Will The Supreme Court Kill Student Loan Relief?

Republican led states sued to block it. Supreme Court says President Biden's student loan debt forgiveness program will remain blocked for now, but the justices agreed to hear oral arguments on the case, with the decision expected by June. Those arguing against the programs say the president doesn't have the power to erase student debt on his own, so the Justice's decision in this case is also being closely watched as a test of the balance of power between the

White House and the Congress. Greg Store is Bloomberg Supreme Court correspondent. He's here with me now to tell us what to look for in this case and how it might be decided. Greg, why did an appeals court put this student loan forgiveness plan on hold? Well, it was challenged by a group of Republican led states, and they sought to block the program, saying it was beyond the president's authority. So when the Eighth Circuit got involved in the case, it didn't give a whole lot of explanation

to answer the question. But it first concluded that the states did have the right to challenge the program, and then it said, kind of looking at the pros and cons of acting right now, the equities as a court would say, we think it makes more sense to block the program while the litigation goes forward. So they're claiming that Biden overstepped his powers as president and by doing this,

what is the basis of that argument. Yeah, So there's a law that's known as the Heroes Act, and what it says is that the Secretary of Education can wave or modify some provisions of student loan requirements in the case of a national emergency. And so the administration says, that's what we're doing here. We're forgiving these loans because the national emergency of the pandemic is still having a financial impact on borrowers, and we're targeting the borrowers are

going to be hurt the most by it. And so the kind of the fundamental question in the case is that a fair reading of the Heroes Act. So the idea is that they're arguing that Joe Biden is using the pandemic as a convenient excuse to sort of hitch a ride on for this program, but he wanted to do it anyway, so it wasn't really the pandemic that was the reason he did it. Yeah, that's exactly right. They even say in their briefs that basically he's fulfilling

a campaign promise by doing this. They also talk about the cost of the program. So the Congressional Budget Office has said this is going to cost four hundred billion dollars. And what the states say is Congress would not have wanted to give the president that much authority to do something that's sweeping without being more clear about it. So these are states bringing this case arguing that the president can't do this because Congress says, so, why do the

states have standing to bring this case? Yeah, that is a really important question that may ultimately be how the case is decided. The Biden administration says they do not have standing, and you should even get to that question about whether the president has the authority the states arguments have sort of multifacets to them. But what the Eighth Circuit focused on was there is a servicer, a loan servicer in Missouri that is created as a separate legal entity,

but it has some obligations to the Missouri treasury. It's supposed to put money in there to help pay for education projects. And the state says that servicer is going to lose some money because some loans it was servicing and getting fees on will evaporate. And so that's the financial hit that the states say. They are feeling that Missouri is going to potentially get less money in its treasury because this entity known as Mohila is getting less

money for servicing student loans. So the Eighth Circuit Court of Appeals heard this and they said, yeah, that's at least reasonable enough that we're going to suspend it until it goes to the Supreme Court. Yes, that's exactly right. There is also a separate case. The Supreme Court actually

has two cases. There's another one involving two borrowers, but most of the legal experts I've talked to think that the state case is the one that's probably the main event that the states have the stronger argument on standing. Given what we know now about the makeup of the Supreme Court, which has seen new members come on in the last few years, is there any indication about how they'll consider this case and how they might rule. Well, let me give you a two part answer to that.

The easier part is if the Court says finds that they're standing and gets to that question of does the president have this authority? That is very likely to be a conservative versus liberal fight. That is a case where the conservative justices have said, we want to see explicit authorization before the executive branch can do something so big

that the Congress would have to approve it exactly. And here, when we're talking about language that I would imagine some are all the conservative justices would say is pretty vague. One would have to expect that they will be skeptical of the idea that the president could jump in and say, Aha, I've got the authority to wipe out four hundred billion dollars in student loans. The standing question is a little

more complicated. That is probably where if the administration is going to win this case, if it's going to pick off some of the conservative justices, that that's where they would do it. And I say that in part because this is a matter where us you know, justice like John Roberts may be skeptical the idea that the court system should be getting involved in this sort of a fight. He may be receptive to the idea that everything doesn't

necessarily belong in federal court. And in this case where the effect on the state treasury is pretty tangental and pretty you know, down the road and kind of depends on how this agency in Missouri deals with its finances, somebody like him, and maybe a few other conservative justices

might be skeptical that the court should get involved. In a lot of your stories over the years writing about cases sometimes comes down to this idea of will the court choose to take a narrow interpretation are you a procedure, or will they use a case to really make a big statement about larger things. Is that what we're talking about here? I think they could if they want to use this case, they could focus on the narrow provisions

but also make a broader statement. So there is this legal doctrine that we saw come up in the court's last term in a case involving climate change, which we can talk about called the Major Questions doctrine, And the Supreme Court said in that case that if it's a major question and an administration is saying we've got the authority to do something, if it's going to have a huge economic impact, we want to see Congress say explicitly

you can do that. So if they take this case as an opportunity to sort of expand on that, really say here's what the Major Questions doctrine means, you could see that having a lot of impact on other areas as well. Where exactly did the Major Questions doctrine come from? Who made it? That is a good question. I could say that it came from the courts. They sort of made it up. But what exactly it is a subject

of some debate even among the justices. Some of them seem to think what it is is just a little tool that helps us interpret ambiguous language, that if we're not sure what something means, we're not going to assume it means something major unless it's really clear, And some of them think it's actually this really really big, important separation of power's principle that the administration, the president does not have the constitutional authority to do some things unless

it's been clearly authorized by Congress. And you see both of those kind of ways of thinking about the doctrine sort of intersect as the Court deals with it in the context of particular cases. So do you actually invoke it we hereby invoke the major questions doctrine or where

does it come from? In the Environmental Protection Act case that was about whether the EPA could impose restrictions on coal flat fired power plants, and these are restrictions that would have a very big economic effect or could have a very big economic effect, And the Supreme Court in that case said, the impact is so potentially great that we're looking at this language here authorizing the EPA to do certain things, and we're not going to read that language in a way that lets them do this much.

If Congress wants to let the EPA do this, it needs to be more explicit. And so now we're going to see whether that discussion, which was labeled the Major Questions doctrine, plays out in this different context. It seems like there really are two roads they could take. One is really picky letter of the law, do the states

have the standing to even bring this case? And another one that could have pretty far reaching effects beyond student loans into all sorts of other things having to do with how much power the president has, how much power

the Congress has. I think that that's right, although I wouldn't the standing issue quite so much, perhaps because let's say they say, no, the states don't have standing, and let's say, let's just imagine that the justices are thinking, but if they did, I would rule against the administration. Then we've set up this world where an administration can put a policy in place, and it may be that nobody can challenge it, even though it goes beyond the

president's authority. So that is kind of a big picture implication that I would imagine is going to be on the minds of the justices as they consider that standing argument. Is there a third option? You know, we have the standing argument, we have the major questions doctrine. Is there another way that this could go? That's unexpected, not that I've seen a lot of cases do have that sort of off ramp where the court kind of adduct the big question because it can decide on a smaller one.

I'm not sure I see that here. This is really a case that is very likely, almost certainly going to determine whether Joe Biden can forgive these loans, whether his administration can forgive these loans, are or not? Greg, please

stay seated. We'll keep talking after the break. Greg, A lot of the times we see these big decisions in June is that when you think we can expect this one to be handed down by the court, I would think so, and I the only reason I'm hedging a little bit is this is one of those cases that's been expedited to some degree, and so we could see the Court decide that we need to give a faster action because right now the administration's policy is on hold.

The administration is saying we kind of urgently need this relief so people can go about planning their lives, and the Court might be sensitive to that and think we want to give them an answer as quickly as we can. Greg, I'll ask you an unfair question, how do you think the court will decide this case when you have a

six three majority. The safe bet is usually to say that the Conservatives are likely to win, given this court's record on the major Questions doctrine, given their clear skepticism of an administration that takes a little statutory provision in

says we have this broad power. If you remember a couple of years ago, there was a fight over the administration rule that would have required workers, some tens of millions of workers to either get vaccines or get frequent tests, and the Supreme Court said, know, that goes beyond the power to the Occupational Safety and Health Administration. You can't

do that. That's all part of this kind of we're not going to let the administration have this broad power unless Congress is more explicitly said you can do something even beyond that case. This is a court that has shown a lot of skepticism towards any entity, whether it's the administration or a state saying because of the pandemic, we get to impose these special rules. And we saw it when they were talking about, you know, restrictions on

capacity in churches and a like during the pandemic exactly. So, in other words, just like the student loan case, now they said, obviously you can't use the pandemic as an excuse to do something you wanted to do anyway. Yeah, yeah, that's exactly it. So those are two more currents that are going to be coming against the administration as it goes to the Supreme Court. Greg start, thanks for talking

with me today. Sure thing. Now, let's take a look at what will happen if the Supreme Court rules for or against forgiving student loans. Claire Valentine joins me now from New York. She covers personal finance and she's been following this stories ups and downs. Claire, can you start by giving us an idea of how many Americans would benefit from this student loan debt plan if the Supreme

Court allows it to go through. More than forty million Americans could potentially benefit from this through the relief through the forgiveness of up to twenty thousand dollars. What are the terms of the Biden plan? How much are people

able to forgive? And who's for it? Right? So, Biden first announced this plan back in August, and when he laid it out then the terms were that borrowers were eligible for ten thousand dollars in relief or twenty thousand for pell grant recipients granted that they make under one hundred and twenty five thousand dollars a year or two hundred and fifty thousand dollars for married couples. And so how does it work. They just have to apply for

this relief. Yeah, in certain cases, the administration already has their information, but the vast majority of people have to submit an application. About twenty six million people had already applied for this before the Supreme Court took up the case. It's sort of been frozen since then as we wait to find out what happens with the court arguments. Our producer Moe Barrow here in Washington, DC, asked people how they feel about Biden's loan forgiveness program. Here's what they

had to say. Student loan reform program that Biden is proposing to reform. I'm in favor of it. I think it's an opportunity to put folks back on a level playing field. We have found that student debt has been, you know, debilitating for folks, So for giving opportunities to people to pursue their careers and build wealth for themselves and for their generations after them is definitely welcomed. One of the things it's always struck me about student loans

in the current periods. When I was in school, my student loans were subsidized by the State of New York, so I never paid market rates on my student loans. The idea that over the last twenty years people have been making tons of money offer student loans has always been appalling to me. Yeah, I can see why some people feel that, hey, I paid my loan myself, somebody else is getting paid off. I know people get really worked up about it. But here's the thing, Like, you know,

look at the PPP loans. Look at the loan forgiveness that they given to the large corporations, large companies. I mean, I know people individually who've gotten almost like a million dollars worth the loans forgiven. I think, you know, if you compare both, it's not that big of a deal. And this is different from the student loan freeze that's been in place since the pandemic. Is that right? Yeah, so the freeze has been in place since March twenty twenty.

It's been extended many times each time sort of under the rationale that people were struggling, people needed more time to get their finances in order after the hit of the pandemic. It depends on sort of when the Supreme Court case is finished and what they say, but one way or another, payments are going to restart sometime this summer, and when that happens, people will suddenly be getting these monthly bills again that are required for them to pay.

And you write that if this happens, if people are going to be required to pay, this would have a pretty big effect, and not just individuals but the economy. Yeah. So this has always sort of been the case, but I think now more than ever, people are struggling to afford their student loan bills. We see that with people who have private student loans who are still paying them because they haven't been frozen. And then just even people sort of gauging how much they would have to pay

when payments restart. They're crunching those numbers and they're seeing with the cost of housing and with everyday goods, given inflation figures, the math just isn't working for a lot of people. There's not going to be enough to pay all their bills. How much is a student loan bill for an average American? So the average American at least before the pandemic pause, was paying over three hundred dollars

a month in student loans. The exact number is three hundred and ninety three dollars each month, according to the Federal reserve, and surveys along the way since this pandemic freeze have shown that Americans are going to struggle when this happens. One study from the Student Debt Crisis Center found that almost nine and ten borrowers are worried about affording payments when they restart because of inflation, and people are sort of having to make decisions for their lives

based on this. I talked to a woman who told me that she is taking a second job because she knows these payments are going to restart and she's going to struggle to afford it. So I can hear in my head some older Americans, maybe some younger Americans who either didn't take out loans or who have already repaid their loans, saying, well, yes, that of course will be a hardship. But why should the government forgive all these loans they knew they were going to have to repay them.

Why is it the responsibility of everybody else to repay their loans just because it's a burden to them. Yeah, So it's a good point, and I think a lot of people do take that standpoint. People on the other side would say that the prices of college tuition have risen in many cases. The cost of college education now is two hundred and fifty thousand dollars, which is unbelievable compared to what it used to be, so people have

a lot more debt. What we've also seen is because people are going to grad school to have an edge in the labor market, they're accruing a lot more debt because of that as well. And then you're also seeing, just from an economic standpoint, people struggling to afford their bills. That's bad for the economy. If people aren't spending money on goods. We know the American economy is really driven by the consumer, and if they can't get out and spend like that, that's bad news for the economy as

a whole. Please stick around. Our conversation continues after the break. Claire, another argument I've heard is that when you take on loan debt, we're gonna go to college. The assumption is you're going to make more money as a result of your college degree. But in fact, in recent years, wages even for college graduates, have not kept up with inflation, and so therefore that kind of basic assumption has fallen short for a lot of people who took out big

loans assuming they'd be able to pay them back. Definitely. I think that's right. On the money, is that with inflation happening and wages sort of stagnating, in many cases, people aren't reaping that return on their investment. And we're seeing that, especially in younger generations. Less people are going to college now because they've seen sort of this play out. They've seen other people with student loans taking them out and not making the money to make that decision worth

it and choosing alternative paths. One thing you right, is the larger economic effects of people being unable to repay their loans is that you expect an increase in other kinds of defaults on credit cards and other sorts of things. Exactly how do economists think this ripple effect might play out? Yeah, so, I think the basic way it works is that when people are hit with say another four hundred dollar bill

each month, the math just doesn't all add up. They're forced to sort of make choices on what bills they're going to pay. We know that a lot of people who have auto loans sort of prioritize that payment because they need to get around, but that's not always the case. You know, if they can't make the math work, they're going to choose one area to not pay, whether that's credit cards and so you see that big interest rate affect them, or whether that's auto loans and more. Delinquencies

sort of ripple through the different consumer categories. Because of that, My study from the Federal Reserve recently found that the number of people who could be delinquent on their student loan payments when they restart could potentially surpass the fifteen

percent that were before the pandemic. That's pretty striking, just the fact that so many people wouldn't be able to pay and that we would see such a jump immediately, especially when the whole purpose of the student loan pause was to help people get themselves in better financial situations to be able to actually afford the payments. And if the plan is allowed to go forward, for a lot of people, the loan forgiveness wouldn't actually erase all of

their deba just a portion of it. Correct. Yeah, While you know, there are many people that have loan balances below ten thousand dollars, many many more have balances that are you know, eighty thousand, one hundred thousand and so you know, while the ten thousand dollars relief would help a lot, it's by no means of magic bullets that just erases everything, Claire. If the plan is allowed to go through, and I think there's a lot of skepticism that the court will uphold it, but if it does,

what does it mean for student loans? Does it just sort of reset the clock and then you have a whole new generation of students taking out loans and they have to pay them back or does that then set up a thing where people start expecting, at one point or another, the government's going to come in and pay their loans, so there's a disincentive to actually pay them.

What a lot of advocates and activists that I talked to say is that this forgiveness plan, it's sort of a band aid on the issue, and the issue is the rising cost of a college education and the amount of loans that is required for that. One thing that the Biden administration is also looking into is a new income driven repayment plan that would potentially help borrowers even more, especially those that have more than ten thousand dollars in

student debt. And so that role would cap borrowers monthly payment at five percent of their monthly discretionary income. That's down from ten percent currently, And the government would also forgive balances of twelve thousand dollars or less after a borrower has made ten years of payments, down from twenty

years right now. So, you know, while I think the main issue is how expensive it is to go to college, some of these reforms, like the income driven Repayment plan could actually long term help barrows a lot more than just this one time forgiveness. As you said, all of this kind of points for the need for some kind of reform both of the costa college education, how people

pay those costs. How do you think that student loans are going to play out in the future now that everyone knows that they cost a whole lot of money and you may not be able to pay them back. I think one at least short term effect that you're going to see is fewer people taking out student loans, fewer people deciding to go to college, just realizing that

that investment is not worth it. I think that especially with this potential income driven repayment plan that could be helpful that could also be hit with legal challenges with this court case kind of as a starting point, We're going to see a lot of debate over what the executive branch has the power to do in terms of helping student loans. It's a really complicated question, and I think all of these sort of reforms are based off that. There are a lot of ideas that are thrown around

of what Biden could do to help students. Some people say, you know what if federal student loans had a zero percent interest rate, that could actually help a lot more. It's an idea turn around. We know how these take a while to you know, actually get into place, let alone to be allowed to happen. But I think it's something that our lawmakers and Americans in general are dealing with this. So many people have student loans, So you know, we're going to see ideas that are playing out and

you know, attempts to alleviate this. Whether or not they actually go through as an open question. Claire Valentine, thanks for being here, Thanks for having me, Thanks for listening to us here at the Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple podcast or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The

supervising producer of the Big Take is Vicki Burgolina. Our senior producer is Katherine Fink. Our producers are Moe Barrow and Michael Fallero. Raphael I'm Seely is our engineer. Our original music was composed by Leo Sidrin I'm west Kasova. We'll be back on Monday with another Big Take. Have a great weekend.