2025 Supreme Court Review: What to Expect from the $400 Billion Student Loan Forgiveness Case

Legal experts will argue whether the 2003 HEROES Act authorizes the Biden administration to cancel student loans on a massive scale.

The fate of student loan forgiveness is set to be decided by the Supreme Court this year.

Key Highlights

• The Supreme Court will hear arguments on two pivotal cases on February 28, with a ruling anticipated by summer 2024.
• Approximately 26 million of the 40 million eligible borrowers applied for loan relief before the program was halted.
• Federal student loan repayments are scheduled to resume two months after the Court’s decision.
• The legal concept of 'standing' plays a crucial role in both cases under review.

On February 28, the Supreme Court will deliberate two significant cases challenging President Joe Biden’s $400 billion student loan forgiveness initiative, which proposes to erase up to $20,000 in federal student debt per eligible borrower.

This decision will impact nearly 40 million borrowers, with 26 million having applied for relief prior to the program’s suspension by federal judges in November 2023.

Regardless of the Court’s outcome, federal student loan payments will recommence two months post-ruling, potentially requiring borrowers to readjust their financial plans after nearly three years without payments.

Did You Know?

While oral arguments are not televised, the public can listen live online, typically starting at 10 a.m. Eastern Time.

Both sides have presented extensive legal briefs outlining their positions. Here’s what to expect during the Supreme Court hearing and how to stay informed:

Supreme Court to Address Two Landmark Cases

Following the announcement of the student loan forgiveness program in August 2022, conservative groups filed multiple lawsuits to block it. Most were dismissed, but two cases successfully halted the program via federal court injunctions and have now reached the Supreme Court.

The first case involves Nebraska and five other states challenging the plan’s legality. Although initially dismissed, a higher court temporarily blocked the program pending appeal to the Supreme Court.

The second case features two graduates, Myra Brown and Alexander Taylor, supported by a conservative advocacy group, who argue the program’s selection criteria violate legal standards. A federal judge ruled in their favor, with the Biden administration appealing.

Additional Insight

The Supreme Court’s ruling date is uncertain but is expected by late June or early July, coinciding with the end of the Court’s session.

Central to both cases is the issue of 'standing'—whether plaintiffs have the legal right to sue by demonstrating direct harm caused by the program.

The states claim financial harm, citing reduced loan servicing fees for Missouri’s Higher Education Loan Authority (MOHELA) and lost income tax revenue from forgiven loans exempted under the American Rescue Plan.

The students argue that the lack of a public comment period and unequal eligibility criteria constitute harm, as Brown’s loans from private lenders are excluded, and Taylor qualifies for only partial forgiveness.

Biden Administration’s Defense Strategy

The administration plans a dual defense: asserting that neither the states nor the students have standing, and affirming the program’s legality.

They emphasize MOHELA’s independent legal status, noting it did not initiate the lawsuit, and highlight that striking down the program would not benefit the student plaintiffs.

Legal experts suggest the states have a stronger standing argument than the individual students.

"Courts often grant states standing in such cases," says Richard Painter, law professor and former ethics counsel. Conversely, student claims face challenges since unequal benefits alone rarely establish standing.

Focus on the HEROES Act of 2003

The administration bases its authority on the HEROES Act, enacted to assist military borrowers during emergencies, which grants the Education Secretary power to modify loan terms during national crises.

The law allows waiving or adjusting provisions to prevent borrowers from being financially disadvantaged due to emergencies.

Biden’s legal team argues the COVID-19 pandemic’s unprecedented impact justifies broad loan cancellation.

Opponents counter that the HEROES Act was never meant to authorize such extensive debt relief, especially since President Biden declared the pandemic over in late 2022.

The national emergency declaration, initiated in 2020, is set to expire in May 2024.

"The states’ argument that no current emergency exists is compelling," notes Painter.

Lawmakers involved in drafting the HEROES Act remain divided on its application to this case.

The Role of the Major Questions Doctrine

In 2022, the Supreme Court’s conservative majority introduced the 'major questions doctrine,' requiring clear congressional authorization for agency actions with significant economic and political impact.

This doctrine may influence the student loan case, as challengers argue the forgiveness program exceeds delegated authority.

Liberal justices have criticized the doctrine as a recent invention that limits agency power.

The Biden administration maintains the doctrine does not apply here, while opponents assert it does.

For the latest updates or to share news tips, contact Investopedia reporters at tips@investopedia.com.

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