Student Debt on the Docket

Update 672 — Student Debt on the Docket:
SCOTUS Casts Doubt on Biden Forgiveness

If the Supreme Court rules to block the Biden administration’s student debt forgiveness plan, one possible outcome following the oral arguments the Court heard yesterday, at least it will be clear to the nation that the administration made a concerted effort to fulfill its campaign promise to address the trillion-dollar debt overhang facing 44 million borrowers and bearing heavily on the economy at large.

The Supreme Court’s ruling is important, no doubt. But even more so is the long-term issue of economic immobility and accessibility to education finance going forward. Today, we look at the cases before the Court, the administration’s long-term approach to student debt relief, and the macroeconomic issue at stake. 

Best, 

Dana

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Yesterday, the Supreme Court heard oral arguments in two cases that seek to stop the Biden administration’s sweeping student debt cancellation plan. These cases, Biden v. Nebraska and Department of Education v. Brown, represent two conservative challenges to an ambitious, strategically targeted loan relief program that could wipe out over $400 billion in debt for tens of millions of student borrowers. 

While a ruling on the fate of the plan is not likely to be released until the end of June, the Department of Education has not stalled in its efforts to reduce the gravity of the trillion-dollar debt burden on borrowers and address long-term systemic issues around student debt.

A Look at the Conservative Challenges

On Tuesday, the Supreme Court heard oral arguments in two cases that have blocked the administration’s plan and could prevent the 26 million people who have already applied for loan forgiveness from receiving any relief.  

In each case, the Court’s conservative justices seemed skeptical of US Solicitor General Elizabeth Prelogar’s argument and invoked the major questions doctrine when discussing merits of the plan. The Court has described the doctrine as requiring Congress to be clear when it wishes to delegate authority to an agency to make decisions of vast “economic and political significance.” Justice Elena Kagan, however, pointed out that the HEROES Act was explicit in granting expansive power to the Secretary of Education to make changes to the loan program in attempting to allow the ability to respond to future possible emergencies.

Biden v. Nebraska

The leading case was brought by six conservative attorneys general – Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina – which argue that the Biden administration’s student loan forgiveness plan deprives state-related agencies that administer the federal student loan program of revenue, which in turn causes financial harm to the states. 

The Supreme Court first considered whether the states had standing to challenge the administration’s plan in the first place. Arguments focused on whether the Missouri Higher Education Loan Authority (MOHELA) – a federal loan servicer that the suit argues would fail to make payments to the state of Missouri under the plan – was the party actually harmed. US Solicitor General Elizabeth Prelogar argued that MOHELA, not the state of Missouri, had standing to bring the case. 

MOHELA has decided not to sue the federal government and has publicly disassociated itself with the suit. Justice Barrett asked probing questions of the states’ attorney indicating that she could side with the government, but other conservative justices like Gorsuch and Roberts largely remained silent during this standing discussion.

Department of Education v. Brown

The second case before the Court is backed by the Job Creators Network Foundation, a conservative advocacy organization funded by right-wing donors and whose partners include FreedomWorks, American Legislative Exchange Council and Turning Point USA. 

The case was brought by two borrowers, Myra Brown, the holder of privately-funded student loans which are not eligible for forgiveness under Biden’s loan cancellation plan, and Alexander Taylor, who is eligible for $10,000 in debt forgiveness rather than the up to $20,000 that Pell grant recipients can access under the plan. Their primary argument is that the administration improperly denied them the right to submit public comments by failing to complete the notice and comment process, despite the HEROES Act explicitly allowing the government to act without moving through notice and comment procedures. Additionally, the stated relief requested (blocking the current plan) does not comport with the stated desire of the plaintiffs to achieve loan forgiveness. 

The Supreme Court seemed less convinced by the plaintiffs’ arguments than those of the states.

An Ambitious Effort to Tackle a Trillion-Dollar Issue

About 44 million Americans carry some of the United States $1.6 trillion student loan debt. This represents the largest form of debt held by American consumers outside of mortgages and the debt burden is far from evenly distributed. The majority – roughly 60 percent of borrowers – are Pell grant recipients who come from the lowest income households and are disproportionately people of color and first-generation college students. 

The HEROES Act

Following the onset of the pandemic, the Trump administration declared a national emergency. This declaration triggered the Higher Education Relief Opportunities for Students Act of 2003, known as the HEROES Act, which gave additional authority to the secretary of education. The HEROES Act was enacted on a temporary basis in 2003 following the September 11 attacks primarily to benefit victims of 9/11 and military service members who may have struggled to repay their loans if they were called to active duty. Congress made the HEROES Act permanent in 2007. 

The act permits the secretary of education to “waive or modify any provision,” including those of many student loan obligations “as the Secretary deems necessary in connection with a war or other military operation or national emergency.” The legislation aimed to ensure that student borrowers impacted by any of these circumstances were “not placed in a worse position financially” because of it.

In March 2020, then Secretary of Education Betsy DeVos used the authority provided by the HEROES Act to pause payments, interest, and collections on most federal student loans; this decision was uncontested by either the states or the plaintiffs in the suits filed. 

Biden’s Loan Cancellation Plan

The Biden administration continued this trend and in August announced a broad plan to tackle student debt, which included provisions to wipe out thousands of dollars in debt for individual borrowers. Specifically, the plan would cancel up to:

• $10,000 for borrowers who earn under $125,000 per year or live in households that earn up to $250,000 per year
• $20,000 for Pell grant recipients (using the same income thresholds)

The administration’s parameters for eligibility were strategic. They intentionally targeted a broad swath of the middle class and excluded those who fall within the very highest income brackets. Additionally, a White House estimate suggests that the provision targeting Pell grant recipients could affect up to 27 million borrowers. Overall, the White House estimates that nearly 90 percent of borrowers would qualify for some relief, with about 18 million individuals having their debts wiped entirely clean.

Fixing the Student Debt System Piece by Piece

Loan forgiveness is an important prong in the fight against America’s student debt problem, but it is just one component among many measures to tackle the issue, including a one-time waiver that will provide borrowers with credit that they can put toward loan repayment. Notably, the Department of Education has also outlined an effort to make payments more affordable.

Under President Biden’s student debt plan announced in August, the income-based repayment program, known as REPAYE, will be revised. In January, the Education Department released details about the changes which include:

• Reducing payments on undergraduate loans from 10 to 5 percent of discretionary income
• Adjusting the payment formula to allocate more of borrowers’ incomes to provide for their basic needs, lowering their monthly payments
• Reducing the period of monthly payments before the balance of student loan debt is canceled from 20 to 10 years for borrowers with original balances of $12,000 or less
• Preventing unpaid interest from accruing when borrowers make their monthly payment under income-driven payment plans (if their payments are less than the amount of interest accrued)
• Allowing borrowers in default to directly enroll in the Income-Based Repayment plan

The Underlying Issue Remains

Addressing the burden of student debt is necessary, but loan forgiveness, payment plan reform, and waivers do not tackle the underlying issue. The cost of undergraduate education, and the cost of the borrowing needed to finance it has risen dramatically over the past three decades. According to the College Board, the average tuition at public four-year colleges increased from $4,160 to $10,740, while the average tuition at private institutions went from $19,360 to $38,070 over that period after adjusting for inflation. 

State cuts in funding to higher education have helped push costs onto students. While continuing to support efforts to tackle student debt, the focus has to expand to include proposals to fund public tertiary education and promote access to alternative paths to further education, including trade schools. Strengthening public investment in need-based rather than merit-based programs can also provide support to students more likely to attend college without additional aid. We must expand and strengthen access to the education system at every stage, and reinforce the point that a college education can universalize access to opportunities for students across the country from all income brackets.