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The Supreme Court Hears Oral Arguments On The Legality Of President Biden's Student Loan Forgiveness Program

At some points during oral arguments, everyone discussed fairness, which is the elephant in the courtroom.

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Yesterday, the Supreme Court justices heard oral arguments on President Joe Biden’s student loan forgiveness program. As many predicted, the conservative justices seemed unconvinced about the legality of the program while the liberal justices were equally doubtful as to whether the plaintiffs had standing to challenge it.

On the issue of standing, the liberal justices questioned whether the six state plaintiffs had standing to sue. According to them, the proper plaintiff would have been MOHELA, a corporation created by state statute. U.S. Solicitor General Elizabeth Prelogar, representing the Biden administration, conceded that MOHELA would have standing to challenge the program.

Nebraska Solicitor General James Campbell countered by pointing out that Missouri created MOHELA and that the money it receives is paid to the state which would be in jeopardy if the student loan program is upheld. But the liberal justices did not seem convinced that this connection was sufficient enough to establish standing. Even Justice Barrett wondered why they didn’t force someone from MOHELA to join the lawsuit. They also noted that MOHELA must be separate entity if Missouri has to resort to public information requests to get information from them and that the state is immune from MOHELA’s liabilities. They also questioned how Missouri has suffered harm because apparently MOHELA has not paid the state since 2008.

On the matter of standing for the two individual plaintiffs, one of them did not qualify for loan forgiveness at all while the other did not qualify for the additional $10,000 forgiveness because they did not get a Pell Grant. They claim that they have standing to sue because the Department of Education did not provide a notice and comment period which would give them the opportunity to present their grievances and possibly have the guidelines changed to their favor. Prelogar countered that there are other avenues where they can present their grievances and that the HEROES Act does not require a notice and comment period if the Secretary of Education uses the Act to implement loan forgiveness.

Justice Jackson expressed concern that a careless ruling on standing could affect the federal government’s ability to govern if anyone can sue the government over anything they do not like.

When the discussion turned to the merits, the conservative justices took the position that a program that would cost almost half a trillion dollars and would affect over 40 million Americans should be decided on by Congress. Justice Thomas questioned the meaning behind the words, wondering whether the words “modify and waive” is the same as forgiveness.

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One of the liberal justices countered the cost argument by pointing out that the prolonged loan forbearance placed by both Presidents Biden and Trump also cost billions of dollars but no one complained then. This line may prove to be problematic if President Biden again breaks his “final extension” promise because someone might sue to invalidate the loan forbearance — such as a third-party FFEL loan holder whose interest continues to accrue and continues to make payments.

Prelogar did not contest that the program has major political and economic significance but argued that the major questions doctrine would not apply because statute clearly allows the secretary to modify or waive any provision of the law during a national emergency. She also drew a distinction between regulatory programs and a program that provides benefits. However, the justices did not seem convinced by that distinction.

Justice Kavanaugh stated that it is problematic to apply what he considers old law to unilaterally forgive student loans. He also mentioned that in the Court’s history, the worst moments were when the Court allowed executive actions to stand while its finest hour was when it pushed back against presidential assertions of emergency power. He did not mention examples of either.

Prelogar mentioned that if not for the loan forgiveness program, many people would default on their loans. However, since federal loans are eligible for income-based repayment programs, one could ask whether this would resolve the default issue. Also, considering that many loan holders have significantly more than $10,000 in student loans, a significant number of people would still either be in default or suffer financial hardship.

At some points during oral arguments, everyone discussed fairness, which is the elephant in the courtroom. The conservative justices asked about the fairness of the loan forgiveness program to those who didn’t go to college or to those who sacrificed to pay off their loans. Chief Justice Roberts uses an example of someone who didn’t go to college and took out a bank loan. He claims that Congress should have the power to make spending decisions that take fairness into account.

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The liberal justices looked at fairness differently. They seemed more concerned about the people who are at risk of defaulting. Justice Sotomayor said that many borrowers do not have assets, friends, or family to help them when they have financial problems, and things will get worse if they default on their loan payments.

The Supreme Court will likely issue its decision in a few months, most likely after May 11 when President Biden ends the state of emergency due to COVID-19. Considering that the liberal justices favor one outcome while the conservative justices favor another, it is likely that the court will implement the major questions doctrine to invalidate the student loan forgiveness program. However, at least one conservative justice seems to question whether the plaintiffs have standing. It may come to the point where MOHELA or a similar loan servicing agency will be “encouraged” to file a new lawsuit on its own.

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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