On February 28, the Supreme Court student loan forgiveness oral arguments were made using two different cases.  These cases are testing the outcome of President Biden’s one-time student loan forgiveness program that could grant $10,000 to $20,000 of student loan forgiveness to borrowers.

It was interesting to hear the arguments and how the semantics of the words were so important in the discussion and intention of the law.  The loan forgiveness program is based on the 2002 HEROES Act and the intention related to 911.  As the judges questioned both parties, the language within the law was broad to offer flexibility in case of an emergency and a way to avoid political battles.

Listed below are the key elements that I derived from both cases.  The judges will be making their decision based on the issues listed below, other items, and related cases.  One of the key discussion items that the court raised was the precedent worry.  These cases could set a new precedent concerning the separation of power between the executive branch, congress, and the supreme court.

Modify and Waive vs Cancel

According to the HEROES Act, the language used gives the Secretary of Education the power to modify and waive a certain provision of existing law in case of a national emergency.  Both sides were pressed on this language.  There was some confusion regarding the word waive since it referenced it being related to specific rules of existing law not a waiver of the debt.

The argument stated that the National Forbearance was a modification and waiver of required payment during the emergency but the intent was not to cancel the debt.  The initial National Forbearance was put in place with congressional approval of this part of the HEROES Act once the national emergency was put in place.

According to statements made the National Forbearance will have cost approximately $150 Billion assuming repayment starts in September 2023.

Executive Order – Expansion of Power

Some of the Supreme Court Justices raised the question various times about this being a congressional issue or the language already states the congressional intent.  The problem was the dollar amount associated with this Executive Order.  Some justices argued the language is clear and that Congress intended to offer flexibility.  Others argued that this $400+ Billion cost would normally need Congressional approval or appropriation.

It was then argued that this was not a direct expenditure that would need to be paid out.  It was a write-off of debt and no direct funds would be paid to any borrower.

As a point of reference, two prior cases that used the national emergency have been rejected by the Supreme Court.  The issue of the timing of this was also raised.

Worst off Argument

In the court briefs, arguments of harm need to be shown.  As part of the HEROES Act the intention is to prevent a citizen from financial harm or being put in a worst position than before the event.  The one side argued that the National Forbearance was that goal.  It enacted no payments and zero interest rates during the COVID Emergency.  A cancellation of debt is actually an improvement of a person’s financial situation which is not the intention of the law.

At the same time, Justices raised the various COVID programs that benefited different groups and in different ways.  Why is this change any different from those programs?  Every person did not benefit from every COVID program.

Loan Forgiveness Fairness

During the arguments, the example of the student borrower was compared to the person who took out a business loan before COVID, and this person still needed to pay that back.  Debt forgiveness was not an option for that borrower.

As stated above, there were various COVID programs and different people benefited in different ways.  Some discussion was raised about the lack of selectivity in this area also.  The current order will impact 95% of current federal student borrowers.  This went back to the modification argument and the possible political intent of the order.

Political Intent

This issue was raised during the expansion of power argument and proof of harm discussion.  It was raised that the executive order was a political promise and that executive orders should not be used for political gain.  The court seemed concerned about the precedent that this could create in the future and that it should be a Congress item.  The court raise the question that it should not be placed in their hands.

One of the cases specifically talked about the lack of procedural protocol for approval.  The justices asked various questions on this.  Questions on why the HEROES Act was used and whether there is another way the Secretary of Education could still use it for approval.

Planning For the Outcome

No matter what the decisions, borrowers need to get ready for the repayment restart.  At worst repayment will restart by September 1, 2023.  A decision is not expected until late June.  If the forgiveness is approved then your account balance will be adjusted and your monthly payment will be recalculated.  Notification will be made through your loan servicer.

If the forgiveness order is rejected, then borrowers will resume payments as it was before the National Forbearance.  Loan Servicers will notify you of your payment amount and date.  Even if it is rejected, the National Forbearance months will count toward both PSLF and the end-of-term forgiveness for Income-Driven Repayment (IDR) users.

IDR users must understand how important their 2022 taxes will be in calculating their monthly payments.  Starting in July, the IRS tax data will be integrated into the Department of Education systems for both loan repayment and FAFSA.  Under the new rules of the annual income verification that will happen automatically and use the tax data on file.  Some borrowers’ income is from 2019, so plan accordingly.

Supreme Court Student Loan Forgiveness Oral Argument Summary

At PayForED, we try to keep our users and newsletter readers up to date.  At this point, it is still unclear which way the decision will go.  Both sides made great arguments and the final decision will be monumental based on the number of people it will directly impact and the precedent it may set.

The immediate action borrowers need to take is to review their current situation while the loan servicers are not overwhelmed.  Review your account balance on StudentAid.gov.  Contact your loan servicer to confirm your current repayment method and monthly payment amount.  If you are using an IDR method, verify your income verification date, so that you can do the proper 2022 tax planning.

The PayForED Repayer software can help borrowers better understand their options when repayment restarts.