Personal Finance

Supreme Court to hear Biden’s student loan forgiveness arguments Tuesday. 3 things to know

Key Points
  • The Supreme Court will hear arguments on Tuesday on President Joe Biden's student loan forgiveness plan, starting a decision-making process that will impact tens of millions of Americans.
  • Due to the conservative majority of the Supreme Court, experts say the relief plan faces tough odds.
The U.S. Supreme Court.
Douglas Rissing | Istock | Getty Images

The Supreme Court on Tuesday will hear oral arguments over President Joe Biden's student loan forgiveness plan, starting a decision-making process that will affect the balance sheets of tens of millions of Americans.

The nine justices will consider two legal challenges to Biden's plan to cancel up to $20,000 in student debt for borrowers: one from six GOP-led states (Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina) and another backed by the Job Creators Network Foundation, a conservative advocacy organization.

Long before the president acted, Republicans had criticized loan forgiveness as a handout to well-off college graduates. They also argued that the president didn't have the power to forgive consumer debt on his own without authorization from Congress.

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Biden's policy has faced at least six lawsuits since it was rolled out in AugustDozens of Republican members of Congress have also filed briefs with the U.S. Supreme Court, arguing that the Biden administration's student loan forgiveness plan should be ruled unlawful.

There's no precedent in U.S. history for the kind of sweeping debt forgiveness that the White House has promised to deliver, although consumer advocates point out that large corporations and banks have been bailed out by the government after going through their own crises. And they say that canceling a large share of education debt is necessary to relieve the many borrowers struggling from a broken lending system.

"The court must see these lawsuits as the partisan sham they really are and protect the Biden administration's historic relief plan," said Ben Kaufman, director of research and investigations at the Student Borrower Protection Center. "Borrowers deserve better than to be treated like political pawns — lives and livelihoods are at stake."

Here are three things to know.

1. Millions already approved for loan forgiveness

Although the Biden administration had to take down its loan forgiveness application portal shortly after it rolled out its plan because of the legal challenges, the U.S. Department of Education has already been able to "fully approve" more than 16 million people for the relief and even sent their paperwork to loan servicers.

If the Supreme Court decides the administration can carry out its plan, these borrowers could see their debts lowered or erased quickly, said higher education expert Mark Kantrowitz.

"It should take one to two weeks for the servicers to implement," Kantrowitz said.

More than 10 million borrowers are likely also eligible for the relief, and those who didn't already apply should have another opportunity to do so if the policy survives.

2. Justices to consider if president can cancel debt

At an estimated cost of about $400 billion, Biden's plan to forgive student debt is one of the most expensive executive actions in history.

The justices are likely to examine whether the president has the power to implement such a sweeping policy.

The Biden administration insists that it's acting within the law, pointing out that the Heroes Act of 2003 grants the U.S. secretary of education the authority to make changes related to student loans during national emergencies. The country has been operating under an emergency declaration due to Covid-19 since March 2020.

Biden administrations stops taking applications for student loan debt forgiveness
Biden administrations stops taking applications for student loan debt forgiveness

However, opponents of the policy say the administration is incorrectly using the law, which was passed after the Sept. 11 terrorist attacks.

"It is not an across-the-board get-out-of-debt provision that an administration can invoke at will," the six Republican-led states note in their lawsuit against the plan.

Biden officials point out that the public health crisis has caused considerable financial harm to student loan borrowers and that its debt cancellation plan is necessary to stave off a historic rise in delinquencies and defaults.

The court's conservatives have been very aggressive in striking down the decisions of Congress and the president.
Gregory Caldeira
political science professor at Ohio State University

Student loan borrowers were having problems repaying their debt before Covid. Only about half of borrowers were in repayment in 2019, according to an estimate by Kantrowitz. A quarter — or more than 10 million people — were in delinquency or default, and the rest had applied for temporary relief measures for struggling borrowers, such as deferments or forbearances.

These grim figures led to comparisons to the 2008 mortgage crisis and built pressure on Biden to deliver relief.

3. Legal experts say forgiveness plan faces tough odds

Gregory Caldeira, a political science professor at Ohio State University, said he wouldn't be surprised if the highest court rules against Biden.

"The court's conservatives have been very aggressive in striking down the decisions of Congress and the president," Caldeira said.

For a number of reasons, Dan Urman, a law professor at Northeastern University, also predicts student loan forgiveness won't survive the Supreme Court.

He said the conservative justices believe government agencies exert too much authority and "violate the separation of powers." In addition, he said, the concept of loan forgiveness seems to run counter to their notions of individual responsibility.

Such a politically fueled decision, however, is likely to further damage the public's perception of the judicial branch, Urman said.

"Striking down forgiveness will add to growing skepticism that the conservative justices vote for conservatives, and the liberal justices vote for liberals," Urman said.

Just 25% of Americans have confidence in the highest court, a Gallup poll found over the summer.