On June 30, 2023, Chief Justice John Roberts wrote a 6-3 opinion invalidating the Biden Administration plan to forgive up to $20,000 of outstanding student loans per borrower, at an estimated cost of $430 billion.
Later that afternoon, President Biden responded by announcing that he would use his authority under the Higher Education Act of 1965—instead of the HEROES Act—to provide a new student loan forgiveness plan.
The Original Plan
During the 2020 Presidential campaign, Biden promised to forgive up to $10,000 in outstanding student loans.
In 2022, as the COVID–19 pandemic came to its end, the Secretary of Education used the HEROES Act to issue “waivers and modifications” reducing or eliminating the federal student debt of most borrowers. Borrowers with eligible federal student loans who had an income below $125,000 in either 2020 or 2021 qualified for a loan balance discharge of up to $10,000.
Those who previously received Pell Grants, who came from certain low-income families, qualified for a discharge of up to $20,000. The Secretary prepared a website and accepted millions of applications before any court could act on this proposal.
An estimated $430 billion in debt would be forgiven.
As the loan forgiveness plan was being finalized, various groups announced plans to challenge its legality. However, the draft plan was changed from day to day so as to preclude challenges based upon standing.
The Supreme Court Rules
Six states challenged the plan as exceeding the Secretary’s statutory authority. The Eighth Circuit issued a nationwide preliminary injunction, and the Supreme Court granted certiorari before judgment.
The majority decision views the controversy as the Executive Branch taking over the authority that belongs to the Legislative Branch – that Biden’s “modification” should have gone through the Congress.
Justice Kagan with Justices Sotomayor and Jackson filed a dissent. They would deny standing to the states to challenge the program. They also claim that a plain reading of the HEROES Act authorizes the loan forgiveness plan.
Elsewhere in SCOTUS news: Affirmative action is gone, and Cornell is upset.
Two decisions on student loans were released today. The other, Department of Education v. Brown, was dismissed 9-0 because the borrowers who brought the suit suffered no harm as a result of the plan. Because they did not suffer, they could not sue to repair a damage that was never dealt, or in legal terms, they had no standing.
Andrew Bailey, Attorney General of Missouri, held a press conference following the announcement of the Supreme Court decision. He said, “For me, this was about the Constitution, the rule of law, and protecting working Missouri families from getting saddled with Ivy League debt.” Missouri’s state-owned loan servicing company played a starring role in granting standing to the plaintiff states.
Biden’s New Plan
The Department of Education will conduct a negotiated rulemaking to fashion a program to grant “waivers or modifications” of student loans under the Higher Education Act of 1965. Although the public will be allowed to observe, only representatives of pre-selected groups will be allowed to participate.
The Biden Administration is giving up on using the HEROES Act to provide broad-based student loan relief. However, the HEROES Act will remain available for special situations such as a school going out of business before students can complete their programs.
Because the loan relief was timed to coincide with the resumption of student loan payments (after a three-year suspension of payments and interest during COVID-19), Biden announced a 12-month “on-ramp” period. During this time, the obligation to make monthly payments of principal and interest restarts, but people who fail to make full and timely payment will not be referred for enforcement actions or declared to be in default.
Related: Is Cornell Losing Middle-Class Students?
The current income contingent loan repayment program, which caps loan payments at 10% of discretionary income, is being modified to cap loan payments at 5% of income. Currently, all loans not repaid within 20 years will be forgiven. Biden proposes to reduce this to 10 years.
Although historically, students had to opt into this program at the start of their loan repayments, it is proposed to all persons with outstanding student loan balances to opt into the program now.
According to the Department of Education, people at the lowest income levels will be excused completely from making payments:
The amount of income protected from payments on the SAVE plan will rise from 150 percent to 225 percent of the Federal poverty guidelines (FPL). This change means a single borrower who earns less than $32,805 a year ($67,500 for a family of four) will not have to make payments.
In other words, Biden proposed a modification of existing loan programs so they will collect less than full repayment.
The idea of income contingent loans is not new to Cornell. Physics Professor Hans A. Bethe authored such a plan in 1972, and his report was replete with differential equations.
The Supreme Court has finished issuing opinions for the present term. Biden’s new program has not been authored nor implemented yet, so no legal challenges have yet been mounted. However, the President has sworn that his quest to quell student loans “is not over.”
This is a developing story and will be updated as more details become available.
