In a highly anticipated Supreme Court ruling on President Joe Biden’s student loan forgiveness program, the court blocked the plan in a 6-3 decision on Friday.
The program would have allowed eligible borrowers to get rid of up to $20,000 in debt, but was deemed an unlawful override of the executive. The plan had an estimated cost of $400 billion.
The Supreme Court decision is important to Biden, who made tackling student loan debt a major pillar of his 2020 campaign. However, the court’s decision hinges on whether the plan is an abuse of authority, arguing that such a program cannot be carried out without Congressional authorization.
The Biden administration previously defended the motion citing the Higher Education Relief Opportunities for Students Act (HEROES Act) of 2003, which allows the government to provide relief during a national emergency. Still, the court has ruled that the language in the HEROES Act is not specific enough to approve a plan as broad as Biden’s.
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“The secretary claims the HEROES Act gives him the power to forgo $430 billion in student loan principal. It doesn’t,” Chief Justice John G. Roberts Jr. wrote in the statement. “We believe today that the law allows the Secretary to override or amend existing statutory or regulatory provisions that apply to financial assistance programs under the Education Act, not to rewrite that statute from scratch.”
The Biden administration disagrees with the decision, a source familiar with the matter said CNN, and that it wants to “make it crystal clear to borrowers and their families that Republicans are responsible for denying the relief President Biden fought to get to them.”
How will the decision affect the economy?
The student loan repayment process, which was paused during the pandemic, will resume in August and monthly payments will begin in October. While the break would always end regardless of the court’s decision, millions may have benefited from Biden’s plan to clear their student loan debt, and experts have expressed concerns about the potentially far-reaching impact on the economy.
Laura Beamer, a researcher specializing in higher education funding at the Jain Family Institute, told the New York Times that any progress made during the payment interruption, such as improvement Borrowers’ credit scores, which have allowed them to make significant purchases such as cars and homes, can quickly be reversed once the break is over.
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“It will quickly undo any progress made during the loan repayment break,” Beamer told the outlet, “particularly for those who took on new debt in mortgages or car loans where they had the financial headroom because they didn’t pay their student loans.”
In early June, Mark Zandi, chief economist at Moody’s Analytics, expressed similar concerns as CNBC.
“It’s going to be off a few tenths of a percent of GDP over the next year. Now, in a more typical time, that’s not that big of a deal. The economy can digest that gracefully. But in the current environment with the economy so weak as it is, recession risks as high as they are, a few tenths of a percent can matter,” Zandi said.
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