Supreme Court Won't Reinstate Biden's Student Loan Forgiveness Plan For Now

The Supreme Court on Wednesday declined to reinstate the Biden administration's latest plan to cancel student debt for millions of borrowers, leaving them in limbo while the appeals process plays out.

The justices turned down a request from the Justice Department to lift a sweeping appeals court order that blocked the program, known as the SAVE plan, which has been the subject of legal challenges from more than a dozen GOP-led states in recent months. The court said in an unsigned order that it "expects that the Court of Appeals will render its decision with appropriate dispatch." There were no noted dissents.

Its order leaves the injunction from the U.S. Court of Appeals for the 8th Circuit in place for now. The Education Department paused loan payments for borrowers enrolled in the program earlier this month because of the ongoing legal proceedings.

Mr. Biden's attempts to provide relief to millions of Americans have not fared well before the Supreme Court, which last year struck down an earlier plan that would have benefited more than 40 million Americans and forgiven nearly half-a-trillion-dollars in loans.

Biden's student loan forgiveness plan

The latest program is an income-driven repayment plan in which monthly payments of a loan are based on the borrower's income. Rolled out by the Biden administration in July 2023, the SAVE plan lowers monthly undergraduate loan payments to 5% of a borrower's' discretionary income above 225% of the federal poverty line — up from 150% — and provides for shorter repayment periods and earlier loan forgiveness for borrowers with smaller starting balances. A borrower who owed $12,000 or less, for example, would have their outstanding debt wiped away after making 10 years of payments.

The administration said it had the authority to make these changes under the Higher Education Act and estimated that out of the 8 million borrowers who enrolled in the SAVE Plan, 4.5 million have monthly payments of $0. Some of the plan's provisions took effect at the end of July 2023, and others were implemented in January. Others still were set to come into force on July 1.

The Education Department estimates the SAVE plan will cost nearly $156 billion over a decade. But critics have argued that the actual cost is $475 billion, since they said the Biden administration excluded from its analysis $430 billion in debt that it expected to be forgiven by the president's earlier, broader loan forgiveness proposal. That plan, which relied on the 2003 HEROES Act, was invalidated by the Supreme Court last year.

In April, months after a rule detailing these changes was adopted, seven states filed a federal lawsuit in Missouri challenging its provisions and sought to block its implementation and enforcement. A separate group of three states also sued over the SAVE plan in federal court in Kansas and sought their own emergency relief from the Supreme Court after a federal appeals court kept the plan in place for now.

In a brief unsigned order, the court rejected the states' request to lift that appeals court's stay, noting that the states said they do not require relief from the Supreme Court as long as the 8th Circuit's order is in place.

In the Missouri dispute, a federal district court found first that Missouri had the legal right to sue. It also determined that the state had a "fair chance" of succeeding on its claim that the secretary of education exceeded his authority by shortening the repayment period for borrowers with original balances of $12,000 or less.

While the court found that the states were unlikely to succeed on their remaining claims, it blocked any new loan forgiveness under the SAVE plan.

The Biden administration appealed, but stopped canceling loans for borrowers who would receive relief through the shortened repayment period. A three-judge panel for the U.S. Court of Appeals for the 8th Circuit then issued a sweeping injunction blocking the SAVE plan and a pre-existing provision of forgiveness after 20 or 25 years of repayment.

The 8th Circuit's decision blocks implementation of the program for borrowers nationwide and is at odds with the order from the U.S. Court of Appeals for the 10th Circuit in the dispute involving the three other states, which kept the SAVE plan intact during legal proceedings.

The Biden administration has criticized the reach of the 8th Circuit's ruling and said it effectively granted the trio of states in the other case — Alaska, South Carolina and Texas — relief they were denied by the appeals court covering their region. 

"This is not how the judicial process is supposed to work," Solicitor General Elizabeth Prelogar told the justices in a filing.

In asking the Supreme Court to lift the 8th Circuit's injunction, Prelogar argued it "upends the status quo and is inflicting serious harms on millions of Americans."

She noted that over the past year, millions of borrowers have received and paid student loan bills that reflected some of the initiative's provisions.

"Because of the Eighth Circuit's orders, however, many borrowers are now experiencing intense confusion from being told that their payments must be recalculated and from being placed in forbearance — which will delay any eventual loan forgiveness," including under programs that were not challenged by the states, Prelogar said.

Borrowers, she continued, "would suffer additional harm if they are eventually sent higher bills and told that they can no longer count on the forgiveness that they were promised at the end of their repayment periods."

But the seven states, led by Missouri, accused the Biden administration of making "flawed" arguments and omitting a "shocking amount of context." Republican state officials from Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma called the Justice Department's request to lift the 8th Circuit's order "aggressive."

"From this banal text about length that exists in many plans, the secretary asserts authority to forgive every penny of every student loan," the GOP-led states wrote of the Higher Education Act in a Supreme Court filing. "Indeed, under the final rule, nearly everybody receives forgiveness."

Pointing to the millions of borrowers whose monthly payments will be $0, the states claimed the Biden administration is effectively forgiving their loans. Because the Higher Education Act requires repayment and does not authorize forgiveness, the states argued the education secretary went too far.

Mr. Biden campaigned during the 2020 election on providing student debt relief and has rolled out a number of initiatives aimed at easing a financial burden that affects roughly 43 million Americans, who have a combined $1.7 trillion in student debt.

The Department of Education estimates that it has forgiven $168 billion in debt for more than 4.7 million Americans. It said one in 10 federal borrowers has been approved for some relief.