What Questions Will The Supreme Court Justices Ask When They Consider The Legality Of Student Loan Forgiveness?

On February 28, the U.S. Supreme Court will hear oral arguments on the legality of President Joe Biden's student loan forgiveness program that proposes to forgive $10,000 or $20,000 if borrowers meet certain income requirements.

The two issues in the case are whether the plaintiffs challenging the proposal have standing to file suit and whether the proposal violates separation of powers and exceeds executive authority. So let's look at these issues and consider the questions the justices are likely to ask during oral argument.

On the issue of standing, the plaintiffs argue that they have standing due to financial harm -- specifically, future lost interest payments and lost tax revenue -- as a result of forgiving loans. The government argues that plaintiffs do not have standing because the so-called damage they claim is speculative and the harms can be remedied on their own.

For the plaintiffs, the justices are likely to ask questions about whether the states can remedy some of the harms on their own. For example, the states are claiming that they will lose tax revenue if the loans are forgiven because loan discharges are not taxable. Shouldn't the state legislatures amend their tax laws to make the discharges taxable?

The plaintiff states claim that they will lose interest income because some borrowers will convert their interest accruing Federal Family Education Loans (FFEL) (currently serviced by third parties) into federal direct loans because the former loans were ineligible for loan forgiveness. But was this interest income guaranteed? Loans are routinely repaid early for a variety of reasons and most do not have prepayment penalties. Also, FFELs issued in the 2000s had very low interest rates with most being under 3% which was one reason why some did not consolidate until the forgiveness proposal was announced. A justice might wonder in light of recent interest rate hikes, wouldn't states want their principal back from these low-interest borrowers so they can use it on bonds or other investments that will yield higher interest payments?

For the government, part of their case against standing relies on the fact that Missouri Higher Education Loan Authority (MOHELA) should have filed the lawsuit on its own since it is a separate corporate entity but declined to do so. What if the State of Missouri replaced MOHELA's current board of directors and officers with those who are willing to file a lawsuit? It would seem like a waste of time and resources to dismiss the case for standing if MOHELA under new management will file the same lawsuit soon after.

Also, justices may be generally troubled by the idea that the president can implement a loan forgiveness program that can cost $400 million with no one having the right to challenge it.

My educated guess is that the Court will find that the plaintiffs have standing to sue because of the financial magnitude of the loan forgiveness program. Also, it is a hot topic national issue. Half of the government and the country is against it not so much because of ideology but because of fairness. Most conservatives with student loans will support forgiveness and most liberals who paid off their loans will be hostile to it.

The next issue is whether the loan forgiveness program itself is legal. The government claims that the statutory language of the 2003 HEROES Act specifically authorizes the waiver or modification of any statutory or regulatory provision to ensure that borrowers are not worse off financially due to a national emergency. The plaintiffs claim that despite the statutory language, loan forgiveness requires clear congressional approval under the major questions doctrine as it will have major political and economic consequences.

The justices will likely press the plaintiffs about the statutory language which seems to allow the president to forgive loans. Isn't the president's authority at its greatest when he acts with the express or implied authorization of Congress? Some justices may be reluctant to invoke the major questions doctrine if there is congressional authorization at some level.

For the government, some of the justices may have questions about the statutory language as well. Some justices may not feel that the statute gives specific congressional authority to the president to forgive loans. If that is the case, shouldn't weight be given to the fact that half of Congress is against forgiving student loans? In addition, they may ask about Nancy Pelosi's earlier statement where she said that the president cannot unilaterally forgive loans.

The statute also states that administrative requirements placed on borrowers should be minimized to the extent possible without impairing the integrity of the student financial assistance programs. Has the government considered how this would affect the federal student loan program if the loan forgiveness program is approved? In addition, if loan forgiveness is approved now, it will be expected in the future which will cost even more money.

Finally, the Court may ask about the timing of the loan forgiveness proposal. President Biden promised loan forgiveness while running for office. But after he was elected, he stayed silent on the issue until the midterm election season. Afterward, he said little to nothing on the matter, not even mentioning it in his most recent State of the Union address. This may cause some justices to wonder how much (or little) he really cares about this issue.

If the Court decides on partisan lines, the majority opinion will rule that Biden's student loan forgiveness program requires congressional approval due to the vast political and economic effect of the program. And the Court would not be completely wrong to do so. I think the ideal solution is to strike down the student loan forgiveness program but grant forgiveness to those who applied as they probably have made major financial decisions in reliance of the announcement. The plaintiff states will be secretly happy since they will get some of their loan principal back which can be used to purchase high-yield bonds or Tesla stock.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.