Biden’s Student Loan Forgiveness Plan Struck Down By Supreme Court

The Supreme Court has finally issued a ruling on President Biden’s student loan forgiveness plan. In a 6-3 decision in Biden v. Nebraska, a majority of the court struck down the program, finding that it was an improper overreach that exceeded Congressional authority. Advocacy groups for student loan borrowers criticized the decision. 

Legal challenges halt Biden’s student loan forgiveness plan

President Biden’s unprecedented student loan forgiveness plan has been held up for nearly a year due to legal battles. The program would provide up to $20,000 in one-time debt relief for over 30 million Americans with federal student loans. With some income restrictions, administration officials had maintained that the vast majority of loan forgiveness would go to borrowers earning under $75,000 per year. Millions of borrowers would see their balances eliminated or reduced by half or more as a result of the initiative. 

But multiple legal challenges resulted in the program being halted before it could get off the ground. Two federal courts ruled against the Biden administration, suspending the debt relief initiative. The Biden administration appealed to the U.S. Supreme Court, which agreed to take up the two challenges. 

The Supreme Court considered two cases

One case involved a coalition of Republican-led states, which argued that Biden’s loan forgiveness plan would cut into revenues of a state-affiliated loan servicing agency called MOHELA. The coalition of states argued that this alleged financial harm to MOHELA would result in downstream impacts on the state’s finances. 

The second case involved two borrowers who would not be eligible for full debt relief under Biden’s plan. One borrower would receive $10,000 in student loan forgiveness, rather than the maximum $20,000 because the borrower had not received a Pell Grant for their education. The other borrower would not qualify for any relief at all. The borrowers argued that they were harmed because they weren’t allowed to participate in the usual “notice and comment” period that typically precedes the enactment of new federal regulations.

The Biden administration argued that none of these challengers could demonstrate that they had standing to sue. To have standing to bring a lawsuit in federal court, a party must be able to show that they would incur a concrete, direct, and non-speculative injury caused by the challenged federal law or regulation. The administration also argued that its program was fully authorized by the express language of the HEROES Act of 2003, a federal statute that gives broad authority to the Education Department to change the rules for federal student aid programs in response to a national emergency, such as war or a pandemic. 

Supreme Court rules on Biden’s student debt relief plan

In the decision reached this week, the Supreme Court struck down Biden’s student loan forgiveness plan. The Court found that the states, led by Missouri, do have standing to sue, distinguishing the facts of this case from several other recent decisions where the Court concluded that states challenging federal laws were unable to demonstrate standing. 

The Court also found that the loan forgiveness plan was an impermissible overreach of executive authority and that the HEROES Act does not authorize such massive and unprecedented student debt relief. 

The Court’s ruling brought criticism from advocacy groups

Advocacy groups for student loan borrowers were quick to criticize the court’s decision and called on President Biden to take further action.

“Today, a majority of this corrupt court brushed aside the rule of law to advance its ideological crusade against working people,” said Mike Pierce, Executive Director of the Student Borrower Protection Center, in a statement. 

“The high court is asking people with student debt to pay the price for decades of government mismanagement and industry abuses across the student loan system—making it clear that, once again, the wealthy and powerful play by a different set of rules from the rest of us… This court will go down in history as one dedicated to expanding the rights of powerful special interests while stripping rights away from everyone else. The time for court reform is now. It now also falls to President Biden to stand with student loan borrowers and use the full might of the federal government to answer their demand for justice and relief in the face of this lawless and shamefully political ruling. Borrowers cannot afford to wait any longer.”

“There is no reason this corrupted Supreme Court — who is legislating from the bench — has to have the last word on financial relief that millions of Americans have already been approved for,” said Braxton Brewington, spokesperson for the Debt Collective, debtor’s union representing the interests of student loan borrowers. “The Biden administration must use all other legal tools at their disposal to deliver student debt relief and fulfill his campaign promise.”

What borrowers should know about student loan forgiveness

Now that the Supreme Court has sided with the challengers, Biden’s student loan forgiveness program is likely dead, at least in its current form. 

Advocacy for a new approach

Borrower advocacy groups and some Democrats in Congress have been urging the Biden administration to establish a new student debt relief plan under the “compromise and settlement” provision of the Higher Education Act, a separate federal statute that advocates say authorizes mass student loan forgiveness. 

Uncertainty surrounding alternative options

Biden administration officials have not publicly indicated that such a “backup” option is under serious consideration. A new loan forgiveness program may take time to establish and could be subject to similar legal challenges. There are no indications from this week’s decision that the Supreme Court would be any more amenable to a student loan forgiveness plan enacted under the Higher Education Act. 

The administration may instead focus on existing initiatives, such as the Limited PSLF Waiver, which has already resulted in billions of dollars in student loan forgiveness. The Education Department is also starting to implement the IDR Account Adjustment, which may have an even broader pool of borrowers eligible for debt relief. New regulations that go into effect on July 1, 2023,  may make it easier for some borrowers to request debt relief under a number of federal student loan forgiveness programs, including Borrower Defense to Repayment and the Total and Permanent Disability discharge program. 

Easier access to debt relief programs

And Biden administration officials are still in the process of developing a new income-driven repayment plan that may have several benefits, including lower payments, generous interest subsidies, and accelerated student loan forgiveness. Some have suggested that the administration could further tweak the proposed overhaul in response to the Supreme Court decision to make it even more generous for borrowers. It is not yet clear if further changes to the overhaul are in the works.