Introduction:
The Supreme Court recently heard arguments in two important cases that revolve around the Biden administration’s proposed student loan forgiveness program. These cases, Biden v. Nebraska and U.S. Department of Education v. Brown, raise important legal questions about constitutional requirements for “standing” and the Department of Education’s authority to forgive student loans. The Court’s decision, coming later this month, will have far-reaching effects on the millions of Americans who are burdened with student debt. In this blog post, we will delve deeper into the current key issues and explore the possible consequences of the Court’s decision.
Standing question:
A central issue in these cases revolves around the concept of “standing”. Petitioners must demonstrate that they have suffered legal injury or loss as a result of the policy. The cases centered on whether the petitioners satisfied this constitutional requirement. The Biden administration has attempted to address the potentially enduring arguments by allowing individuals to opt out of receiving forgiveness and by excluding older privately held loans from eligibility. Private banks have also raised concerns about lost revenue and claimed to have a stand on the matter.
Biden vs. Nebraska:
Biden v. Nebraska, brought by six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina), presented a plausible standing argument. The main argument was that Missouri could face reduced contributions from the Missouri Higher Education Loan Authority (MOHELA), one of the largest federal student loan servicers. Mohela has an obligation to contribute to Missouri State University funds, and the petitioners argued that loan forgiveness would result in a reduction in customers, affecting their ability to meet these obligations. However, Mohela has remained largely silent on this argument. Solicitor General Elisabeth Preloger accepted that Mohela would stand in the case, and his absence from the trial was noted by several justices.
Authority of Education Department:
The Justice Department presented the case to the Secretary of Education having the authority to forgive student loans. He cited the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 as the basis for his argument, which has also justified the ongoing student loan payment moratorium. The interpretation of the words “leave or modify” in the Heroes Act became a point of contention during court arguments. The justices discussed whether the secretary had violated his authority and whether the policy was more than a mere “amendment”. Some justices emphasized the distinction between a legal question and a policy debate, and stated that economic impact should not be factored into legal decisions.
Implications of the decision:
The court’s decision will set an important precedent. One possibility is that the Court may rule that the potential loss of state tax revenue or the inability to benefit from a policy is sufficient to satisfy the constitutional standing requirement. Alternatively, they may choose to set a precedent that the HEROES Act provides broad authority for student loan cancellation. The latter scenario is less likely as the Heroes Act is closely linked to national emergencies, and the current Act is due to expire soon.
Restarting Repayment:
Millions of borrowers will face having to restart student loan payments in 2023. While student loan repayment has been extended several times, the current extension is expected to be the last, as the national public health emergency nears its end. Student loan payments will resume 60 days after the Supreme Court’s decision. The Justice Department argues that this resumption of payments is itself a motivating factor for loan forgiveness, as it could harm a large number of borrowers.
Concerns and Solutions:
The likely outcome is that borrowers may fall into default due to their unwillingness to resume payments. This can result in a reduction in pay and loss of eligibility for additional financial aid, especially for those who attend for-profit institutions or two-year colleges. The Biden administration’s “Fresh Start” initiative aims to help regain good standing for borrowers who were in default before the pandemic. Additionally, income-based repayment plans are available, but they have low adoption rates. The administration is also working on a new income-driven repayment plan that would allow more borrowers to have zero monthly payments. However, the availability of this plan is uncertain when the moratorium on student loan payments ends.
Conclusion:
The pending Supreme Court decision on the student loan forgiveness program has important implications. While the outcome remains uncertain, it is clear that reform is needed to address issues of college funding and affordability. Supporting existing borrowers through low balance and repayment plans is a necessary step to rectify past losses. However, the focus now must be on building a sustainable federal and state system for funding higher education that actually enhances the economic well-being of students. The court’s decision will be eagerly awaited because it will affect student loan forgiveness and higher education.