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June 30, 2023

U.S. Supreme Court blocks Biden's student loan forgiveness plan

The justices determined that the Department of Education's program to provide $10,000 to $20,000 in debt relief per borrower was not authorized by Congress

The Supreme Court struck down President Biden's student loan debt forgiveness plan on Friday, ruling that the Department of Education exceeded its authority in unveiling a plan to cancel $400 billion in federal student loan debt, following two challenges from six Republican states and two student loan borrowers. 

In a 6-3 decision, the court has barred the Biden administration from canceling up to $20,000 in federal student loans for up to 43 million qualifying borrowers. In a separate unanimous decision, the Court found that two loan borrowers who challenged the plan did not have the legal standing to sue over their exclusion from the proposed relief plan.

The decision is based on two cases brought to the Supreme Court last fall. Biden v. Nebraska centers around whether six Republican-led states have the legal standing to challenge the constitutionality of Biden's debt relief plan and whether that plan exceeds the authority of Secretary of Education Miguel Cardona. 

The student debt relief plan relied on the HEROES Act, a law passed after the Sept. 11 attacks that gives the Secretary of Education power to respond to a national emergency by "waiving" or "modifying" provisions governing federal student loan programs so borrowers are not placed in a worse financial position during an emergency. The six states have argued that the HEROES Act does not allow the Department of Education to implement the plan, and that states, loan lenders and servicers will suffer financial losses because of the cancelation. 

The Supreme Court held that at least one of the six states, Missouri, did have the legal standing to challenge federal student loan debt relief, and that the debt relief plan is not authorized under the HEROES Act. Missouri is the headquarters of MOHELA, one of the largest federal student loan servicers. The Court ruled that the debt forgiveness plan would cut Missouri state revenue, "impairing its efforts to aid Missouri college students." 

Since the decision to block the debt relief plan is based on the financial losses that Missouri and MOHELA could face, Roberts noted that the Department of Education did not have the authority to implement the plan based on the HEROES Act, as the law only permits the department to slightly modify regulations, not "transform" them. 

Justice John Roberts wrote the majority opinion in Biden v. Nebraska, saying that "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 sections of the American economy." 

Justice Elena Kagan wrote the dissenting opinion in this case, saying that the HEROES Act provides Cardona with broad authority to give emergency relief to student loan borrowers, calling the six state challengers "ideological plaintiffs" with no reason to sue other than officials from those states disliking the plan. 

The other case, Department of Education v. Brown, centers around whether two student loan borrowers that were denied relief under the program have a legal standing to sue, and whether the Department of Education's plan was properly authorized and adopted. One of the borrowers was denied because their loans are not federal. The other did not receive a Pell Grant, meaning they were only approved for $10,000 in relief. The case also questions the utilization of the HEROES Act. 

In an unanimous vote, the Supreme Court found that the two student loan borrowers did not have the legal standing to sue the Department of Education. Since the Court found no legal standing, they did not offer a response regarding the authorization of the plan, which was ultimately struck down. 

Borrowers must begin repaying their federal student loan balances in full when the pandemic-era student loan payment pause ends this October. 

"While today's decision is disappointing, we should not lose sight of the progress we've made — making historic increases to Pell grants; forgiving loans for teachers, firefighters, and others in public service; and creating a new debt repayment plan, so no one with an undergraduate loan has to pay more than 5 percent of their discretionary income," Biden said in a statement. "I believe that the Court's decision to strike down our student debt relief plan was wrong. But I will stop at nothing to find other ways to deliver relief to hard-working middle-class families." 

On Friday afternoon, Biden announced that the Department of Education will seek to provide student debt relief using the Higher Education Act, a 1965 law signed by former President Lyndon B. Johnson that empowers the education secretary to "compromise, waive or release" federal student loans. It remains unclear whether this decision will prompt similar legal challenges. 

This is a developing story. Check back for updates.