restricting race-conscious admissions, “sends a very clear signal” to marginalized groups that they are not meant for college, McGuire said.
“What we’re hearing is that they are really feeling like the very foundation of higher education is being removed, is being shaken,” she said.
Borrowers under the income cap could have seen either $10,000 or $20,000 of loan debt forgiven, with the higher amount of relief reserved for those who had federal Pell Grants, a proxy for low- or moderate-income status.
The program could have benefited up to 43 million borrowers, including 20 million who would have had their student loan debt erased entirely, the White House said last year when it announced the plan.
About 26 million borrowers had applied for relief, and the Education Department had approved 16 million of them for loan forgiveness.
Justin Draeger, CEO and president of the National Association of Student Financial Aid Administrators, called the ruling “difficult — if not devastating — news for millions of student loan borrowers nationwide who have had their financial futures held in limbo for nearly a year.”
The opinion delighted conservatives who had railed against Biden’s program, calling it financially imprudent and unfair to those who had never taken out student loans or attended college.
“Mr. President, good riddance to your illegal, economically disastrous taxpayer-funded bailout for the wealthy,” Rep. Virginia Foxx, the Republican chair of the House Committee on Education and the Workforce, said in a statement Friday. “I had hoped you would have greater respect for taxpayers and the Constitution, but I am pleased the Court stepped in to hold you accountable.”
Foxx said in a separate statement that Biden's new attempt at debt forgiveness was “illegal, inflationary, and irresponsible.”