Supreme Court Strikes Down Biden Student Loan Forgiveness. What’s Next?

On August 24, 2022, President Biden announced a plan to provide “Student Loan Relief for Borrowers Who Need it Most,” citing the Department of Education’s authority under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act). In addition to promising fixes to the broader federal student loan system and again extending the pause on federal student loan payments, the plan included targeted student debt relief. Borrowers earning less than $125,000 per year ($250,000 for households) could apply for up to $10,000 in debt cancellation. Pell Grant recipients could apply for up to $20,000 in debt cancellation. Additional details followed, and the official borrower application was released in October 2022. The Department of Education set an initial application deadline of December 2023, but it encouraged borrowers to apply as early as possible. Approximately 26 million applications rolled in before the Department of Education halted the program due to legal challenges.

On June 30, the Supreme Court of the United States ruled against President Biden’s one-time debt relief plan. The Court resolved one of the cases (Biden v. Nebraska) on the merits. This Advisory explains background on the decision and implications for future policy.

Background on the Cases Before the Court

President Biden’s student loan forgiveness plan, which originated as one of his campaign promises during the 2020 presidential election cycle, faced legal challenges almost immediately after it was announced. The Brown County Taxpayers Association in Wisconsin and the Pacific Legal Foundation in Indiana leveled challenges that the corresponding lower courts rejected, leading to unsuccessful requests for emergency intervention by the Supreme Court. Two challenges stuck, however. On September 29, attorneys representing Nebraska, Missouri, Kansas, Arkansas, South Carolina, and Iowa filed suit in the U.S. District Court for the Eastern District of Missouri. Their suit complained the implementation of the student loan forgiveness plan would deprive the states of crucial tax revenue and alleged that the plan “is not remotely tailored to address the effects of the pandemic on federal student loan borrowers, as required by the HEROES Act.” The lower court dismissed the states’ case for lack of standing, but the U.S. Court of Appeals for the Eighth Circuit granted their request for a preliminary injunction on October 29, which had nationwide effect. The Biden Administration asked the Supreme Court to vacate the injunction.

On November 10, Judge Mark Pittman of the U.S. District Court for the Northern District of Texas ruled on the merits of a case brought by individual borrowers Myra Brown and Alexander Taylor, represented by the Job Creators Network, which alleged that the Biden Administration did not follow the administrative procedure necessary to properly implement the plan. His ruling characterized the student loan forgiveness plan as “an unconstitutional exercise of Congress’s legislative power.” This decision prompted the Biden Administration to suspend the forgiveness application cycle, which already had processed 16 million request approvals. On November 30, the U.S. Court of Appeals for the Fifth Circuit upheld the lower court’s ruling, albeit on a different rationale, leading the administration to file another request for relief in the Supreme Court. 

On December 1, the Supreme Court announced it would hear the states’ case, Biden v. Nebraska, during its 2022-2023 term. This announcement was followed in short order on December 12 by a second grant of review in the borrowers’ case, Department of Education v. Brown. Oral arguments on both cases were held in February 2023. The Biden Administration continued to argue that all the plaintiffs lacked standing to challenge the student loan forgiveness plan and that the plan was consistent with authority granted to the Secretary of Education under the HEROES Act.

Summary of Decisions

The Supreme Court resolved one of the suits, Department of Education v. Brown, unanimously on the ground that Brown and Taylor lacked standing to challenge the student loan forgiveness plan. Standing requires a plaintiff to identify a concrete “injury” stemming from the challenged conduct that may be “redressed” by the Court. Brown and Taylor argued the Biden Administration should have undertaken notice-and-comment rulemaking when invoking its authority under the HEROES Act. Brown and Taylor argued, during the public comment process, they would have insisted the Biden Administration’s authority to implement its student loan forgiveness plan more properly rests on the Higher Education Act of 1965 (HEA). But the Supreme Court found an insufficient connection between that procedural injury and the Court’s ability to redress it. A decision regarding whether the Biden Administration may properly exercise its authority under the HEROES Act to forgive student loan debt, the Court held, has no bearings on the administration’s authority to forgive such debt under the HEA. That disconnect deprived Brown and Taylor’s claims of the required nexus between “injury” and challenged “conduct.” Because the borrowers lacked standing, the Court dismissed their challenge without ruling on the merits. 

In the other case, Biden v. Nebraska, the Supreme Court decided (6-3) to invalidate the student loan forgiveness plan. First, the Court upheld the standing of one of the plaintiff states, Missouri, based on its connection to MOHELA, a state-created entity that services student loan debt. MOHELA stood to lose US$44 million each year because of the debt-forgiveness plan, which in the Court’s view provided a sufficient nexus between “injury” and “conduct” required to recognize standing. The Court also rejected the administration’s argument that Missouri should not be able to stand in the shoes of MOHELA for standing purposes.

Next, the Court ruled on the merits that the debt-forgiveness plan was not a permissible use of authority under the HEROES Act. The Court acknowledged the Act empowers the Secretary of Education to “waive” or “modify” borrowers’ obligations under the HEA, but, in the Court’s view, to “waive” or “modify” does not mean to develop “new and substantially different provisions” or to embrace “basic and fundamental changes” of the sort at issue here. Thus, the Court held the HEROES Act cannot accommodate the “exhaustive rewriting” of the HEA that would be necessary to justify the student loan forgiveness plan. Finally, the Court rejected the administration’s argument that the plan vindicates the purpose of the HEROES Act — to protect Americans from adverse financial consequences during national emergencies like a global public health crisis. The Court explained those purposes do not permit the Secretary of Education to “rewrite” the HEA. Such authority belongs to Congress, and the HEROES Act does not indicate with sufficient clarity that Congress intended to share it with the Secretary.

Political Context

Despite President Donald Trump and Congress providing student loan relief at the start of the COVID-19 pandemic in March 2020, primarily through a moratorium on interest, payments, and collections for federal student loan borrowers, more progressive policymakers advocated for forgiving student loans as part of the government’s response to the pandemic. While several Democratic bills were introduced in 2020 proposing varying degrees of forgiveness, none achieved enough broad-based support to be included in subsequent COVID-19 relief or Democratic reconciliation packages.

Still, key Democratic leaders, including Senate Majority Leader Chuck Schumer (D-NY) and former House Majority Whip Jim Clyburn (D-SC), supported the idea of broadly forgiving student loans. After President Biden assumed office in January 2021, Leader Schumer, Whip Clyburn, Senator Elizabeth Warren (D-MA), and others led legislation (S. Res. 46) calling on the president to use executive authority to cancel up to $50,000 in student loans per borrower. The lawmakers and grassroots advocates continued to push for broad-based forgiveness through executive action, eventually leading to the president’s announcement of the forgiveness plan in August 2022.

Congressional Republicans have attacked the plan, criticizing it as a political calculation to “buy votes” before the mid-term elections. Since Republicans took control of the House in January, the House has twice passed legislation — the Limit, Save, Grow Act of 2023 (H.R. 2811) and the Congressional Review Act (CRA) resolution (H.J. Res. 45) — to nullify the plan. The Senate also passed H.J. Res. 45 in early June with the support of some moderate Democrats. President Biden vetoed it, and the House tried but failed to override his veto.

Policy Implications

Congressional progressives and student borrower advocates for months pushed the Biden Administration to have a “plan B” on forgiveness in preparation for this moment. Many have understood plan B to mean relying on the HEA’s compromise authority to advance debt forgiveness if the HEROES Act authority, upon which the current forgiveness plan relies, fails. Immediately following the decision, borrower advocate groups denounced the ruling and called on the Secretary of Education to use this HEA authority to create a new debt relief program that goes through the normal rulemaking and public comment process — before borrowers return to repayment. The president held a press conference after the decision to declare his disagreement with the Court’s decision and to tout his administration’s other efforts to improve how the student loan program works for borrowers — including regulatory changes to the Public Service Loan Forgiveness (PSLF) program and the creation of a new, more generous income-driven repayment (IDR) plan.

He also announced his administration is indeed moving forward to deliver the relief promised but acknowledged the new path will take much longer. During the address, the Department posted a draft notice of proposed rulemaking to use the HEA authority to solicit public comment on the Secretary’s authority to provide student loan relief. Initial comments (due 14 days after the notice is published in the Federal Register) and a virtual public hearing on July 18 will inform the topics to be considered during the negotiated rulemaking process. Legal challenges are again expected.

The Department will take on this new task all while managing other student loan-related activities, including finalizing the new IDR plan in July and returning to repayment. The Department’s Office of Federal Student Aid (FSA) needs to devote time and resources to turning federal student loan payments and interest back on after more than three years paused. While the White House has long-acknowledged its intent to do so once the Supreme Court decided the fate of the forgiveness plan, the recently passed Fiscal Responsibility Act (FRA) (P.L. 118-5) statutorily requires the administration to do so by August 29, 2023. FSA and other Department of Education leaders have warned, however, it may not have sufficient funding to effectively return borrowers to repayment. Appropriators may include some additional funds restricted for this purpose in their Fiscal Year 2024 appropriations bills. Payment deadlines for student loan bills are expected in October, with interest again accruing, but the president confirmed FSA is readying an “on ramp” plan to ensure a safety net for borrowers returning to repayment, including allowing for multiple 90-day grace periods over 12 months to protect struggling borrowers from default and debt collection. Congress will watch the process closely as a number of Republican oversight letters already have been sent to Department leaders since FRA’s passage.

This decision also could impact how HEA reauthorization progresses this Congress, particularly given House Education and the Workforce Chairwoman Virginia Foxx’s (R-NC) interest in moving an HEA bill before her term as chair is up at the end of next year. Leading up to the decision, Republicans in the House and Senate introduced different legislative packages to address student debt, aiming to show voters their party has alternative solutions to the issue. Republicans were hopeful Democrats’ desire to provide relief to borrowers could drive them to the negotiating table if broad-based forgiveness did not materialize. Now, those negotiations will have to wait until the rulemaking process concludes.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.