Written By Adam S. Minsky, JD
The Supreme Court is set to decide the fate of President Biden’s sweeping one-time student loan forgiveness plan.
Under Biden’s plan, the Education Department could cancel up to $20,000 in federally-administered student loan debt for most borrowers. An estimated 40 million borrowers were expected to qualify under the program’s eligibility and income guidelines.
But legal challenges brought by Republican-led states and conservative-leaning groups have upended the Biden administration's plans. Following adverse rulings in two separate cases by the 8th Circuit Court of Appeals (which implemented a nationwide preliminary injunction) and the 5th Circuit Court of Appeals (which kept in place a lower district court ruling vacating the program), the loan forgiveness program has been blocked. Before that happened, 26 million borrowers had applied for relief. But the Education Department has since taken down the application portal.
The Supreme Court has agreed to consider the Biden administration’s appeal of both cases, and oral arguments are set to take place in February 2023. After that, the court will issue a formal ruling, likely by June.
Here are three possible outcomes.
The Supreme Court strikes down Biden's student loan forgiveness program
The Supreme Court could potentially side with the challengers in one or both lawsuits.
The case coming out of the 8th Circuit involves a group of Republican-led states arguing that the program unlawfully deprives these states, via state-affiliated agencies that administer the Family Federal Education Loan Program (FFELP), of revenue.
The 5th Circuit case, meanwhile, involves borrowers who were excluded from the maximum level of relief under the rules governing the program. These borrowers argued that implementing the loan forgiveness program was arbitrary and violated federal law that governs the establishment of new federal regulations.
Related: Advocacy groups urge Supreme Court to uphold Biden’s student loan forgiveness plan
The Biden administration has countered that the program is perfectly legal. The administration says it established the program under the HEROES Act of 2003, which allows the executive branch to bypass normal administrative procedures during a national emergency (such as the pandemic) to modify federal student loan programs, including by canceling student debt.
The administration argues that the one-time loan forgiveness program is designed to ensure that borrowers are not worse off than they were prior to the onset of the pandemic, which is the purpose of the HEROES Act.
Some Supreme Court observers have suggested that the conservative majority may be highly skeptical of the legality of Biden’s one-time loan forgiveness program. The court has recently struck down other sweeping emergency measures undertaken by the Biden administration in response to the pandemic, including some mask mandates and vaccination requirements because these initiatives were not expressly authorized by congressional statute.
Alternative options could be possible
If the Supreme Court strikes down the student loan forgiveness program as illegal, the Biden administration will have to consider a number of imperfect options, such as re-establishing the loan forgiveness program using a different legal authority (which could invite further litigation) or trying to provide relief to borrowers through other means, such as by extending the student loan pause yet again or establishing a far more generous income-driven repayment (IDR) plan.
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The Supreme Court upholds Biden's student loan forgiveness program
On the other hand, if the Supreme Court upholds the program, the Education Department should be able to resume receiving and processing student loan forgiveness applications immediately.
According to Education Department officials, 26 million borrowers had already applied for relief before federal courts blocked the initiative, and 16 million borrowers had been approved. Those borrowers could receive loan forgiveness within weeks of a favorable Supreme Court decision.
The Education Department would also turn the student loan forgiveness application portal back on, allowing an additional estimated 14 million borrowers who haven’t applied to do so. The Education Department had previously indicated that borrowers would have until April 30, 2024, to apply for relief.
Related: How to Apply for Biden Student Loan Forgiveness
The Supreme Court rules on technical grounds
Another possibility is the Supreme Court issues a ruling on technical grounds without fully deciding whether or not the underlying program is legal. In doing so, the court could end up green-lighting the program even if a majority of justices believe the program may be unlawful.
The issue of standing
The key issue is whether any of the parties that brought the legal challenges have standing to sue in the first place. “Standing” is the concept that a party bringing a suit must be able to demonstrate a concrete injury sufficiently linked to the challenge rule or policy. It’s not enough to disagree with a policy, and it’s not enough for a policy to even be unlawful; a challenger must show that they have standing to even get to the merits of the lawfulness of the program.
Standing for FFELP borrowers and lenders
The Biden administration has fiercely argued that none of the parties in either contested case have standing.
Attorneys for the Justice Department noted that for the 8th Circuit case, as of September 29, 2022, borrowers with commercially-held FFELP loans can no longer consolidate specifically to benefit from the one-time loan forgiveness program, so FFELP lenders cannot be deprived of revenue, as they argue.
The administration also argues that no FFELP lender has actually filed suit — just the states themselves have — and the link between FFELP agencies (which tend to be largely independent) and state government revenues is tenuous at best.
Standing and the HEROES Act
The administration has also argued that the borrowers behind the 5th Circuit case also do not have standing, as the administration is permitted by the HEROES Act to bypass normal regulatory procedures and establish emergency regulations without the normal public comment periods required under other federal rules.
Attorneys for the Education and Justice Departments have argued that the rules governing the one-time loan forgiveness program are not arbitrary and are backed up by data — which the lower court declined to consider when it struck down the program.
Student loan forgiveness could go forward
It is possible that a majority of the Supreme Court could rule in favor of the Biden administration on the issue of standing without reaching a consensus on the underlying lawfulness of the loan forgiveness program itself. If that happens, the result could be that student loan forgiveness can ultimately proceed — unless challengers can find new Plaintiffs for a new lawsuit who can demonstrate standing.
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