3 Things to Watch for as The Supreme Court Decides Student Loan Debt Relief Fate

The Supreme Court is set to rule on President Biden’s signature student loan debt relief plan in a matter of weeks – or days. Over 40 million borrowers will be impacted by whatever the Court ultimately decides. 

The Biden-Harris student debt relief plan is designed to provide $10,000 in federal loan cancellation for most borrowers with government-held loans. The loan cancellation threshold can be as high as $20,000 for borrowers who received a Pell Grant for their education. Borrowers can qualify if they earned income below the program’s thresholds in either 2020 or 2021 (generally $125,000 for single or married-filing-separately borrowers, and $250,000 for married-filing-jointly borrowers).

The program has been blocked since last fall, when two different federal courts issued rulings in favor of legal challengers. Those lawsuits have made their way to the Supreme Court, which heard oral arguments in February. Now, a decision is imminent, and should come down before the end of this month. 

Here's what borrowers should be looking for.

How the Supreme Court handles the issue of standing

The Supreme Court is evaluating two major legal issues in the student loan debt relief challenges. 

The first is whether Biden’s initiative is authorized under the HEROES Act of 2003, as the administration has argued. The HEROES Act was passed in the wake of the September 11^th terrorist attacks, and gives broad authority to the Secretary of Education to modify federal student loan programs (or waive program requirements) in the wake of a national emergency. The Biden administration cited to the Covid-19 pandemic and the associated economic fallout as the emergency basis for the student debt relief.

The second issue is whether the challengers who sued the Biden administration to stop the student loan cancellation program have “standing.” Standing is a constitutional concept that means in order to bring a lawsuit in federal court, a challenger must be able to demonstrate that they would incur a concrete injury or harm directly related to the challenged rule or program, and that the remedy that they are seeking would address that injury. So, for instance, a person can’t sue the federal government because a federal policy would harm their neighbor (that’s not sufficiently direct). Nor can they sue the federal government because a federal policy might cause them to lose profits at some point in the future (That’s too speculative.)

While a majority of the court seemed skeptical that the HEROES Act’s statutory language allows for such a sweeping student loan cancellation plan, four justices (including one conservative justice) suggested that the parties might have a standing problem.

One set of challengers – a coalition of Republican-led states – argued that a state-affiliated student loan servicer would be financially harmed by Biden’s student loan forgiveness plan. But that servicer, MOHELA, based in Missouri, did not bring the challenge and is not a party to the lawsuit, and in many respects was set up to be financially and legally independent of the state. 

The other challengers are borrowers who would receive some, or no, loan forgiveness under the program and weren’t allowed to participate in a normal public comment period. The administration argued that this cannot constitute harm sufficient to confer standing.

If at least five justices – just one more than the four who seemed skeptical during the February hearing – agree that the challengers don’t have standing, Biden’s student loan plan could survive. The Supreme Court could effectively leave the question of HEROES Act authority unanswered for the time being.

How narrow an adverse Supreme Court ruling is for student loan cancellation

If the Supreme Court determines that at least one of the challengers does have standing, it seems far more likely that the Court will strike down Biden’s student loan cancellation program. A clear majority on the Court seemed skeptical of, and at times hostile to, the idea that the HEROES Act permits such sweeping debt relief, despite the Biden administration’s arguments that the express language in the statute permits the Education Department to “modify” or “waive” virtually “any” requirement or provision of the student loan system, including those that pertain to repayment and discharge. 

If the Supreme Court winds up striking down the program, the nature of the ruling may impact how the Biden administration responds. If the Court issues a fairly narrow ruling confined to the specific language of the HEROES Act, it could embolden the Biden administration to consider an alternate pathway to student loan forgiveness. 

Advocacy groups for borrowers, and some legal experts, have argued that Biden should essentially reissue the program under a different statute – the Higher Education Act, which has its own “compromise and settlement” provision that can allow for unilateral debt cancellation. The administration has already relied on this provision to issue sweeping debt relief under the Sweet v. Cardona settlement, which will provide $6 billion in student loan discharges for hundreds of thousands of borrowers. 

A new student loan forgiveness program issued under the Higher Education Act may face its own legal challenges. But a narrow Supreme Court ruling could provide cover for the Biden administration to at least give student loan forgiveness a second shot.

How the Biden administration responds to a broader adverse ruling on student loan forgiveness

On the other hand, if the Supreme Court issues a fairly broad adverse ruling that, while technically limited to the HEROES Act, could easily be applied to the Higher Education Act’s so-called “compromise and settlement” authority, the Biden administration may conclude that it’s a losing battle to even try. 

Instead, the administration may explore other programs to provide borrowers with relief. After the recent passage of the debt ceiling bill, Biden is no longer able to further extend the student loan pause, which advocates had hoped he would do if the Supreme Court ruled against his student loan forgiveness plan. But Biden could have other options, such as further modifying a proposed overhaul of income-driven repayment to make it even more generous. The proposed overhaul would reduce monthly payments by 50% or more for some borrowers, and shorten the path to student loan forgiveness for a small cohort of undergraduate borrowers with relatively small balances.

Since the final regulations governing this overhaul have not yet been released, the Biden administration could tweak the proposal further – for example, by modifying the payment formula to reduce payments even more, and shortening the repayment term to further accelerate student loan forgiveness.