Supreme Court Overturns President Biden’s Student Loan Handout

In a 6-3 opinion released today, the Supreme Court struck down President Biden’s plan to arbitrarily eliminate up to $20,000 worth of student loan debt for eligible borrowers. The opinion, authored by Chief Justice Roberts, found that:

…the Court [concludes] that ‘[t]he basic consequential tradeoffs’ inherent in a mass debt cancellation program ‘are ones that Congress would likely have intended for itself.’ In such circumstances, the Court has required the Secretary to ‘point to clear congressional authorization’ to justify the challenged program…the HEROES Act provides no authorization for the Secretary’s plan when examined using the ordinary tools of statutory interpretation – let alone ‘clear congressional authorization’ for such a program.

As we detailed last year, President Biden announced a plan that would result in a maximum handout of $20,000 for certain student loan borrowers making less than $125,000 per year ($250,000 for married couples). The full $20,000 worth of debt elimination would have been available to borrowers who also received a Pell Grant during their time in college, while $10,000 would be given to those who did not receive a Pell Grant. Additionally, the plan would have reduced the required monthly payment under income-driven repayment plans to 5% of a borrower’s discretionary income, with full elimination of the debt occurring after 10 years if the remaining balance was under $12,000.

Two separate cases were filed to challenge the President’s authority to undertake such drastic action. The first case, Biden v. Nebraska, saw a group of states sue the administration, alleging that Missouri would suffer irreparable harm as a result of the plan. This is because the Missouri Higher Education Loan Authority (MOHELA) is one of the largest holders of student loan debt in the United States. The states argued that President Biden’s plan would “jeopardize 40 percent of MOHELA’s total operating revenue – or $44 million annually.” The states also argued that this loss of funding would result in less financial aid being available to students in Missouri. The Court agreed in this case, ultimately ruling the debt cancellation plan illegal.

The other case, Department of Education v. Brown, was dismissed by the court for lack of standing. Two student-loan borrowers named Myra Brown and Alexander Taylor filed the case. Brown’s student loans were held by commercial lenders, making her ineligible for any form of debt relief under President Biden’s plan. Taylor was eligible for $10,000 of debt elimination but not the full $20,000 available to other borrowers. However, the Court found that the pair “fail[ed] to establish that any injury they suffer from not having their loans forgiven is fairly traceable to the plan.” As a result, this case was dismissed.

Today’s opinion in the Biden v. Nebraska case affirms that the President’s plan was ill-conceived and failed to follow basic statutory and constitutional requirements. Not only was the plan on shaky legal ground, but serious concerns were also raised about its cost and potential impact on the American economy. Had the plan gone into effect, the result would have been a $440-$600 billion cost to American taxpayers over the next 10 years and a potential 1-2% inflationary increase as borrowers spend some of the money that they would no longer have needed to pay.

Over the past 50 years, the price of college has risen at a rate five times higher than general inflation, since the government essentially guarantees a loan of any amount to any potential borrower. In a previous post, we pointed to more feasible solutions like minimizing the federal government’s role in the market for student loans while enhancing accountability and competition. We also highlighted the need for improved financial literacy among Americans, since just seven states currently require a stand-alone financial literacy course in high school. The government would be much better off pursuing these solutions to America’s student-loan debt crisis, rather than attempting to bandage the problem with a one-off forgiveness that is unequally applied to borrowers.

In Depth: Education

An excellent education has long been recognized as key to the American Dream. Unfortunately, the current monopolistic and expensive K-12 education system is failing our students, leaving them unprepared for college, careers, or life. Similarly, our higher education system is leaving students with higher debt burdens and fewer career guarantees…

+ Education In Depth