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Supreme Court strikes down Biden’s student loan forgiveness plan

BusinessSupreme Court strikes down Biden's student loan forgiveness plan

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Supporters of student debt forgiveness demonstrate outside the US Supreme Court on June 30, 2023, in Washington, DC. 

Olivier Douliery | AFP | Getty Images

The Supreme Court on Friday struck down President Joe Biden’s student loan forgiveness plan, denying tens of millions of Americans the chance to get up to $20,000 of their debt erased.

The ruling, which matched expert predictions given the justices’ conservative majority, is a massive blow to borrowers who were promised loan forgiveness by the Biden administration last summer.

The 6-3 majority ruled that at least one of the six states that challenged the loan relief program had the proper legal footing, known as standing, to do so.

The high court said the president didn’t have the authority to cancel such a large amount of consumer debt without authorization from Congress and agreed the program would cause harm to the plaintiffs.

‘An absolute betrayal’ for borrowers, say advocates

Financial experts expressed concern about what could come next for borrowers.

The U.S. Department of Education recently warned that pushing people into repayment after an over three-year-long pause and a pandemic that disrupted the financial security of many households without Biden’s loan cancellation could trigger a historic rise in delinquencies and defaults.

Consumer advocates slammed the ruling, and accused the court of bias.

“Today’s decision is an absolute betrayal to 40 million student loan borrowers counting on an impartial court to decide their financial future based upon the established rule of law,” said Persis Yu, deputy executive director at the Student Borrower Protection Center, an advocacy group.

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Yet the decision is a major win for the plaintiffs who’d worked to block the forgiveness and were worried about the executive branch interfering in the lending sector. At an estimated cost of $400 billion, Biden’s policy would have been among the most expensive executive actions in U.S. history.

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Republicans were also likely to celebrate the ruling, after recently passing legislation in the House and Senate to overturn the president’s plan and criticizing the policy for forcing taxpayers to improve the personal finances of those who’d benefited from higher education. Around half of people in the U.S. don’t hold a college degree, which research shows leads to greater earnings.

Biden vetoed that legislation.

How student loan forgiveness got to the Supreme Court

Last August, under pressure from other Democrats, consumer advocates and borrowers to fix a lending system they described as broken and predatory, Biden announced he’d cancel up to $10,000 in federal student debt for most borrowers, and as much as $20,000 for those who’d received a Pell Grant in college, a form of aid for low-income families.

When the Biden administration rolled out its loan forgiveness plan, it also released a 25-page memo by the U.S. Department of Justice asserting that its relief was permitted by the Heroes Act of 2003 – a product of the 9/11 terrorist attacks, and which grants the president broad power to revise student loan programs during national emergencies. The country was operating under an emergency declaration due to Covid-19 at the time.

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But the administration’s forgiveness application had been open for less than a month when a slew of legal challenges forced them to shut it. Biden’s plan has now faced at least six lawsuits from Republican-backed states and conservative groups, most of which accuse him of executive overreach.

Two of those legal challenges made it to the Supreme Court: one brought by six GOP-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — and another backed by the Job Creators Network Foundation, a conservative advocacy organization.

The justices heard oral arguments on those cases at the end of February.

— CNBC’s Kevin Breuninger contributed to this story.

This is breaking news. Please check back for updates.

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