The Supreme Court Will Soon Decide Whether The Student Loan Forgiveness Program Is Legal, Although The Chances Are Not Good

Will the Court allow the forgiveness plan to stand? Or is it just putting this matter to bed as quickly as possible so repayments can restart? Or can the Court come up with a creative compromise?

Graduate Student Loan Icon – Student Loan Graphics for Education Financial Aid or Assistance, Government Loans, and DebtLast week, the U.S. Supreme Court accepted the federal government’s petition to determine whether the secretary of education can forgive federal student loans under the HEROES Act. The forgiveness plan, which would forgive $10,000 in loans or $20,000 if the debtor has received a Pell Grant, has been blocked by two federal appeals courts.

The court has fast-tracked the case signifying its importance, and a decision is expected by this summer. However, the court has not allowed any loans to be forgiven in the meantime. Amicus briefs have been filed arguing for both sides, including one from a former congressman who helped create the HEROES Act arguing that the secretary’s action is legal.

But will the court allow the forgiveness plan to stand? Or is it just putting this matter to bed as quickly as possible so repayments can restart? Or can the Court come up with a creative compromise?

Commentators believe that the justices will side with the appeals courts and rule that the secretary does not have the authority to forgive student loans on a mass scale as it involves a matter of vast economic and political significance and thus requires congressional approval. For the most part, they believe the justices will rule on political ideology. Progressives want loan forgiveness while conservatives think it is unfair and creates a moral hazard. The lawsuits were filed by conservative-leaning states and organizations. So it is expected that the six conservative judges will rule against loan forgiveness.

But there may be nonpolitical reasons for the Court to rule against the plan. The Supreme Court does not seem to be interested in making decisions involving student loans. In 2016, the Court denied to hear the Tetzlaff case which I covered a few years ago. There, the Court refused to resolve a circuit split as to how courts should find whether undue hardship exist when a debtor seeks to discharge student loans in bankruptcy. And recently, Justice Amy Coney Barrett turned down two requests from opponents of the forgiveness plan to block it when the district courts ruled against them. It is possible that only reason why the justices agreed to hear the current case is because the petition came directly from the Biden administration.

Also, some people might find it troubling that the president can have the power to take action that could cost $400 billion on a very divisive issue. It is almost as troubling as a president unilaterally spending money on a border wall or enacting travel bans based on national origin. If the Court allows the forgiveness to stand, what is to stop a future president from doing it again simply by declaring another state of emergency? It is a power that can be abused by the president if they find it politically expedient to do so.

Finally, it is constantly argued that the student loan debt disproportionately affects underrepresented people of color and that resuming student loan payments without forgiveness would result in defaults. While this is unfortunate, this is a fiscal policy matter where the Court should not act as a superlegislature.

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Furthermore, there are other options available. For example, the Justice Department has recently implemented a new process for handling student loan bankruptcy cases and if certain requirements are met, the department will recommend discharge. In it, U.S. Under Secretary of Education James Kvaal states that “Congress may have set a higher bar for granting student loan discharges during bankruptcy, but in practice that bar has become very difficult for deserving borrowers to clear … After decades of inaction in Washington, our Department of Education team was determined to partner with the Justice Department to craft clearer, fairer, and more practical standards to guide recommendations for student debt discharges during bankruptcy proceedings. This guidance is an important step toward helping struggling borrowers, many of whom never completed college or were misled into debt by dishonest schools.” His words seem to suggest that obtaining student loan discharges in bankruptcy would be easier for the right people.

Also, it is possible that President Biden could decree yet another postponement. Since he has gone back on the “final extension” on multiple occasions, he will likely do it again. And this time for an indefinite period of time.

Finally, the Court can come up with a creative solution on its own. A fair compromise would be to let the loan forgiveness program proceed while ruling that it exceeds the secretary’s authority, thus ensuring that future mass forgiveness bills come from the legislature and signed into law by the president. I am optimistic that the court will do this if it can find a way to do so. Perhaps it would be more productive if legal commentators spends the next few months writing or tweeting about how the court can do this instead of repetitive articles about the court’s politics.


Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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