A sharply divided Supreme Court on Friday effectively killed President Joe Biden’s $400 billion plan to cancel or reduce federal student loan debts for millions of Americans.
The 6-3 decision, with conservative justices in the majority, said the Biden administration overstepped its authority with the plan, and it leaves borrowers on the hook for repayments that are expected to resume in the fall.
Biden was to announce a new set of actions to protect student loan borrowers later Friday, said a White House official. The official was not authorized to speak publicly ahead of Biden’s expected statement on the case and spoke on condition of anonymity.
The court held that the administration needed Congress’ endorsement before undertaking so costly a program. The majority rejected arguments that a bipartisan 2003 law dealing with national emergencies, known as the HEROES Act, gave Biden the power he claimed.
“Six States sued, arguing that the HEROES Act does not authorize the loan cancellation plan. We agree,” Chief Justice John Roberts wrote for the court.
Justice Elena Kagan, wrote in a dissent, joined by the court’s two other liberals, that the majority of the court “overrides the combined judgment of the Legislative and Executive Branches, with the consequence of eliminating loan forgiveness for 43 million Americans.” Kagan read a summary of her dissent in court to emphasize her disagreement.
Roberts, perhaps anticipating negative public reaction and aware of the declining approval of the court, added an unusual coda to his opinion, cautioning that the liberals’ dissent should not be mistaken for disparagement of the court itself. ”It is important that the public not be misled either. Any such misperception would be harmful to this institution and our country,” the chief justice wrote.
Loan repayments will resume in October, although interest will begin accruing in September, the Education Department has announced. Payments have been on hold since the start of the coronavirus pandemic more than three years ago.
The forgiveness program would have canceled $10,000 in student loan debt for those making less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically demonstrate more financial need, would have had an additional $10,000 in debt forgiven.
Twenty-six million people had applied for relief and 43 million would have been eligible, the administration said. The cost was estimated at $400 billion over 30 years.
Advocacy groups supporting debt cancellation condemned the decision while demanding that Biden find another avenue to fulfill his promise of debt relief.
Natalia Abrams, president and founder of the Student Debt Crisis Center, said the responsibility for new action falls “squarely” on Biden’s shoulders. “The president possesses the power, and must summon the will, to secure the essential relief that families across the nation desperately need,” Abrams said in a statement.
The loan plan joins other pandemic-related initiatives that faltered at the Supreme Court.
Conservative majorities ended an eviction moratorium that had been imposed by the Centers for Disease Control and Prevention and blocked a plan to require workers at big companies to be vaccinated or undergo regular testing and wear a mask on the job. The court upheld a plan to require vaccinations of health-care workers.
The earlier programs were billed largely as public health measures intended to slow the spread of COVID-19. The loan forgiveness plan, by contrast, was aimed at countering the economic effects of the pandemic.
In more than three hours of arguments last February, conservative justices voiced their skepticism that the administration had the authority to wipe away or reduce student loans held by millions.
Republican-led states arguing before the court said the plan would have amounted to a “windfall” for 20 million people who would have seen their entire student debt disappear and been better off than they were before the pandemic.
Roberts was among those on the court who questioned whether non-college workers would essentially be penalized for a break for the college-educated.
In contrast, the administration grounded the need for sweeping loan forgiveness in the COVID-19 emergency and the continuing negative impacts on people near the bottom of the economic ladder. The declared emergency ended on May 11.
Without the promised loan relief, the administration’s top Supreme Court lawyer told the justices, “Delinquencies and defaults will surge.”
At those arguments, Justice Sonia Sotomayor said her fellow justices would be making a mistake if they took for themselves, instead of leaving it to education experts, “the right to decide how much aid to give” people who would struggle if the program were struck down.
The HEROES Act — the Health and Economic Recovery Omnibus Emergency Solutions Act — has allowed the secretary of education to waive or modify the terms of federal student loans in connection with a national emergency. The law was primarily intended to keep service members from being hurt financially while they fought in wars in Afghanistan and Iraq.
Biden had once doubted his own authority to broadly cancel student debt, but announced the program last August. Legal challenges quickly followed.
The court majority said the Republican-led states had cleared an early hurdle that required them to show they would be financially harmed if the program had been allowed to take effect.
The states did not even rely on any direct injury to themselves but instead pointed to the Missouri Higher Education Loan Authority, a state-created company that services student loans.
Nebraska Solicitor General James Campbell, arguing before the court in February, said the Authority would lose about 40% of its revenues if the Biden plan went into effect. Independent research has cast doubt on the financial harm MOHELA would face, suggesting that the agency would still see an increase in revenue even if Biden’s cancellation went through. That information was not part of the court record.
A federal judge initially found that the states would not be harmed and dismissed their lawsuit before an appellate panel said the case could proceed.
In a second case, the justices ruled unanimously that two Texans who filed a separate challenge did not have legal standing to sue. But the outcome of that case has no bearing on the court’s decision to block the debt relief plan.
In a good month, Celina Chanthanouvong has about $200 left after rent, groceries, and car insurance. That doesn’t factor in her student loans, which have been on hold since the start of the pandemic and are estimated to cost $300 a month. The pause in repayment has been a lifeline keeping the 25-year-old afloat.
“I don’t even know where I would begin to budget that money,” said Chanthanouvong, who works in marketing in San Francisco.
Now, after more than three years, the lifeline is being pulled away. More than 40 million Americans will be on the hook for federal student loan payments starting in the fall.
Many of those borrowers hoped their debt would be reduced or wiped out entirely under President Joe Biden’s forgiveness plan, which the Supreme Court struck down on Friday. Without cancellation, the Education Department predicted borrowers would fall behind on their loans at historic rates. Among the most vulnerable are those who finished college during the pandemic. Millions have never had to make a loan payment, and their bills will soon come amid soaring inflation and forecasts of economic recession.
Advocates fear it will add a financial burden that younger borrowers can’t afford.
“I worry that we’re going to see levels of default of new graduates that we’ve never seen before,” said Natalia Abrams, president of the nonprofit Student Debt Crisis Center.
Chanthanouvong earned a bachelor’s in sociology from the University of California-Merced in 2019. She couldn’t find a job for a year, leaving her to rely on odd jobs for income. She found a full-time job last year, but at $70,000, her salary barely covers the cost of living in the Bay Area.
“I’m not going out. I don’t buy Starbucks every day. I’m cooking at home,” she said. “And sometimes, I don’t even have $100 after everything.”
Under President Joe Biden’s cancellation plan, Chanthanouvong would have been eligible to get $20,000 of her debt erased, leaving her owing $5,000. But she wasn’t banking on the relief. Instead, she invited her partner to move in and split the rent. The financial pinch has them postponing or rethinking major life milestones.
“My partner and I agreed, maybe we don’t want kids,” she said. “Not because we don’t want them, but because it would be financially irresponsible for us to bring a human being into this world.”
Out of the more than 44 million federal student loan borrowers, about 7 million are below the age of 25, according to data from the Education Department. Their average loan balance is less than $14,000, lower than any other age group.
Yet borrowers with lower balances are the most likely to default. It’s fueled by millions who drop out before graduating, along with others who graduate but struggle to find good jobs. Among those who defaulted in 2021, the median loan balance was $15,300, and the vast majority had balances under $40,000, according to the Federal Reserve Bank of New York.
Resuming student loan payments will cost U.S. consumers $18 billion a month, the investment firm Jefferies has estimated. The hit to household budgets is ill-timed for the overall economy, Jefferies says because the United States could be on the brink of a recession.
Despite the student loan moratorium, Americans mostly didn’t bank their savings, according to Jefferies economist Thomas Simons. So they’ll likely have to cut back on other things — travel, restaurants — to fit resumed loan payments into their budgets. Belt tightening could hurt an economy that relies heavily on consumer spending.
Noshin Hoque graduated from Stony Brook University early in the pandemic with about $20,000 in federal student loans. Instead of testing the 2020 job market, she enrolled in a master’s program in social work at Columbia University, borrowing $34,000 more.
With the payments paused, she felt a new level of financial security. She cut costs by living with her parents in New York City and her job at a nonprofit paid enough to save money and help her parents.
She recalls splurging on a $110 polo shirt as a Father’s Day gift for her dad.
“Being able to do stuff for my parents and having them experience that luxury with me has just been such a plus,” said Hoque, who works for Young Invincibles, a nonprofit that supports student debt cancellation.
It gave her the comfort to enter a new stage of life. She got married to a recent medical school graduate, and they’re expecting their first child in November. At the same time, they’re bracing for the crush of loan payments, which will cost at least $400 a month combined. They hope to pay more to avoid interest, which is prohibited for them as practicing Muslims.
To prepare, they stopped eating at restaurants. They canceled a vacation to Italy. The money they wanted to put toward their child’s education fund will go to their loans instead.
“We’re back to square one of planning our finances,” she said. “I feel that so deeply.”
Even the logistics of making payments will be a hurdle for newer borrowers, said Rachel Rotunda, director of government relations at National Association of Student Financial Aid Administrators. They’ll need to find out who their loan servicers are, choose a repayment plan, and learn to navigate the payment system.
“The volume of borrowers going back on the system at the same time — this has never happened before,” Rotunda said. “It’s fair to say it’s going to be bumpy.”
The Education Department has promised to make the restart of payments as smooth as possible. In a statement, the agency said it will continue to push for Biden’s debt cancellation as a way to reduce borrowers’ debt load and ease the transition.
For Beka Favela, 30, the payment pause provided independence. She earned a master’s in counseling last year, and her job as a therapist allowed her to move out of her parent’s house.
Without making payments on her $80,000 in student loans, she started saving. She bought furniture. She chipped away at credit card debt. But once the pause ends, she expects to pay about $500 a month. It will consume most of her disposable income, leaving little for surprise costs. If finances get tighter, she wonders if she’ll have to move back home.
“I don’t want to feel like I’m regressing in order to make ends meet,” said Favela, of Westmont, Illinois. “I just want to keep moving forward. I’m worried, is that going to be possible?”
Businesses can refuse to serve same-sex couples if doing so would violate the owners' religious beliefs, the Supreme Court ruled on Friday.
The court has significantly expanded LGBTQ rights over the past several years but is now carving out some exceptions.
The case concerns Lorie Smith, a Colorado web designer who wanted to create and sell wedding websites, but not to same-sex couples.
- Colorado's civil rights law prohibited her, or any business that serves the general public, from turning away customers because of their sexual orientation. She said complying with that law would force her to espouse views she does not agree with.
- "The artwork that I create is speech," Smith told Colorado Public Radio in December, adding that, "those messages must be consistent with my convictions."
The conservative-majority Supreme Court ruled 6-3 in favor of Smith, saying she has a First Amendment right to refuse to design custom wedding websites for same-sex couples.
- "The First Amendment envisions the United States as a rich and complex place where all persons are free to think and speak as they wish, not as the government demands. Colorado cannot deny that promise consistent with the First Amendment," Justice Neil Gorsuch wrote in the majority opinion.
- "The opportunity to think for ourselves and to express those thoughts freely is among our most cherished liberties and part of what keeps our Republic strong," Gorsuch wrote in the majority opinion.
- "All of us will encounter ideas we consider "unattractive," Gorsuch wrote, but added that "tolerance, not coercion, is our Nation's answer."
The court's decision has the potential to reinforce "limits to what government can do to protect against discrimination," Linda McClain, a law professor at Boston University, told Axios ahead of the ruling.
In her dissent, Justice Sonia Sotomayor wrote that "there has been a backlash to the movement for liberty and equality for gender and sexual minorities. New forms of inclusion have been met with reactionary exclusion. This is heartbreaking."
- "The immediate, symbolic effect of the decision is to mark gays and lesbians for second-class status," Sotomayor added in the dissent, which was joined by Justices Elena Kagan and Ketanji Brown Jackson.
- Sotomayor added that the ruling conveyed a message that "we live in a society with social castes," and warned that the underpinning logic of the decision could extend beyond sexual orientation or gender identity.
- "The decision threatens to ... allow the exclusion of other groups from many services. A website designer could equally refuse to create a wedding website for an interracial couple, for example," she added.
This case was effectively a rerun of the 2018 case in which a baker refused to bake a cake for a same-sex wedding.
- The court punted at the time but had signaled that business owners with religious objections to same-sex marriage were likely to prevail in the end.