March 10, 2023

Student Loan Forgiveness in the Supreme Court: Key Arguments Keeping Borrowers on their Toes


If you are one of the nearly 40 million borrowers who could qualify for $10,000 to $20,000 in loan forgiveness, anxiety over the upcoming Supreme Court decision in response to two lawsuits aiming to block the relief is all too real.

Although things aren't looking great for Biden's plan for widespread forgiveness, there were several key moments during the Supreme Court hearing that proved that anticipating the decision is anything but straightforward.

An Overview of the Hearing

Both lawsuits aim to examine Biden's Forgiveness Plan as it applies to the 2003 HEROES Act, which Congress used to grant relief to Americans during the COVID-19 pandemic. Both Trump and Biden used the HEROES Act to halt student loan payments. The administration believes that it has the right under the act to grant large-scale student loan forgiveness in the wake of the economic struggles faced by student loan borrowers post-pandemic.

Nebraska v. Biden

  • Background: Six Republican states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) are bringing forth this lawsuit.
  • Argument: The lawsuit claims that the Department of Education's actions violate the separation of powers and the Administrative Procedure Act. The six states argue that they're suing on behalf of the nonprofit federal student loan servicer Missouri Higher Education Loan Authority (MOHELA). According to the suit, MOHELA will suffer a loss of revenue, which will lead to more significant economic issues.

Department of Education v. Myra Brown

  • Background: Brought by two individuals with student loan debt. One ineligible for forgiveness under this plan because they have commercially held loans, and the other can only receive the $10,000 rather than $20,000 because they did not receive a Pell Grant.
  • Argument: Had the Biden administration followed proper procedures in adopting the plan, these individuals would have been able to provide input and advocate for a more beneficial plan.

The plaintiffs argue that Biden's student loan forgiveness plan is an overreach of executive power, and only an act of Congress could allow for such comprehensive forgiveness. However, most outlets report that the Supreme Court's conservative majority is unlikely to rule in Biden's favor, citing overreach by the administration.

On the other hand, the liberal judges on the bench seem to support student loan forgiveness. Justice Elena Kagan pointed out that "Congress could not have made this much more clear," referring to the passage of the HEROES Act. She added that, unlike many confusing congressional statutes, this act is straightforward.

Given the conservative majority on the bench, the future of Biden's student loan forgiveness plan appears bleak. However, there is a potential argument that could sway the court.

A Few Key Moments You Want to Know About

MOHELA Appeared to be Less Involved than Expected

A significant development from the March hearing was that MOHELA, one of the four major loan servicers, appeared to be less involved than expected in the case.

The primary argument made by the states is that Missouri has standing because it created and controls the Missouri Higher Education Loan Authority, one of the largest holders and servicers of student loans in the United States. According to Nebraska Solicitor General James Campbell, the loan-forgiveness program "threatens to cut MOHELA's" funding by nearly 40%.

However, MOHELA has not been an active participant in the case. In fact, the states filed a Sunshine Request that compelled the servicer to produce documents related to the case.

Why does this matter? Some argue that the states lack the legal grounds to sue on behalf of MOHELA, and MOHELA's reluctance to participate in the case could work in favor of the future of the Biden Student Loan Forgiveness program. Whether this argument will influence the court's decision remains to be seen.

A Powerful Performance by General Elizabeth Prelogar.

Legal experts were pleasantly surprised by Prelogar's performance defending the Biden administration's student loan forgiveness policy. Some legal professionals even believe that her argument alone could have swayed a few of the conservative judges in favor of the policy.

The crux of her argument lies in the idea that neither plaintiff can provide concrete evidence of how the new policy harms them. Without such evidence, Prelogar explained, it would be difficult to prove that they have legal standing to sue.

Furthermore, she argued that Biden's student loan forgiveness is not an overextension of his authority, but rather a reaction to economic conditions caused by the pandemic. She drew an analogy to an earthquake, stating that, in such a case, it would make sense to discharge student loans for those who suffered from a natural disaster. How are the effects of the pandemic any different?

Prelogar proved more than capable of defending Biden's student loan forgiveness policy. So much so that she may have swayed a judge or two, or at least made them skeptical of the validity of the opposing cases.

Justice Amy Coney Barrett’s Unexpected Ask

Many assumed that Justice Barrett, who was appointed by Trump, would be sympathetic to the case. However, during Tuesday's hearing, she surprised experts with her critical questioning. Her line of questioning suggested that she is far less sympathetic to the case and may believe that the plaintiffs don't have the right to sue on behalf of MOHELA.

If the plaintiffs can't prove that MOHELA's problems are also the states' problem and that they have the authority to sue on their behalf, then the case could swing in favor of the Biden administration.

Justice Barrett's remarks surprised many and could mean that she'll side with the liberal justices. However, it's important to note that the court still has a conservative majority. Reporters also noted that Justice Brett Kavanaugh appeared more sympathetic to the administration than predicted.

What to Expect Now

Tuesday's hearing may have seemed to lean in favor of the plaintiffs, but we won't know for sure until we receive an official ruling from the country's highest court. Some experts predict that a decision could be issued as early as May.

Potential Outcomes

If the court rules in favor of the Biden administration, an estimated 40 million borrowers would qualify for student loan forgiveness, reducing their federal student loan debt by up to $20,000.

On the other hand, if the court rules in favor of the plaintiffs, student loan payments will resume 60 days after the decision. If the court fails to give a ruling before June 30, the countdown clock will start automatically, and payments will resume 60 days after that date.

Biden may also seek forgiveness through the Higher Education Act, which would require approval from Congress. According to Sparky Abraham, legal strategist for the Debt Collective, "The HEA set up the student lending system in order to expand access to college for people who wouldn’t have otherwise been able to go. So, if you keep that goal in mind, it makes sense for the Department of Education to be able to decide that student debt shouldn’t be punishing people in certain circumstances."

Another Key Case to Watch is the SoFi Lawsuit.

Student loan refinancing company SoFi has filed a lawsuit against the U.S. Department of Education this week challenging the extension of the student loan payment pause, claiming "irreparable harm" and "unlawful" actions. The lawsuit's outcome could significantly impact the millions of student loan borrowers granted relief during the COVID-19 pandemic and highlights the tension between private lenders' interests and government relief efforts.

At the very least, the lawsuit is asking for payments to resume for those who are ineligible for student loan forgiveness. However, there is a possibility that an injunction could be filed, forcing payments to restart before a decision is made on Biden Forgiveness.

What to Do in the Meantime

Make Sure You Are on Track for Loan Forgiveness.

If you did not apply for Biden Forgiveness before the Department of Education paused the program, you can still complete your application using Chipper Easy Apply. We will submit your application on your behalf if the Supreme Court determines that the lawsuits do not have grounds to block forgiveness.

Explore Lowering Your Payments and Getting Forgiveness Sooner with the New Income-Based Repayment (IBR) plan.

Biden’s new Income-Based Repayment Plan will be set at 5% of discretionary income for undergraduate loans. Additionally, borrowers are eligible for forgiveness of their remaining student loan balance after 20 or 25 years under current IDR plans, regardless of how much money they took out for school. However, the new plan would cut that down to 10 years for borrowers with original loan balances of $12,000 or less.

Avoid interest by making incremental payments.

If you have private student loans or more student debt than the $10,000 or $20,000, start paying them off now to avoid accumulating interest. You can accelerate your progress with Chipper Round-Ups and Chipper Rewards.

To learn more about all of the ways to explore forgiveness, repayments, and tackling debt faster, get started for free with the Chipper app.

Use Chipper for Lower Payments

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Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

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