Defending Student Loan Cancellation

February 28, 2023 — Article

Two cases before the U.S. Supreme Court challenge President Biden’s transformational plan to cancel up to $20,000 in student debt for eligible borrowers. The outcome of these cases will affect millions of borrowers who are eligible for relief.

National Consumer Law Center (NCLC) experts are providing analysis and resources about the cases: Biden v. Nebraska (22-506) and Department of Education v. Brown (22-535). 

Student Debt Relief Rally

A diverse coalition of advocacy organizations hosted the People’s Rally for Student Debt Cancellation in front of the U.S. Supreme Court. Senators, Representatives, student borrowers, and other activists also spoke.

Background on Debt Cancellation

On August 24, 2022, President Biden announced that the Department of Education would offer one-time debt relief on federal loans for low- and middle-income people “to address the financial harms of the pandemic for low- and middle-income borrowers and avoid defaults as loan repayment restarts.” Under President Biden’s plan, all borrowers who made less than $125,000 a year could apply to have up to $10,000 in student loan debt cancelled, while income-eligible borrowers who came from low-income families and received a Pell grant could apply for cancellation of  up to $20,000. The plan was designed so that loan cancellation would occur before the federal loan payment pause ended to prevent a wave of defaults and to ensure that the borrowers who were most harmed by the pandemic are not put in a worse position financially

The White House estimates that more than 40 million working and middle class Americans are eligible for relief under the plan, and that 20 million could have their federal debt completely cancelled. It is estimated that 90% of benefits would flow to people with incomes under $75,000. The plan would provide critical relief to Black borrowers, who are twice as likely as white borrowers to have received a Pell grant and are at a high risk of financial distress and default if payment starts up without additional relief. Black families bear the heaviest student debt burdens as a result of the continuing racial wealth gap and have suffered disproportionate economic disruption from the pandemic. The relief is also critical to the substantial portion of people of all races and ethnicities who have debt but no degree or incurred debt for 2-year associates’ degree programs or shorter-term educational and job training programs, including those in cooking, cosmetology, and other service sectors that are dominated by low wages and were severely disrupted by the pandemic.

Historic levels of participation in the debt relief program reflect the urgent need for student debt relief and the popularity of the Administration’s plan. In less than four weeks after the application opened in October, more than 26 million borrowers hailing from every state applied for relief or were deemed eligible based on previously provided income information. Ninety-eight percent of applicants lived in zip codes where the average income was below $75,000 and two thirds lived in zip codes where the average income was less than $40,000. Although borrowers were given a year to apply, the application was pulled down in November as a result of a lawsuit brought by opponents of student debt relief.

If student loan payments resume without first reducing the debts that people can’t afford to pay, it will be a disaster. As the administrative record in these cases lays out, the Department of Education projects that without President Biden’s relief plan, there would be an unprecedented wave of student loan defaults, which would mean those borrowers could have their wages garnished and their tax refunds seized to pay off their student loan debt. In addition, the student loan system has been stopped for three years. It will be a massive undertaking to ensure that when repayment restarts borrowers are smoothly moved back into repayment and are aware of their student loan rights, and to ensure that the problems of the past are remedied and do not recur. 

Background on the Supreme Court Cases

In Biden v. Nebraska, six states (Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina) challenged President Biden’s plan to cancel the debts of low- and middle-income borrowers recovering from the COVID-19 Pandemic. The Court will consider whether these states have standing to invoke the Court’s authority to review the legality of the student debt cancellation plan and, if so, will consider whether the plan was legally permissible. Standing should prove to be a fatal flaw in this case: the suing states aren’t directly harmed by President Biden’s plan and their claims to indirect harms are clearly insufficient under existing standing doctrine. Indeed, the case was previously dismissed by a Bush-appointed federal judge, who found that the states were not directly injured by the debt relief plan and thus lacked standing to ask the courts to stop it from proceeding. The Court would have to depart from well-established law, at potential risk to its own institutional legitimacy, to find that the states have standing and that the Court can therefore claim authority to decide on student debt relief.

Similar threshold problems exist in Department of Education v. Brown. In this case, two borrowers–one who is eligible for up to $10,000 in relief and one who is ineligible for relief–challenged the plan, asserting that they were injured because they were denied the opportunity to comment on the plan before it was finalized and therefore did not get a chance to argue that the plan should be changed to provide them more relief. This is entirely disingenuous as a practical matter, and fails to establish standing as a legal matter. First, they do not dispute that the HEROES Act quite explicitly authorizes the Secretary to act without providing notice and opportunity to comment–what they claim they were denied. Second, these borrowers–and the billionaire-backed group behind the lawsuit–do not actually want the Administration to provide more relief, they want it to provide less–they are opposed to student debt relief, argue that the Administration cannot lawfully provide debt relief, and ask the Court to strike down the plan entirely. As the Department of Justice explained, they are “classic ideological plaintiffs” who are not suing to get the courts to protect them from injury or redress an injury already suffered, but rather to push their ideological agenda in the courts after losing at the polls.

Why the Cases Should Not Prevail

Both of these ideologically driven cases should be thrown out for lack of standing, and the Supreme Court should not take the invitation to overstep the constitutional bounds of its authority and substitute its judgment for that of Congress or the Secretary of Education. 

But the Biden Administration’s plan to provide debt relief should also be upheld on the merits, as the plain language of the HEROES Act gives the Secretary of Education the authority to modify or cancel loan obligations to ensure that borrowers affected by a national emergency are not made worse off because of that emergency. There’s nothing novel about using theHEROES Act to provide widespread relief to student loan borrowers; after the HEROES Act was passed in 2003, every presidential administration has relied on its authority to provide student loan relief during national emergencies. Both President Trump and President Biden used the HEROES Act to stop federal loan payments and cancel the interest that accrued during the pandemic. 

While the worst of the public health crisis is abating, it is clear that the pandemic also caused tremendous economic disruptions and that Americans, particularly lower-income people who are indebted, are still recovering. The pandemic has triggered more than $5 trillion in government spending on other relief measures, including substantial debt relief to businesses, none of which has elicited ideological attacks or legal handwringing. Unlike the 2008 financial crisis, when big banks and big business got bailouts and working- and middle-class people were left to dig out on their own for years, this time the government is including working and middle-class people in its robust economic recovery efforts. This is a pivotal moment for student loan borrowers. President Biden’s plan to cancel student loan debt under the HEROES Act is lawful and vital to protect millions of Americans from suffering financial distress due to the COVID-19 pandemic.

Additional Resources 

• Press Release: NCLC Advocates Attend SCOTUS Arguments, Rally in Support of Student Debt Cancellation
• NCLC’s Student Loan Borrower Assistance website 
• Press Release: President Biden’s Order Canceling Federal Student Loan Debt Will Bring Transformational Relief to Millions
• Report: Disproportionately Impacted: Closing the Racial Wealth Gap through Student Loan Cancellation, Payment Reforms, and Investment in College Affordability
• Report: Voices of Despair: Student Borrowers Trapped in Poverty When the Government Seizes Their Earned Income Tax Credit 

NCLC Student Loan Advocates in the News

Barron’s: Supreme Court Hears Student Loan Cases. What’s at Stake.

After opening in October, the application for relief was closed in November amid a slew of legal challenges. As of that time, 26 million borrowers had applied to the program or already submitted sufficient information to be deemed eligible, and more than 16 million of them had been approved, the Biden administration said. 

Since then, borrowers have had to cope with considerable uncertainty. “They can’t plan their financial futures until they know what will happen,” said Kyra Taylor, staff attorney at the National Consumer Law Center.

Bloomberg: What You Need to Know About Biden’s Student Debt Plan and the Supreme Court

References a report from the Center for Law and Social Policy (CLASP) and the National Consumer Law Center on the disproportionate impact student debt has on Black borrowers.

The Washington Post: He took out a student loan in ’77. Today, he’s barely cracked the principal.

“This is sort of a monumental failure,” said Abby Shafroth, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. “There are so many relief programs in the student loan system to address some sort of financial distress. But it’s this real patchwork, and borrowers struggle to navigate it. The department itself and its servicers often can’t navigate it either.”

The New Yorker: How the Government Cancelled Betty Ann’s Debts

“But I wish it hadn’t taken so long and so much money to get here—and so much pain. So many borrowers, waiting and waiting and waiting for relief, and they can’t get on with their lives.” – Robyn Smith

Yahoo Finance: Student loan forgiveness: Borrowers remain in limbo after US files brief to Supreme Court

“As the brief makes clear, the debt relief plan is not only lawful, it is critical to millions of working- and middle- class Americans who are otherwise at risk of falling behind as they work to recover from the pandemic,” said Abby Shafroth, staff attorney at the National Consumer Law Center and director of the Student Loan Borrowers Assistance Project. “The plan is designed to give people burdened by student debt breathing room as they recover from the pandemic, and to avoid a projected wave of student loan delinquencies and defaults when the pause on payments ends.”