Challenges to student loan cancellation reach the Supreme Court End-shutdown

In September, Jason Doresky received a $10,000 direct deposit from the Department of Education. It was a refund for payments he had voluntarily made on his federal student loans since March 2020, when the government told borrowers they could temporarily stop paying due to the pandemic.

Three years later, those loans are still suspended, and Mr. Doresky, 31, who graduated from the University of Kansas in 2015, still has the money he received in his savings account, intact. He is waiting to find out if he will have to return it.

On Tuesday, the Supreme Court will hear arguments on President Biden’s plan to eliminate up to $20,000 in federal student loan debt for most borrowers, at an estimated cost of $400 billion. Biden’s plan, announced in August, has been blocked by legal challenges, preventing the government from paying off any debt owed by the 26 million borrowers who have applied for relief.

The White House insists that its approach, which bypassed Congress and is based on a 2003 law, the HEROES Act, which allows the education secretary to grant relief in times of national emergency, is legally sound. The actions that Mr. Biden has ordered Education Secretary Miguel Cardona to take “fall comfortably within the plain text of the law,” the administration argued in a legal filing with the court.

Challengers, including six Republican-led states, call it an abuse of executive authority that seeks “awesome and transformative power” by relying on “a tenuous, pretextual connection to a national emergency,” according to his legal brief.

Stuck in limbo are millions of borrowers, like Doresky, who have wavered between hope and despair as Biden’s relief plan started and then stopped. “For the people making these decisions, $10,000 is not a lot of money,” Doresky said. “But when it comes to a large part of your actual net worth or savings, it really matters.”

More than two dozen advocacy groups plan to bus hundreds of borrowers to Demonstration in front of the Supreme Court on Tuesday. The event brought together unions, civil rights organizations and youth activists with groups as diverse as the Hip Hop Caucus and the National Council of Jewish Women.

Desiree Veney, a senior at Morgan State University in Baltimore and vice president of her campus chapter of the National Association for the Advancement of Colored People, plans to hit the road before dawn to join the rally. A first-generation college student and the second oldest of 10 children, Ms. Veney sees a clear aspect of racial justice in Mr. Biden’s plan. African American student loan borrowers often leave school with $25,000 more in debt than white graduates, and they carry the debt for years longer.

“It’s such a wide gap,” Veney said.

Mr. Biden’s plan would cancel $20,000 in debt for those, like her, who received Pell grants, which help students from low-income families. That would eliminate nearly all of Ms. Veney’s undergraduate loans, making it easier for her to earn her master’s and doctoral degrees. grades she hopes to earn. Her goal is to become a therapist and work with troubled families and youth.

The president’s plan “would help narrow the racial wealth gap,” he said. “It would give not just me, but everyone, the opportunity to improve our financial security and lay a better foundation for upward economic mobility.”

Mr. Biden has pitched his debt relief plan as an essential step in restarting a student loan collection system that has been frozen for nearly three years. The hiatus began as a two-month hiatus initiated by the administration of President Donald J. Trump as the pandemic was devastating the economy. Congress and Trump extended the pause three times, and Biden six more times, most recently in November. The president then announced that borrowers’ bills would resume 60 days after court challenges to his relief plan are resolved or September 1, whichever comes first.

The piecemeal nature of the moratorium extensions, and the continued uncertainty about when people will actually have to start paying, has frustrated both borrowers and the companies that bill them on behalf of the government. Nelnet, the largest federal loan servicer, laid off 350 newly hired employees last month, citing the likelihood that payments will remain on hold for most of this year.

After such a long wait time, getting borrowers to continue paying bills that often run into hundreds or thousands of dollars a month will be a “psychological hurdle,” acknowledged Richard Cordray, director of operations for the Federal Student Aid office at the Education deparment.

“We can hope that many, many borrowers are not eager to repay when they were led to believe, or even hope that would never happen,” Mr Cordray said in a speech at an industry conference. Back in September 2021.

The Department of Education has used the long hiatus to try to clean up some of the biggest flaws in the $1.6 trillion federal student loan system. A one-time waiver of rules that had become Kafkaesque in their complexity allowed hundreds of thousands of public service workers to get $14 billion in loans forgiven. One million borrowers who attended schools that let them down had eliminated nearly $15 billion in debt, and loans were automatically canceled for hundreds of thousands of borrowers with permanent disabilities.

More is in the works. The Department of Education is preparing a new income-linked repayment plan that would significantly lower payments for many undergraduate student loan borrowers. He’s working on a complex waiver program, due to take place this summer, that will retroactively credit millions of borrowers in income-based plans with extra payments toward loan forgiveness. The agency also plans a “fresh start” amnesty for the seven million borrowers, nearly one in five people with past due payments, who have defaulted on their loans.

All of that becomes easier if the Supreme Court allows Mr. Biden’s debt cancellation plan to continue. The White House estimates that nearly 90 percent of the nation’s 45 million student loan borrowers would qualify for some relief, and that 18 million would see their debts canceled in full.

The administration’s legal case to crack down on tens of millions of borrowers’ loans centers on the lingering effects of the pandemic on the finances of many households. Without debt cancellation, the White House fears many borrowers will be hit when payments resume, leading to what the Education Department projected could be a “historically large increase” in delinquency and delinquency.

“The borrowers most likely to experience disproportionate hardship come from low-income households, the families least prepared to weather the public health and economic crisis that gripped the country in 2020,” Mike Pierce, executive director of the Student Borrower, said Friday. Protection Center. in a call the White House had arranged for reporters.

Critics see that argument as a fig-leaf justification for Biden to achieve through executive order what he has been unable to achieve legislatively: the massive cancellation of student debt. “Other Americans will have to pick up the tab, to the tune of more than $2,500 per taxpayer,” dozens of Republican senators wrote in an amicus brief submitted to the Supreme Court.

More than helped House Republicans united in its own letterwhich warned the Supreme Court that if it allowed Mr. Biden’s plan to proceed, “it’s just a matter of when, not if,” an education secretary would once again invoke such sweeping powers to cancel student debt.

That would be a welcome outcome for Kristin McGuire, executive director of Young Invincibles, a young adult economic advocacy group that is helping organize Tuesday’s rally.

Ms. McGuire, a first-generation college student, defaulted on her loans shortly after graduating in 2005. She felt enormous shame and guilt, she said, seeing it as personal failure, until she began working as an activist and discovered the common that was his story that.

“What I realized is that this is a problem that is affecting millions of people. It is not an isolated incident,” she said. “We’ve sat here and watched corporations get bailed out and have their debt written off year after year, every time we have some kind of economic downturn. I really think it’s time people could access that kind of benefit as well.”