Presidential Plans to Circumvent the Supreme Court Veto of The Student Loan Program

Elections & Politics Policy Brief #86 | By: Arvind Salem | July 18, 2023

Photo taken from: www.theguardian.com

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The Supreme Court ruled that President Biden’s student loan forgiveness plan is unconstitutional, stripping student loan relief for nearly 43 million borrowers: roughly 1 in 8 Americans.

Last August, President Biden unveiled a student loan forgiveness program that would cancel $10,000 for most borrowers and up to $20,000 for recipients of a Pell Grant, a form of aid for low-income families, during college.

Less than a month after the program was opened a slew of legal challenges plagued the program and forced it to shut down. Most of these claims centered around the fact that President Biden enacted this program through executive action alone, without Congressional approval. The lawsuit that ultimately led to the reversal of the student loan forgiveness plan was initiated by six GOP-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina.

The first issue the Nebrasks and the rest of the plaintiff states faced was whether they had standing to sue. To challenge a government policy in federal court, the plaintiffs are required to show that the policy has harmed them in some way. The states argued, and the courts agreed with this argument, that Missouri would be harmed since  it created and controls the Missouri Higher Education Loan Authority (MOHELA), which services and holds student loans and if the debt-relief program goes into effect, it could cost MOHELA as much as $44 million per year, which would limit the company’s ability to contribute funds to support the state’s higher-education programs. This argument drew criticism especially from Justice Kagan who observed that MOHELA has the ability to sue on its own behalf and could’ve sued had it wished, but chose not to.

The crux of the legal issue in the case was whether President Biden could implement this program without Congressional approval under the  Higher Education Relief Opportunities for Students (HEROES) Act of 2003. The HEROES act allows the Secretary of Education, and by extension the President,  to “ … waive or modify any statutory or regulatory   provision applicable to the student financial assistance” during a national emergency.

Biden argued that since COVID-19 was a national emergency he had authority under this act to forgive student loans. Nebraska and the other states argued that this violated Separation of Powers and the  Administrative Procedure Act (APA), which governs agency rulemaking. The Court eventually ruled that this was executive overreach and the words “waive or modify” in the statute did not grant the President the right to make such a transformative policy.

Analysis

Immediately after the decision, Biden stated that he’d pursue alternative paths to a student loan program under the Higher Education Act. The Higher Education Act, enacted in 1965, allows the secretary of education to “compromise, waive or release any right, title, claim, lien or demand, however acquired, including any equity or any right of redemption.”  Biden has unveiled the SAVE plan (which stands for Saving on a Valuable Education). Rather than a conventional loan forgiveness plan, SAVE is an income- driven repayment plan that will phase out the current Revised Pay As You Earn plan (REPAYE). SAVE also appears to be on more solid legal footing under the Higher Education Act than the overruled plan based on the HEROES Act. The Higher Education Act has allowed the Department of Education to create and change income-driven repayment plans for years, without legal interference.

SAVE is more generous, and cheaper, than the overruled student loan forgiveness plan. SAVE could end up costing, depending on the estimate, $138 billion to $361 billion over the next 10 years. The overruled student loan forgiveness program had a one-time cost of $400 billion.

The terms of SAVE are also more generous than the overruled program. Firstly, SAVE raises the payment “floor” (under the floor income, people/families do not need to pay anything in student loans) to  225% of the federal poverty guideline, from the current 150%. SAVE also stops interest from accumulating (previously people who couldn’t cover monthly interest saw their interest increase),  determines base payments on undergraduate loans on 5% of borrowers’ remaining income, not the current 10%, cutting monthly payments in half, and includes a more generous forgiveness mechanism, allowing more borrowers to have their loans forgiven earlier.

In the limbo between the implementation of the SAVE program and the end of the current loan forgiveness plan, President Biden also announced an “on ramp” period to help borrowers avoid penalties if they miss payments during the first year running from October 1, 2023 to September 30, 2024. This would ensure that borrowers who are financially vulnerable have appropriate time to adjust to the Supreme Court decision. During this period, borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies. This may be sorely needed as The Consumer Financial Protection Bureau recently warned that roughly 1 in 5 student loan borrowers may struggle when payments resume.

Engagement Resources

• Committee for a Responsible Federal Budget – The Committee for a Responsible Federal Budget is a nonpartisan, non-profit organization committed to educating the public on important fiscal policy issues and promoting fiscal responsibility. Readers who are concerned about the potential inflationary effects of fiscal impacts of student loan forgiveness programs may be interested in the organization.
• Democracy Forward – Democracy Forward was an organization founded in the wake of the 2016 election to counteract threats to our democracy. They advocate for many reforms to improve democracy and work to use courts to enact changes that best serve the American people. One of their priorities is student loan forgiveness, so readers who wish to support efforts to defend student loan forgiveness in courts may be interested in this organization.
• Student Borrower Protection Center – Student Borrower Protection Center is a coalition of advocates and researchers that aim to fight against predatory companies and student loan abuses to protect borrowers. They also advocate for policy changes to ensure that these issues don’t occur in the future. Readers interested in supporting borrowers after this recent court decision may be interested in this organization.
• Student Debt Crisis Center – The Student Debt Crisis Center (SDCC) is an organization that helps borrowers navigate the complicated student loan repayment system and engages in advocacy and the lobbying of national and state legislators. Readers who wish to help borrowers and fuel lasting change after this court decision may be interested in this organization.