Courts Block Biden’s Student Loan Forgiveness Plan: A Victory for Taxpayers

Wisdom Cole, national director of the NAACP’s youth and college division, leads a march to the White House for student loan forgiveness on June 30, 2023. (Photo: Kent Nishimura, Los Angeles Times via Getty Images)

Two federal judges on Monday issued nationwide injunctions to prevent the Biden administration from illegally canceling hundreds of billions of dollars in student debt. This plan, the Saving on a Valuable Education, or SAVE, plan, is the latest illegal loan redistribution attempt to fail in court.

Background

Biden finalized SAVE via administrative regulation less than two weeks after the Supreme Court struck down his first attempt at mass student loan cancellation through the HEROES Act. There, Biden had illegally tried to cancel up to $10,000 each for borrowers earning less than $125,000 a year, or up to $20,000 if they had already received a Pell Grant, a federal need-based grant, while in college.

SAVE redesigned repayment plans based on Department of Education revenue. Under these plans, borrowers would see their monthly loan payment cut in half, from 10% to 5% of their discretionary income. The program also increased the income threshold exempt from the calculation from 150% to 225% of the poverty line. Additionally, borrowers could be eligible to have their loan forgiven in as little as 10 years instead of 20 years or more, depending on their loan amount. The plan also removed unpaid accrued interest.

Under the new SAVE plan, only 22% of undergraduate borrowers are expected to repay their loans, and the cost to American taxpayers is estimated at $475 billion over 10 years.

What exactly was overturned by the courts?

The Eastern District of Missouri judge’s order blocked the administration from granting additional debt forgiveness under the SAVE program, meaning the administration will no longer be able to accelerate debt forgiveness to 10 years for borrowers with loans of $12,000 or less. Biden also cannot forgive the remaining balance of a borrower’s loan after 20 years of repayment under this interpretation of the authorization law. The debt remains collectible.

The Kansas district judge’s order blocked the department from implementing another aspect of SAVE: the reduction of the monthly loan payment from 10% to 5% of the borrower’s discretionary income, which was to take effect on 1 July. The judge’s order also blocked a provision that would have blocked the department from automatically designating borrowers as delinquent.

Both federal judges found that the department lacked the authority to make meaningful changes to the income-based repayment plan without explicit authorization from Congress.. The major questions doctrine, which helps judges determine when an agency has gone far beyond its authority to make major rules without congressional authorization, played a significant role in both decisions. The doctrine is also what helped stop Biden’s earlier plan at the Supreme Court.

What’s left?

None of the judges’ orders reversed the $5.5 billion already canceled under SAVE, which was canceled because the Biden administration implemented some of SAVE’s provisions earlier than expected.

The injunctions also did not affect other provisions of the SAVE plan, such as increasing the income exemption threshold from 150% to 225% of the federal poverty level, spousal income exclusion for borrowers married people who file their taxes separately, or limiting the accumulation of interest. As a result, more than 4 million borrowers will still not pay anything under the SAVE plan while the lawsuit is pending.

What happens next?

The Biden administration will likely appeal the injunctions, since debt cancellation is a campaign promise. The future of the SAVE plan will likely be determined in further court battles and could end up in the Supreme Court. Meanwhile, the department is prohibited from canceling the balances of any additional borrowers under SAVE, a result that should be widely welcomed by American taxpayers.

President Joe Biden should remember that none of his debt cancellation efforts have provided a systemic answer to the rising costs of college. Instead, subsidizing loans and tuition only encourages more debt and higher tuition.

Additionally, shifting the debt burden from those who voluntarily took out loans to attend college onto 100 million taxpayers – including the two-thirds of Americans who did not choose to pursue higher education – is wrong. politics and a bad economy.