The court heard oral arguments for two lawsuits related to Biden’s massive student loan forgiveness plan. The conservative justices questioned, in particular, the ability of the Biden administration to implement the program without Congressional approval, and whether the HEROES Act is the appropriate legal justification for widespread forgiveness.
“We take seriously the idea of separation of powers and that power should be divided to prevent its abuse,” said Chief Justice John Roberts.
Conservative justices also questioned the fairness of the program: Why do some people get debt relief and not others?
“Why is it fair?” asked Justice Samuel Alito. “Why is it fair to people who don’t receive comparable relief?”
But before they can decide whether the student loan forgiveness plan is legal, they must decide to take a stand. Other justices, including Amy Coney Barrett, a conservative, questioned whether the states—Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina—and two individuals bringing the cases had the right to do so. In order to stand, states and individuals must show that they will suffer concrete harm as a result of the debt forgiveness plan.
For now, that depends on whether the potential financial damage suffered by MOHELA, a student loan servicer, also affects the state of Missouri. The servicer, which is not a party to the lawsuit, may lose income if the waiver is enforced. The states argued that this would in turn reduce how much the servicer contributes to support Missouri’s higher education programs.
The liberal magistrates did not seem to buy this reasoning, and asked why MOHELA was absent. And the Biden administration argued that the dispute didn’t matter, because MOHELA was separate from the state.
“Ordinarily we don’t allow a person to step into someone else’s shoes and say, ‘I think that person suffered harm,’ even if the harm is great,” Justice Elena Kagan said.
The liberal justices also emphasized that Congress gave the executive branch the power to implement changes to the payment program through the HEROES Act.
A decision is not expected until May or June. Vaishali Rao, a partner at Hinshaw & Culbertson, said she expects the justices to move quickly to issue the opinion because of the high economic stakes. The forgiveness plan will be available to up to 40 million federal borrowers, according to the White House, and will cost $400 billion.
Individual borrowers and student loan servicers alike will need time to plan and prepare their finances even if forgiveness is implemented.
“It doesn’t seem to be lost on the judges that this is a big deal for individuals and for the industry,” said Rao, who represents servicers, borrowers, and lenders, and also investigates loan originators. student, servicing, and debt collection. practices. “And a decision that quickly helps to provide clarity.”
Biden’s plan, announced in August 2022cancel up to $10,000 in federal student loan debt for borrowers earning less than $125,000 per year (and less than $250,000 for married couples), and up to $20,000 for those receiving Pell Grants while attending school and meeting of same income requirements.
Federal student loan payments, which have been suspended for nearly three years, will resume 60 days after the court issues its final decision.
Learn how to navigate and build trust in your business with The Trust Factor, a weekly newsletter that explores what leaders need to succeed. Sign up here.