Update 705 — An Unforgiving Court
Ruling Blocks Biden Student Debt Plan
In a 6-3 decision today, the Supreme Court handed down a disappointment to the 42 million Americans burdened with nearly $2 trillion in student debt. Relying on the emerging “major questions” doctrine, the Court decided that the HEROES Act did not confer on the Executive Branch the authority to “rewrite the statute to the extent of canceling $430 billion in student loan principal.”
The majority opinion was written by Chief Justice Roberts, joined by Justices Alito, Kavanaugh, and Thomas, with a concurrence by Justice Barrett. In the wake of the decision, the Biden administration is considering the next steps, with a press conference planned for 2:30 pm ET this afternoon. Details on the devastating decision and its implications are below.
Good weekends all,
What the Decision Means for Borrowers
The Supreme Court’s ruling today striking down the constitutionality of the Biden plan for student debt forgiveness delivers a crushing blow to millions of borrowers who had been clinging to the hope of relief. This decision sends shockwaves through the financial landscape, with serious implications for those entangled in the web of student loans. With the legal foundation of the plan shattered, borrowers now face a disheartening reality that undermines their financial prospects.
Foremost, the invalidated plan’s promise of total debt forgiveness for 18 million borrowers and some forgiveness for 90 percent of the indebted, now evaporates into thin air, leaving many borrowers stuck grappling with the enduring strain of loan repayments, hindering their ability to make meaningful progress in their personal and professional lives. The plan had forgiven up to $10,000 of loans for most borrowers, and $20,000 for recipients of Pell Grants.
The Biden plan’s targeted focus on borrowers with lower incomes, who hold 90 percent of the eligible debt, was a critical aspect that aimed to address economic inequalities. However, with the Supreme Court’s ruling, those who were most in need of assistance will now be denied the relief they so desperately require. Borrowers will continue to experience the stifling burden of student loan repayments, perpetuating financial hardship and exacerbating existing disparities in wealth and opportunity.
The debt limit deal prescribed a timeline for the resumption of debt payments after more than three years. In 2019, the average monthly payment was between $200 and $299, but payments above $500 will not be uncommon. In a period of skyrocketing housing prices and falling household savings, this increase in costs will not be trivial. The administration appears to be signaling further, potentially serial, pauses in its response to today’s decision, and that may be the next major conflict.
The Ruling and Ramifications
The Supreme Court determined that Missouri had standing to sue on behalf of MOHELA, the state’s student loan servicer, for several reasons. Firstly, as a state-created and state-controlled entity, MOHELA qualified as a state actor. The Court highlighted that states cannot fully separate themselves from the Bill of Rights, although they can limit liability and standing. The significant impact on MOHELA’s operating revenue, estimated to be as high as 40 percent, directly harmed the state’s interest. Though MOHELA’s assets were not considered state revenue, the government still possessed authority over these assets, and the state retained a residual interest in MOHELA. Additionally, the state’s ability to direct MOHELA’s funds, as exemplified by the creation of the Lewis and Clark fund and the legislature’s directing of MOHELA money, further supported the case for the state’s standing.
The Supreme Court ruled that the Biden forgiveness program was a “major question” requiring congressional oversight due to the lack of explicit language allowing loan cancellation in the bill. The Court highlighted that the HEROES Act had never been used for loan forgiveness before and questioned the Secretary’s authority to forgive debts in specific circumstances. Justice Scalia said that “modify” does not mean “change.” The Court raised concerns about the unilateral action taken without public comment or congressional oversight, potential costs to those not receiving relief, and the abuse of emergency powers. The decision underscored the need for congressional involvement and careful consideration of the program’s implications.
Expanding the emerging major questions doctrine following last year’s West Virginia v. EPA could have troubling implications for the legislative process and the role of administrative agencies in regulation. The doctrine suggests that if a statute is silent or ambiguous on a major policy issue, courts should be wary of deferring to administrative agencies’ interpretations, pushing for Congress to explicitly address such issues in legislation. While this may appear to enhance congressional control, it could result in a cumbersome and time-consuming legislative process, bogged down by the need to draft comprehensive and detailed legislation. This could mean prolonged debates and heightened partisan discord, further hindering effective governance.
The potential consequences of an expanded major questions doctrine extend beyond procedural slowdowns. Administrative agencies, staffed with subject matter experts, play a vital role in developing and implementing regulations. Their technical expertise ensures that regulations are grounded in specialized knowledge and evidence-based decision-making. Yet, if Congress is solely responsible for major policy decisions, it risks failing to include the necessary depth of understanding in complex and technical areas. This could lead to regulations that fall short of addressing real-world challenges effectively, as important nuances and expertise may be lost in the legislative process.
The burden of student debt is not new. It is a direct result of the fact that higher education is too expensive, and blanket forgiveness would do little to forestall this fact. In each decade from the 1970s onward, tuition at institutions of higher learning has outpaced inflation dramatically. In the 2020-21 school year, the average student could not find an in-state four-year public college with tuition under $20,000. Over four years, assuming the USDA’s low-cost estimate of $278.45 per month to feed a college-age American, the cost of attending can reach over $100,000 regardless of inflation.
In 2020, the median household had a net worth of around $140,000. So most households cannot comfortably absorb the cost of higher education for just one child, let alone the 2.1 necessary to keep the population constant. Students will need to leave college with at least tens of thousands of dollars in obligations. Starting a career with such a negative net worth will force young adults to delay saving for housing, retirement, and children, with macroeconomic implications.
To most, but not all young people, a bachelor’s degree is still worth it, but if we do not fundamentally reevaluate the focus of our education system, this basic math will lead us to cascading crises. Efforts to standardize financial aid offers and give borrowers a more exact schedule of loan payments have the potential to give the 18 year-olds making the biggest financial decision of their lives greater clarity into how that decision will weigh on their futures.
The precarious standing of borrowers after today’s ruling does, for the moment, take precedence over the need to fundamentally transform our education system. As was noted in the dismissal of the weaker Brown case, the plan the Court rejected is independent of anything the Department of Education could craft under the Higher Education Act, which has established precedent on loan forgiveness. Congressional action, while the least likely for the court to invalidate, will come too late for current borrowers, so the Administration can, should, and, particularly given the significance of the issue to a critical Democratic voting block, look to its authority within existing law to alleviate their hardship as quickly as possible.