The Supreme Court Strikes Down Biden’s Loan‐​Forgiveness Program

Thomas A. Berry

Today the Supreme Court rejected President Biden’s massive debt‐​forgiveness plan, holding that it was not authorized by the statute the administration invoked. The decision is a welcome reaffirmation of the principle that when the president wants to enact a policy, he must convince Congress to do so, rather than hunt for old statutory language that cannot bear the weight of a massive policy change.

To understand the government’s argument, it is necessary to understand the law that the government invoked. In 2003, Congress enacted the HEROES Act (“HEROES” stands for Higher Education Relief Opportunities for Students). As implied by its name and timing, the law was enacted as a reaction to the Iraq War. Several of the floor statements from members of Congress reveal that a primary motivation for the Act was to ensure that military members could have their student loan payments deferred while serving their country.

But last year, the Biden Administration attempted to use the HEROES Act to achieve a policy goal that was far different, and far more sweeping, than anything the law had been used for in the past. The administration announced that after a nearly three‐​year pause on federal student loan payments, certain borrowers meeting an income cutoff would receive $10,000 to $20,000 in debt forgiveness on their principal student loan balance. While the total cost to taxpayers from this program was uncertain, the Congressional Budget Office estimated it to be around $400 billion.

To enact this massive debt‐​forgiveness plan, the administration relied on a section of the HEROES Act that gives the Secretary of Education authority, in certain circumstances, to “waive or modify” provisions of law applicable to federal student loans. The Secretary may do so “as may be necessary to ensure that…recipients of student financial assistance” who are affected by war or national emergency “are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals.”

The administration argued that this section grants the Secretary the authority to forgive billions of dollars in student loans across millions of borrowers. It argued that some borrowers will default on their student loans once payments finally resume after the multi‐​year pandemic pause. And it further argued that forgiving some (or all) of millions of borrowers’ principal balances would lower their monthly payments and thus lower their overall risk of default, ensuring that their risk of default is no worse than it was before the pandemic.

But the Court today rejected that statutory argument. In an opinion by Chief Justice John Roberts, writing for six justices, the Court held that the administration did not “modify” or “waive” provisions of federal law at all—it instead wrote an entirely new law. The Court noted that the administration’s plan “specifies particular sums to be forgiven and income‐​based eligibility requirements. The addition of these new and substantially different provisions cannot be said to be a ‘waiver’ of the old in any meaningful sense.”

The Court thus held that the authority to “waive or modify” statutory provisions is limited to eliminating or modestly altering various distinct requirements. It is not an authority to “draft a new section of the Education Act from scratch by ‘waiving’ provisions root and branch and then filling the empty space with radically new text.” Although another section of the HEROES Act mentions that there may sometimes be “terms and conditions to be applied in lieu of” waived or modified statutory text, the Court held that “the Secretary’s ability to add new terms ‘in lieu of’ the old is limited to his authority to ‘modify’ existing law.” And that authority in turn is limited to modest changes, in line with the dictionary definition of “modify” as “to change moderately or in minor fashion.”

Although the Court rested its decision on an analysis of the plain text “waive or modify” alone, the Court also noted that if the interpretive question were at all close, the Major Questions Doctrine would resolve it the same way. The Court stressed that under “the Government’s reading of the HEROES Act, the Secretary would enjoy virtually unlimited power to rewrite the Education Act.” Under the Major Questions Doctrine, congressional authorization for such power is not lightly assumed. The Court held that the statute lacks the clear statement necessary to clear that hurdle.

In a concurrence, Justice Amy Coney Barrett explained her view that the Major Questions Doctrine is not in tension with normal principles of textualism, but rather in harmony with the principle that text must be interpreted in proper context. Justice Barrett offered several examples from everyday life of how permission is interpreted based on context, such as how “an instruction to ‘pick up dessert’ is not permission to buy a four‐​tier wedding cake.” Cato’s amicus brief began with several similar examples making the same point: statutes are directives made by elected representatives on behalf of the people that must be interpreted faithfully and in context, not self‐​servingly.

In dissent, Justice Elena Kagan wrote for three justices and argued that the Court should not have even reached the merits. The majority found that Missouri could sue because the debt‐​forgiveness program injured the loan servicing corporation MOHELA, an “instrumentality” of the state of Missouri created by state law. But the dissent argued that since MOHELA’s finances are separate from the state’s finances and since MOHELA has the authority to sue on its own behalf, the state could not pick up MOHELA’s mantle as a hook to obtain standing.

Although Justice Kagan would not have reached the merits, she also made clear that she disagreed with the majority on the merits. Justice Kagan stressed that the HEROES Act is only triggered during emergencies, which places limits on executive authority even if the term “waive or modify” is read broadly. But if and when an emergency occurs, Justice Kagan argued that Congress expected the executive branch to take actions in proportion to the emergency. She argued that the only reason the HEROES Act had never before been used for such a consequential program is because since 2003, the country had never faced as serious an emergency as the COVID-19 Pandemic.

Based on the Court’s reasoning, it seems clear that there is now no avenue for this or a future administration to use the HEROES Act to enact a loan‐​forgiveness program, since any such program must involve not just waiving and modifying statutory provisions but also establishing new guidelines for eligibility and the amount forgiven. Whether the Biden Administration will attempt to use a different statute entirely to enact a loan‐​forgiveness program, such as the Higher Education Act, remains to be seen.