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Letter signs spelling out "cancel" are held in front of the Supreme Court building

Advocates rallied outside the Supreme Court in February to show support for the Biden administration’s plan to forgive up to $20,000 in federal student loans for eligible Americans.

Kent Nishimura/Los Angeles Times via Getty Images

President Biden proposed “a new path” for debt relief after the Supreme Court struck down his initial plan Friday.

It remains unclear how many people will benefit from the new plan, compared to the old one, which would have helped 40 million borrowers.

Details of the new plan:

  • The Education Department on Friday initiated “a regulatory process to provide debt relief, so we can help the working- and middle-class borrowers who need it most,” said Education Secretary Miguel Cardona. Biden, in his remarks, acknowledged that the process would be slower than the debt relief the Supreme Court rejected.
  • The department also on Friday “finalized our new income-driven repayment plan, Saving on A Valuable Education (SAVE), which will be the most affordable repayment plan in history. It will cut monthly payments to zero dollars for millions of low-income borrowers, save all other borrowers at least $1,000 per year and stop runaway interest that leaves borrowers owing more than their initial loan,” Cardona said.
  • And the Education Department created “a 12-month on-ramp transition period that will help ensure borrowers smoothly and successfully return to repayment without falling into delinquency or default.” Cardona said that borrowers who can make payments should do so, as payments will resume and interest will accrue, but the “on-ramp to repayment will help borrowers avoid the harshest consequences of missed, partial or late payments like negative credit reports and having loans referred to collection agencies.”

‘A Dark Day’

Biden’s announcement came late in the day the Supreme Court ruled.

“It is a dark day for 40 million student loan borrowers,” said Persis Yu, deputy executive director and managing counsel for the Student Borrower Protection Center, during a press conference Friday, reiterating that the court got it wrong.

The court’s conservative justices ruled in a 6-to-3 decision that the administration did not have the authority under the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 to forgive up to $20,000 for federal student loans for eligible Americans. That law allows the Education Department to waive or modify parts of the student loan program so that borrowers affected by war, military operation or national emergency—such as the coronavirus pandemic—don’t end up in a worse position financially.

But, Chief Justice John Roberts Jr. wrote in the majority opinion, the debt-relief plan went beyond a modification or waiver. Instead, it would create a “novel and fundamentally different loan forgiveness program.”

“The secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal,” Roberts wrote. “It does not. We hold today that the act allows the Secretary to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up.”

The court’s decision comes nearly a year after Biden first announced his plans to forgive some student loans—a plan that was aimed at helping borrowers avoid default when payments resumed following a three-year pause. Restarting payments without canceling student loans first will be “catastrophic,” advocates for cancellation have said. The Consumer Financial Protection Bureau recently said that millions of borrowers are at risk of defaulting.

About 26 million people applied and more than 16 million were approved for relief before a federal judge blocked the administration from moving forward with the plan.

Payments are set to restart in September, and advocates for debt relief and borrowers are urging the Biden administration to take action now to prevent a wave of defaults.

“In the face of the Supreme Court’s unjust decision, the responsibility to fight for student debt relief falls squarely on the president’s shoulders,” said Natalia Abrams, president and founder of the Student Debt Crisis Center. “This is a moment that demands swift action.”

President Biden said in a statement shortly after the decision was announced, “The fight is not over.”

“I will stop at nothing to find other ways to deliver relief to hard-working middle-class families,” the statement said. “My administration will continue to work to bring the promise of higher education to every American.”

Under Biden’s initial plan, announced last August, individuals who earn less than $125,000 a year would’ve seen their student loan balances drop by $10,000 while those who received Pell Grants in college would have seen an extra $10,000 in relief.

Heritage Foundation legal fellow Jack Fitzhenry and Lindsey Burke, director of Heritage’s Center for Education Policy, said in a joint statement that the court “rightly found that this was an issue for Congress, not the administrative bureaucracy, to decide.”

“If we want to help students deal with the increasing cost of getting a degree, giving a bailout to the very colleges and universities that hike prices is not the answer,” said the representatives of the right-leaning think tank. “Breaking up the monopoly of college accreditors and offering students more higher education options, while simultaneously cutting off the open spigot of federal higher education subsidies, is a start. Ultimately, students should be equipped with the knowledge and certainty that the student loans they take out can be repaid in future employment.”

The Court’s Decision

Six Republican attorneys general sued the Biden administration in September seeking to block the debt-relief plan. The attorneys from six states—Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina—alleged that the plan would harm state revenues and agencies that hold student loans.

“As someone who paid for my education in blood, sweat, and tears in service to my nation, I am extremely pleased with the Court’s ruling today,” Missouri attorney general Andrew Bailey said in a statement. “The court recognized that Joe Biden’s plan to force farmers, schoolteachers, and truckers to pay the student loan debts of Ivy League graduates was a gross abuse of power and a slap in the face to every working American who didn’t attend college or who paid off their debts.”

A majority of justices agreed that the state of Missouri had standing to sue the administration because of potential harms to the Missouri Higher Education Loan Authority (MOHELA), a federal loan servicer. About half of federal borrowers would have their loan balances wiped up under the debt-relief plan, which would cost MOHELA about $44 million a year in fees.

That loss in revenue was a financial harm to MOHELA.

“Today, we have concluded that an instrumentality created by Missouri, governed by Missouri, and answerable to Missouri is indeed part of Missouri; that the words ‘waive or modify’ do not mean ‘completely rewrite’; and that our precedent—old and new—requires that Congress speak clearly before a Department Secretary can unilaterally alter large sections of the American economy,” Roberts wrote.

Whether the plaintiffs had standing was a key issue discussed during oral arguments earlier this year and in many court filings. A separate lawsuit challenging the plan was tossed because the justices unanimously agreed that the two private plaintiffs lacked standing.

“From the first page to the last, today’s opinion departs from the demands of judicial restraint,” Justice Elena Kagan wrote in the dissenting opinion. “At the behest of a party that has suffered no injury, the majority decides a contested public policy issue properly belonging to the politically accountable branches and the people they represent.”

On the merits of the case, Roberts wrote that the statutory text of the HEROES Act alone precludes the debt-relief program.

“What the Secretary has actually done is draft a new section of the Education Act from scratch by ‘waiving’ provisions root and branch and then filling the empty space with radically new text,” he wrote. “The secretary’s comprehensive debt cancellation plan cannot fairly be called a waiver—it not only nullifies existing provisions, but augments and expands them dramatically.”

In reaching their decision, the justices also applied the major-questions doctrine to the case, which says in part that agencies need clear congressional authorization when carrying out policies that have economic and political significance. Whether the doctrine applied was another key issue raised at oral arguments and in court filings.

Roberts said the debt-relief plans’ economic and political significance “is staggering by any measure.”

“The dissent insists that ‘student loans are in the Secretary’s wheelhouse,’” Roberts wrote. “But in light of the sweeping and unprecedented impact of the Secretary’s loan forgiveness program, it would seem more accurate to describe the program as being in the ‘wheelhouse’ of the House and Senate Committees on Appropriations.”

Kagan wrote that the court overreached its role in the nation’s governance in striking down the debt-relief program by granting the states standing and then determining that the HEROES Act does not authorize the plan.

“Wielding its judicially manufactured heightened-specificity requirement, the Court refuses to acknowledge the plain words of the HEROES Act,” she wrote. “It declines to respect Congress’s decision to give broad emergency powers to the Secretary. It strikes down his lawful use of that authority to provide student-loan assistance. It does not let the political system, with its mechanisms of accountability, operate as normal. It makes itself the decisionmaker on, of all things, federal student-loan policy.”

Pressing Biden to Act

Yu, with the Student Borrower Protection Center, and other legal experts said during a press conference after the decision that the opinion did not affect other potential tools the administration could use to provide student loan forgiveness—such as the Higher Education Act of 1965.

“[Biden] has other tools, and he must use those other tools,” Yu said. “We are calling on the administration to immediately issue relief in order to deliver relief to the more than 16 million borrowers we already know qualify for this relief.”

Abby Shafroth, co-director of advocacy and director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, called the decision heartbreaking.

“It’s wrong on the law, and more importantly, it threatens the financial security of millions of low-income Americans who are struggling with unaffordable student loan debt,” Shafroth said. “They were counting on this debt relief to be able to manage their payments when bills resumed in September for the first time in over three years.”

Shafroth said the decision was narrow in that it leaves open the possibility that the Biden administration could use other avenues to provide debt-relief.

“With a massive wave of defaults and financial distress at risk for borrowers without debt relief in September, it’s clear that every option must be on the table to ensure that Americans with student loan debt … can get the relief they need and can get it now,” she said.

Chavis Jones, associate counsel for the Lawyers’ Committee, said Black and brown borrowers will be hardest hit by the court’s decision.

“The fight for student debt relief continues, and we will not give up,” Jones said. “The letter of the law is clear: student debt relief is and always has been legal.”

Repayment Concerns

Regan Fitzgerald, manager for the Pew Charitable Trust’s project on student borrower success, said she’s worried about how the court’s decision will affect the return to repayment in a few months.

“This means that millions more borrowers than the department was expecting will be returning to repayment this fall,” she said.

Higher education experts and advocates have been worried for months about the department’s ability to turn payments back on following an unprecedented three-year pause. That effort has been further complicated by budget cuts at the Office of Federal Student Aid, which did not receive additional money from Congress for this fiscal year.

“We’re really concerned about the level of service that will be available, and that borrowers will be confused about when their loans are due, who their servicer is, how much they’re going to have to pay, how they can pay and what their options are to pay,” she said.

Fitzgerald said clear communication from the Education Department to borrowers and loan servicers will be crucial to making sure all parties understand the process and their options.

The department is currently working to finalize a more generous version of an income-driven repayment plan that would make payments more affordable for borrowers and provide more pathways to forgiveness.

Fitzgerald said rolling out that plan will be “a huge undertaking” for Federal Student Aid on top of resuming student loan payments.

Yu said that the administration’s plan to offer a more generous income-driven repayment program is not enough to address the student debt crisis.

“Income-driven repayment cannot be the plan to prevent tens of millions of borrowers from falling into financial distress,” she said. “The servicing system is not prepared to administer income-driven repayment for 43 million borrowers.”

Higher Ed’s Response

Jon Fansmith, senior vice president for government relations at the American Council on Education, said the decision likely won’t have a direct impact on colleges and universities, though the fight over forgiveness highlighted the ongoing concerns about affordability of higher education.

“There’s so much frustration with the system,” he said. “While forgiveness wouldn’t have fixed that, it certainly would have helped a lot of people with the problems they are facing.”

He said the student loan system is broken and that a “comprehensive overhaul of how we pay for college” is needed.

That effort would take Congress working together, though, which Fansmith said would be very hard in the current political environment.

In recent weeks, congressional Republicans have proposed their own plans to reform the student loan system. Fansmith said the debate and movement has shown that this is an issue that people care deeply about.

“If that doesn’t drive you to take action, that’s a real missed opportunity,” Fansmith said.

Justin Draeger, president of the National Association of Student Financial Aid Administrators, said the decision will be “difficult—if not devastating—news” for student loan borrowers nationwide.

“And as we prepare for student loan payments to resume after more than three years, we must get on with the work of helping these same borrowers face the reality of student loan repayment,” he said in a statement. “Today’s Supreme Court decision only underscores the urgent need for student loan reform.”

That includes increasing the federal Pell Grant, which several other associations and institutions mentioned in their statements reacting to the decision.

The University of California system said in a statement that it was disappointed in the court’s decision.

“This historic relief program would have made a significant impact on the lives of college graduates, particularly for those from low-income backgrounds who are more likely to take on debt to complete their education,” the statement said. “It also harms society as a whole: Those with student loans are less likely to earn advanced degrees, purchase a home, start their own business or make other investments that benefit their communities.”

The system encouraged student loan borrowers to consider all their loan-repayment options through the Education Department.

“At the University of California, we are committed to helping students make payments more economical and less burdensome,” the statement said.

Dominic Quan Treseler, president of the California State Student Association, said in a statement that the decision “overlooks the crippling impact of student debt on millions of graduates and the wider implications it has on the socioeconomic fabric of our society.”

“Despite this setback, CSSA remains steadfast in our commitment to advocate for accessible and affordable higher education,” Treseler said. “This decision does not mark the end of our efforts; rather, it fuels our determination to push for systemic changes that will lead to a more equitable education system.”

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