Legal battles over student loan forgiveness continue.
The Supreme Court has denied a request to delay student loan debt relief under a landmark settlement agreement that will provide billions of dollars in student loan forgiveness. The ruling hands borrowers a victory, and gives the Biden administration a green light to continue implementing relief under the agreement. But legal battles over student loan cancellation continue.
Here’s what the ruling means for borrowers, and what to expect in the coming months.
The Supreme Court’s ruling last week was about a sweeping settlement agreement designed to resolve Sweet v. Cardona, a multi-year class action lawsuit first brought against the Education Department during the Trump administration over stalled or denied Borrower Defense to Repayment applications. The Borrower Defense program can wipe out federal student debt if a borrower’s school engaged in harmful misrepresentations or made false promises about important aspects of their educational program.
Under the agreement, the Biden administration will automatically provide $6 billion in student loan forgiveness for nearly 300,000 borrowers who attended certain covered institutions and submitted a Borrower Defense application by last summer. Many more borrowers may also ultimately receive student loan cancellation, as well, through an expedited review process of Borrower Defense applications.
But three schools referenced in the settlement agreement challenged the outcome, arguing that the terms were unfair and that their inclusion as covered institutions would harm their reputations. The schools asked for a stay (a delay) in implementation of the settlement relief while they appealed. The trial court denied the request, and the schools appealed all the way to the Supreme Court.
Last Thursday, the Supreme Court denied the schools’ request for a stay. This will allow the Education Department to continue implementing the Sweet v. Cardona settlement relief, including the billions of dollars in student loan forgiveness. The department is expected to provide the relief on a rolling basis through January 2024, so class members who have been notified that they qualify, but have not yet received student loan forgiveness, should expect further updates in the coming months.
Importantly, the Supreme Court’s denial of the schools’ request for a stay does not end their legal challenge. The ruling simply allows the Biden administration to continue awarding settlement relief while the challengers proceed with their appeal at the Ninth Circuit Court of Appeals.
The Supreme Court’s decision on the Sweet v. Cardona challenge is separate from the legal challenges over President Biden’s signature one-time debt cancellation plan. That plan, first announced last August, is much larger in scope and would provide $10,000 or $20,000 in federal student loan forgiveness to millions of borrowers.
The Education Department has been unable to implement any student loan forgiveness under that plan because federal courts did grant a stay of relief, unlike in the Sweet v. Cardona challenge. As a result, even though millions of borrowers applied for relief and were approved, no one has received the benefits.
The Supreme Court heard oral arguments in two legal challenges in February. The challenges center on whether the Biden administration has sufficient legal authority to establish the program under the HEROES Act of 2003, a federal statute that authorizes the Education Department to “modify” of “waive” normal rules governing the federal student loan system in response to a national emergency, such as a pandemic. And a key question that the Court must consider is whether the challengers — a coalition of Republican-led states, and two borrowers who wouldn’t be eligible for maximum student loan forgiveness benefits under the plan — have sufficient standing to sue.
A ruling could come at any time. But court observers expect a decision to be issued sometime in June, which is when the Supreme Court typically releases major rulings of national importance. Notably, because the legal issues and case disposition of the Sweet v. Cardona settlement are entirely distinct from the issues underlying the legal challenges over Biden’s student loan forgiveness plan, the Court’s denial of a stay in the Sweet v. Cardona settlement does not provide any clues as to how the Court may rule.
The challengers who sought a stay in Sweet v. Cardona had tried to argue that the Biden administration’s authority to enter into the settlement in the first place was misplaced. The administration had pointed to a provision of the Higher Education Act which gives the Education Department broad authority to “compromise” federal student loan obligations in certain situations as the legal basis for agreeing to settle. Attorneys for both the administration and the class of borrowers argued that resolving disputed legal claims was a perfectly legitimate use of this compromise authority.
The legal issue in dispute here is noteworthy because advocates for student loan borrowers have pointed to this provision of the Higher Education Act as a potential backup option for Biden’s separate one-time student loan forgiveness plan. If the Supreme Court strikes down that initiative and rules that the HEROES Act does not authorize such sweeping relief, advocates have suggested that the Biden administration could simply reissue the program under the Higher Education Act’s compromise authority.
Biden administration officials have publicly stated that no backup option for the student loan forgiveness plan is currently under consideration. And there might be problems relying on the Higher Education Act’s compromise authority, both legally (as opponents will likely make similar arguments that the provision does not allow for such a sweeping debt relief plan) and administratively, as the Education Department may have to go through a lengthy rulemaking process to re-establish the program.
The Supreme Court’s brief ruling denying the stay in Sweet v. Cardona was not a ruling on the merits of the Higher Education Act’s compromise authority. That means that the question of whether the Biden administration can utilize this authority as a fallback option for mass student loan forgiveness remains an open question, and one that the Court may ultimately revisit.
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