Supreme Court strikes down Biden’s student loan forgiveness plan

The Supreme Court on Friday struck down President Joe Biden’s federal student loan forgiveness plan, denying tens of millions of Americans the chance to get up to $20,000 of their debt erased.

The ruling, which matched expert predictions given the justices’ conservative majority, is a massive blow to borrowers who were promised loan forgiveness by the Biden administration last summer.

The 6-3 majority ruled that at least one of the GOP-led six states that challenged the loan relief program had the proper legal footing, known as standing, to do so.

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The high court said the president didn’t have the authority to instruct his Education secretary to cancel such a large amount of consumer debt without authorization from Congress.

“‘Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?'” wrote Chief Justice John Roberts in the majority opinion for Biden v. Nebraska. “We can’t believe the answer would be yes.”

Roberts also said the president’s plan would cause harm to Missouri, as it would have reduced profits at the Missouri Higher Education Loan Authority, or MOHELA.

“Under the Secretary’s plan, roughly half of all federal borrowers would have their loans completely discharged,” Roberts wrote. “MOHELA could no longer service those closed accounts, costing it, by Missouri’s estimate, $44 million a year in fees…The plan’s harm to MOHELA is also a harm to Missouri.”

Legal experts and advocates recently poked holes in the states’ argument that Biden’s plan would reduce MOHELA’s bottom line. They pointed out that the lender’s revenue was actually expected to rise because of some student loan servicers recently leaving the space and it picking up extra accounts. 

“I was surprised the court found Missouri had standing,” said higher education expert Mark Kantrowitz. “The debts of MOHELA are not the debts of the state. And MOEHLA is able to sue on its own, so why didn’t it bring its own lawsuit?”

In a statement Friday, Biden called the Supreme Court’s decision wrong and accused Republicans of hypocrisy.

“They 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 were forgiven,” Biden said. “But when it came to providing relief to millions of hard-working Americans, they did everything in their power to stop it.”

In a briefing Friday afternoon, Biden said his administration was looking for another avenue to deliver student debt relief.

Consumer advocates slammed the ruling, and accused the court of bias.

“Today’s decision is an absolute betrayal to 40 million student loan borrowers counting on an impartial court to decide their financial future based upon the established rule of law,” said Persis Yu, deputy executive director at 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.”

“Student loan cancelation is perfectly legal, and these baseless and bad-faith lawsuits should have been dismissed long ago,” Taylor said.

The U.S. Department of Education recently warned that the Covid pandemic left millions of borrowers in a worse off financial situation and that its relief was necessary to avoid a historic rise in delinquencies and defaults.

The high court’s decision is a major win for the plaintiffs who worked to block the forgiveness and were worried about the executive branch interfering in the lending sector. At an estimated cost of $400 billion, Biden’s policy would have been among the most expensive executive actions in U.S. history.

“The President’s unilateral student debt cancellation plan was expensive, inflationary, poorly targeted, and would have done nothing to improve the affordability of higher education,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement. “With today’s Supreme Court decision, it’s time to put these costly cancellation schemes behind us.”

Republicans also celebrated the ruling.

Sen. Tim Scott, R-S.C., a Republican presidential contender, called the loan forgiveness plan an “illegal and immoral” bid to “transfer student debt to taxpayers.”

“If you take out a loan, you pay it back,” Scott said in a statement.

Conservative lawmakers recently passed legislation in the House and Senate to overturn the president’s plan, criticizing the policy for forcing taxpayers to improve the personal finances of those who benefited from higher education. Around half of people in the U.S. don’t hold a college degree, which research shows leads to greater earnings.

Biden vetoed that legislation.

Last August, under pressure from other Democrats, consumer advocates and borrowers to fix a lending system they described as broken and predatory, Biden announced he’d cancel up to $10,000 in federal student debt for most borrowers, and as much as $20,000 for those who’d received a Pell Grant in college, a form of aid for low-income families.

Even before the Covid-19-related public health crisis, when the U.S. economy was enjoying one of its healthiest periods in history, there were still problems plaguing the federal student loan system.

Only about half of borrowers were in repayment in 2019, according to an estimate by Kantrowitz. Around 25% — or more than 10 million people — were in delinquency or default, and the rest had applied for temporary relief measures for struggling borrowers, including deferments or forbearances.

These grim figures led to comparisons to the 2008 mortgage crisis.

When the Biden administration rolled out its loan forgiveness plan, it also released a 25-page memo by the U.S. Department of Justice asserting that its relief was permitted by the Heroes Act of 2003 — passed in the aftermath of the 9/11 terrorist attacks, which grants the president broad power to revise student loan programs during national emergencies. The country was operating under an emergency declaration due to Covid-19 at the time.

But the administration’s forgiveness application process had been open for less than a month when a slew of legal challenges forced them to shut it. Biden’s plan faced at least six lawsuits from Republican-backed states and conservative groups, most of which accused him of executive overreach.

Two of those legal challenges made it to the Supreme Court: one brought by six GOP-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — and another backed by the Job Creators Network Foundation, a conservative advocacy organization.

While the justices’ decision largely matched the predictions of many legal experts, some saw it going another way, especially after the Supreme Court heard oral arguments at the end of February.

Fordham law professor Jed Shugerman said at the time that he was struck by the “brilliant performance” of Solicitor General Elizabeth Prelogar, the lawyer who argued on behalf of the Biden administration and its relief plan.

“She may have snatched victory from the jaws of defeat,” Shugerman tweeted.

When the justices expressed skepticism that the Heroes Act of 2003 allowed such a large cancellation of student debt, Prelogar remained adamant that the president was acting squarely within the law’s scope to avoid borrower distress during national emergencies.

“There hasn’t been a national emergency like this in the time that the Heroes Act has been on the books that’s affected this many borrowers,” Prelogar said. “And so, I think it’s not surprising to see in response to this once-in-a-century pandemic.”

— CNBC’s Kevin Breuninger contributed to this story.

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