Supreme Court Derails Biden’s Student-Debt Forgiveness Plan: The Road Ahead
July 3, 2023
In a decisive 6-3 verdict, the Supreme Court has quashed the Biden administration’s student-debt forgiveness program, asserting that it surpassed the authority Congress granted to the executive branch. Designed to wipe out $430 billion in loans from the government’s balance sheet, the plan was struck down on a recent Friday. Nevertheless, preparations are underway for alternative solutions.
Evaluating the Alternatives
In the wake of the ruling, the administration is charting a more protracted route to student debt relief through the Higher Education Act. Other proposals under consideration include enabling low-income borrowers to make smaller payments over an extended period or implementing a temporary ban on penalties.
Adherence to the Letter of the Law
In the issued opinion, Chief Justice John Roberts clarified that the Secretary of Education holds the power to “waive or modify” existing legislative or regulatory provisions related to financial aid programs under the HEROES Act. However, a complete overhaul of laws isn’t permissible. Earlier, the Supreme Court had dismissed the first of two objections raised against President Biden’s initiative to forgive a portion of federal student loans as part of a COVID relief effort. As Justice Samuel Alito wrote in the majority opinion, the plaintiffs lacked standing—they failed to demonstrate that they would face any harm as a consequence of the loan forgiveness plan.
Weighing Opinions on the Student Loan Debate
As an SA analyst, Logan Kane posits, “This ruling carries substantial implications for inflation, consumer discretionary spending, and wealth distribution in the U.S.” as he analyzes the winners and losers following this landmark ruling. The dialogue around student loans continues among investors. While some regard loan forgiveness as a tool to rectify unjust historical loan practices and support the broader economy, critics perceive it as a potential trigger for high inflation. It could also disadvantage those who abstained from attending college due to its high costs, those who don’t carry loans, or those who have already paid off their debts.
Monitoring the Student Loan Stock Market
In the aftermath of the Supreme Court’s announcement, stocks related to student loans, such as SoFi Technologies (SOFI), Sallie Mae (SLM), Navient (NAVI), and Nelnet (NNI), have experienced volatility. According to Wells Fargo, once repayments restart, the average monthly student loan payment will range between $210 and $314. In terms of the aggregate portfolio, the Federal Reserve estimates that, as of Q1 2023, Americans held $1.6 trillion in student loan debt, with the average debt per borrower around $38,000.