Washington — The Supreme Court is hearing arguments Tuesday in a pair of cases involving President Biden’s plan to cancel up to $20,000 in student loan debt for millions of Americans, with the justices wading into a constitutional and political dispute that will decide the future of the program.
The outcome from the court, which is expected this summer, will affect roughly 40 million borrowers who are eligible for the relief that President Biden announced last August, 20 million of whom stand to have their loan balances eliminated altogether, according to White House estimates.
Under the plan, eligible borrowers earning less than $125,000 can receive up to $10,000 in student debt relief, and qualifying Pell Grant recipients, who are students with the greatest financial need, can have up to an additional $10,000 forgiven.
The Biden administration invoked a 2003 law known as the HEROES Act to wipe out the debt, totaling roughly $430 billion. That law authorizes the education secretary to “waive or modify” student financial assistance programs for borrowers “in connection” with a national emergency, such as the pandemic.
The program was met swiftly by legal challenges from a group of six states — Arkansas, Iowa, Kansas, Missouri, Kentucky and South Carolina — and two borrowers from Texas, who separately argued the plan exceeds the administration’s authority.
The court’s six conservative and three liberal justices considered two questions at Tuesday’s arguments: whether the states and borrowers have the legal right (or “standing”) to challenge the program, and whether the Biden administration exceeded its authority with the plan.
Arguing before the court on behalf of the Biden administration, Solicitor General Elizabeth Prelogar stressed that neither the states nor the two borrowers who sued have the legal standing to do so, since any harms to tax revenues are “self-inflicted” and “indirect.” Secretary of Education Miguel Cardona, she said, “acted within the heartland” of his authority.
But several of the conservatives justices questioned the legality of the program and were skeptical the secretary of education could act without the green-light from Congress. Chief Justice John Roberts repeatedly highlighted the enormous cost of the plan and said the case brought by the states “presents extraordinarily serious, important issues about the role of Congress and about the role that we should exercise in scrutinizing that, significant enough that the major questions doctrine should be implicated.”
The major questions doctrine holds that there must be clear congressional authorization if an agency wants to decide a question of “vast economic or political significance.” The states have accused the Biden administration of attempting to bypass Congress with its plan to unilaterally cancel student debt, and argue the secretary of education needs clear, expressed congressional authorization to wipe out the loans.
Prelogar, though, reiterated that the states are not the proper party to challenge the program, but acknowledged that loan service providers would be. She also noted that Congress could take legislative action if it disapproves of the debt relief program.
Still, Roberts asserted that “most casual observers would say if you’re going to give up that much amount of money, if you’re going to affect the obligations of that many Americans on a subject that’s of great controversy, they would think that’s something for Congress to act on, and if they haven’t acted on it, then maybe that’s a good lesson to say for the president or the administrative bureaucracy that maybe that’s not something they should undertake on their own.”
In the case brought by the six states, a federal district court in St. Louis dismissed the case for lack of standing. But a federal appeals court blocked the debt relief program, finding that “Missouri is harmed from the financial losses that the cancellation inflicts.”
The appeals court focused its decision on the Higher Education Loan Authority of the State of Missouri, or MOHELA, a state-created entity that services federal student loans, finding that the financial impact on the loan servicer due to the debt discharge threatened financial harm to Missouri.
For the second case from Texas brought by borrowers Myra Brown and Alexander Taylor, a federal district court found the borrowers satisfied the requirements for standing and ruled the plan is an unconstitutional exercise of Congress’s legislative power. A federal appeals court declined to reinstate the program.
Brown does not qualify for debt relief, as her loans are held by commercial entities, and Taylor is eligible for $10,000 in loan forgiveness.
The Biden administration has argued in court papers that neither the states nor the borrowers have legal standing to challenge the debt relief program. Any harm to the states’ treasuries is “self-inflicted” and their theory of decreased tax revenues “unduly speculative,” according to Prelogar. With regards to Missouri and MOHELA, the two are “legally separate entities,” she said.
While several of the conservative justices expressed concerns agency power, the three liberal justices, joined by Justice Amy Coney Barrett, suggested that the states do not have the legal right to sue.
MOHELA, Justice Ketanji Brown Jackson said, is effectively an entity that is separate from the state, with separate financial interests. If the loan servicer is being injured as a result of the debt relief program, it has the ability to sue, she said.
“Usually we don’t allow one person to step into another’s shoes and say, ‘I think that that person suffered a harm,’ even if that harm is very great. We leave it to the person, him or her or itself, to make that judgement,” Justice Elena Kagan said. “Why isn’t MOHELA responsible for deciding whether to bring this suit?”
While Nebraska Solicitor General James Campbell argued that MOHELA is part of Missouri as a state-created and state-controlled public entity, Justice Amy Coney Barrett asked why the state didn’t just force the loan servicer to mount the legal battle.
“If MOHELA is an arm of the state, then why didn’t you just strong-arm MOHELA and say you’ve got to pursue this suit?” she said.
Missouri argues the student debt relief program will inflict “substantial financial losses” on MOHELA and therefore injure the state, while the other states involved in the case claim they will lose tax revenues as a result of the program.
Mr. Biden announced his student debt forgiveness plan last August, and in the less than four weeks that the application was available, more than 26.2 million people applied. Over 16 million of those applications were approved by the Department of Education, according to the White House. The Trump administration, followed by the Biden administration, paused federal student-loan payments during the COVID-19 pandemic, with the most recent extension running through June.
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