Student debt cancellation program in jeopardy as Supreme Court justices hear arguments

The U.S. Supreme Court heard oral arguments on Feb. 28, 2023, regarding a multistate lawsuit to block the Biden administration’s student loan debt cancellation program. The Conversation asked John Patrick Hunt, a law professor at the University of California, Davis, and Celeste K. Carruthers, an economics professor at the University of Tennessee, what’s at stake and what clues the court has given as to how it may rule on the matter.

What’s the case about?

Hunt: The conflict is about whether the Biden administration can cancel some student loans owed to the federal government. The administration in 2022 announced plans to cancel up to US$10,000 in student loan balances for borrowers who earn under $125,000 per year ($250,000 if married), as well as an additional $10,000 for borrowers who were lower-income Pell Grant recipients when they took out their loans.

Those opposed to the policy focus on four main arguments:

• It does not address the underlying problem of high cost for higher education.
• It encourages irresponsible borrowing.
• It primarily benefits college-educated people who are better off, on average, than the rest of the U.S.
• It is unfair to people who do not have student loans, either because they did not take them out or because they repaid them.

Arguments for cancellation include:

• The student loan system is irredeemably broken.
• Many borrowers are suffering financially and need relief, especially because of the COVID-19 pandemic.
• It is unfair to make students borrow for higher education to begin with.

Two groups of plaintiffs have sued to block the program: six Republican-led states and two borrowers who would not receive forgiveness. The legal issues in the states-led case are narrower than the broad arguments set out above.

The main ones are whether the administration’s plan harms any of the plaintiffs and whether the relevant law – the HEROES Act of 2003 – gives the administration the power to carry out the plan.

What’s at stake and for whom?

Carruthers: As proposed, under the cancellation plan the U.S. Department of Education would forgive some or all student loan debt held by about 40 million borrowers. The Congressional Budget Office estimates that about $430 billion in loans would be canceled under the plan.

Borrowers eligible for loan cancellation are those who took out federal college loans before July 2022 and who meet the income requirements. Researchers at the New York Federal Reserve estimate that the plan would erase all college debt for 40% of federal borrowers.

Resolving the plan’s legal challenges will not only determine if these balances can be canceled as proposed, but also when and whether borrowers have to start making normal payments again. Required loan payments were put on hold in March 2020 as part of the CARES Act, and the pause has been extended multiple times since then. In November 2022, the Biden administration extended the pause again to some point in the future, after the Supreme Court decides the case.

Has the court indicated how it will vote?

Hunt: The justices typically do not state how they will vote at oral argument, but the questions they ask can give some clues. Based on the questions the justices asked in the states-led case, it seems likely that the court will reject the administration’s program.

The first issue before the court is whether any plaintiffs have been harmed. If not, the lawsuit will be thrown out.

As a law professor, I believe the plaintiff with the best case for harm is probably the state of Missouri. The administration admits that cancellation will harm a nonprofit corporation created by the Missouri government called the Missouri Higher Education Loan Authority, or MOHELA. MOHELA earns revenue from servicing federal student loans, and the plaintiffs argue that loan cancellation will harm it by reducing this revenue.

It is not clear whether this translates to harm to Missouri itself, but only one conservative member of the Supreme Court, Justice Amy Coney Barrett, asked questions about whether harm to MOHELA is harm to Missouri. Because none of the other five conservative justices asked critical questions about Missouri’s standing, it seems likely that the court will conclude that Missouri is harmed and can sue.

The second question, answered only if there is a plaintiff who has been harmed and can sue, is whether the law authorizes the program. Generally, the three liberal justices’ questions indicated that they believe the program is authorized, and the six conservative justices’ questions indicated the opposite.

On the conservative side, only Barrett and Justice Brett Kavanaugh asked questions that seemed to express any doubt about the state plaintiffs’ case. Kavanaugh has historically frowned on the aggressive use of bureaucratic power, making it more likely, I believe, that he may rule against the government in this case. And Kavanaugh’s vote could be crucial. If he and his fellow conservatives on the bench – Justices Samuel Alito, Neil Gorsuch, John Roberts and Clarence Thomas – find the program illegal, they will form a majority ruling even without Barrett.