The Supreme Court recently issued some of its final opinions for the term. One of them dealt with the federal student loan cancellation proposal. The Secretary of Education claimed the authority to cancel student loan debt under the statute’s language that permits waiver or modification loan terms under certain conditions.
The Supreme Court heard oral arguments on the issue earlier this year. The Justices seemed skeptical of the assertion that the Secretary could enact such a massive cancellation of debt.
I anticipated the Court rejecting the government’s argument, and I advised my coaching clients to handle their own finances in light of that. The Court finally released its opinion and rejected the proposal by a 6-3 vote.
Why Was the Student Loan Cancellation Plan Rejected?
There will likely be a lot of confusion on this case, especially since it’s so contentious. Many borrowers are resentful over the fact that they are not getting either $10,000 or $20,000 of their balance canceled.
But this decision was not about whether student loan cancellation should happen at all. It was a matter of who has the authority to make that decision.
Indeed, up until 2022, it was nearly universally acknowledged that an act of Congress was necessary for any sort of student loan cancellation. Speaker Nancy Pelosi herself said so in 2021—a statement that the Court did not fail to mention.
This was not about the merits of such an idea. This was really a matter of statutory authority. Since I am also am lawyer, here is my overview of the case and why it was ultimately the right decision.
What Were the Issues?
There were effectively two main issues at stake. The first was whether the plaintiffs could bring the lawsuit in the first place—do they have standing? The second was if the Secretary of Education had the authority to make this large of a loan balance cancellation.
The Standing Issue
The first issue was who had standing to bring the lawsuit against the student loan cancellation proposal. In federal courts, plaintiffs need to satisfy the legal standing test in order to proceed on the merits. This means that the plaintiff must suffer a legally recognized harm and the federal courts must be able to provide a remedy.
Several individuals and six states brought the lawsuit. The Court held that the State of Missouri had standing because of its creation and ownership of MOHELA. Missouri owns MOHELA, a federal student loan servicer.
The student loan cancellation proposal would cost Missouri tens of millions of dollars in interest and fees from loan balances. The Court found this was enough to satisfy the standing issue and that the case could proceed.
The Authority Issue
This is where the heart of the case was. The main argument from the Biden Administration was that the HEROES Act authorized the Secretary of Education to waive or modify conditions of the federal student loan program to almost any extent during national emergencies.
The Department of Education used this provision for the first student loan payment deferment in March 2020. Congress later enacted further extensions of that deferment beyond September 2020.
But in the fall of 2022, the Biden Administration announced a plan to use this waiver/modification authority to do a $430 billion cancellation of student loans. Never before has the Department of Education used this provision for such an expansive (and expensive) purpose.
In the end, the Supreme Court rejected such a sweeping view of the HEROES Act.
There Is No Authority for the President to Unilaterally Cancel Student Loan Debt
This case came down to a fairly boring practice that federal courts often have to do—statutory interpretation and construction. I won’t go into all the details of it here. But the short of it is that the words “waive” and “modify” are limited in their scope.
The Court referred how Webster’s Dictionary defines “modify”: “to make more temperate and less extreme,” “to limit or re- strict the meaning of,” or “to make minor changes in the form or structure of [or] alter without transforming.”
Further, Black’s Law Dictionary defines the word as: “[t]o make somewhat different; to make small changes to,” as well as “[t]o make more moderate or less sweeping.”
The authority is for small changes in the student loan system, not an overhaul.
The Court, in a biting fashion, noted that this was not merely a minor change.
The Secretary’s plan has “modified” the cited provisions only in the same sense that “the French Revolution ‘modified’ the status of the French nobility”—it has abolished them and supplanted them with a new regime entirely.
Biden v. Nebraska, Slip op. at 16 (2023).
This Was the Correct Decision as a Matter of Law
The Court’s decision was not about whether the idea of canceling student loan debt has merit. That’s an entirely different conversation. It was simply about whether the executive branch could do so on its own. And the Court said no.
If you believe that there should be student loan cancellation or forgiveness, the solution is to call your Congressional representative and ask them to vote for new legislation. The executive branch is not the appropriate entity to use for student loan cancellation.
I am sympathetic with borrowers who feel like they cannot ever pay off their student loans. I see the very real effects this debt has on people’s lives. Hopefully you as the reader see my heart and that I want to see this crisis resolved as much as anyone else.
At the same time, there is a fundamental unfairness to other Americans by “canceling” the balance. The act of canceling student loan debt like this changes the balance from an account receivable to a liability.
The fact of the matter is that the balance has to go somewhere. If it’s not the original borrower paying the balance off, it inevitably becomes the American taxpayer.
The student loan balance isn’t truly canceled. The debt still exists. Someone else pays it eventually. That means it’s effectively an appropriation of taxpayer money. And that power rests with Congress, not the president.
I have shared my thoughts as a financial coach more extensively in an article on the topic of canceling student loan cancellation here.
Final Thoughts on Student Loan Cancellation
I am not an advocate of relying on political promises for life change. Politicians have one interest only, and that’s reelection. They’ll promise anything to increase their chances of being in office again.
The bottom line is that elected officials and bureaucrats in Washington do not have as much influence over our destiny as we do. Our daily choices add up to a far greater portion of our outcomes than what the people hundreds or thousands of miles away do.
But it can be really hard to realize this and act on it. This is what I’m here to do—catalyze young professionals into financial freedom. It starts with the mindset that we are the ones who get to decide what our decisions will be and what the outcomes will be.
The rejection of the student loan cancellation program is not the end of the road. Even if it never happens, there’s hope for a better financial future. You can do it and I’ll show you how.
Book your free Discovery Session today to ignite your journey to financial freedom!
