Joe Biden himself saw it coming.
Shortly after winning the presidency in 2020, Biden expressed doubt about the ability to cancel student debt through executive order, calling it “questionable.” Better for Congress to do it by passing a law, he maintained.
The Supreme Court seems to agree. During a February 28 hearing on Biden’s student-debt relief plan, several justices expressed skepticism about the legal basis for Biden’s big move last year. Conservatives have a 6-3 majority on the court, which has generally sought to rein in government power, rather than expand it. Many analysts think it’s likely the court will strike down much or all of Biden’t debt relief plan. The ruling is due by the end of June.
Hanging in limbo are some 40 million borrowers who stand to save up to $20,000 each from the order Biden signed last year. The plan would cost the government about $400 billion in foregone revenue, making it a meaty fiscal issue as well as a pressing financial matter for borrowers.
Waiving some student debt for families earning less than $250,000 was a 2020 Biden campaign promise. Congress never came close to doing it via legislation during Biden’s first two years, because the votes simply weren’t there. That’s why Biden did it by executive order last August, despite his earlier reservations.
Legal challenges were inevitable, and they arose promptly, bouncing the case to the Supreme Court. The justices will rule on a couple of things. The Biden administration argues that a 2003 law relating to federal powers during national emergencies provides the legal basis for student debt relief. Opponents say that’s a gross misreading of the law. There’s also the question of whether the plaintiffs objecting to Biden’s plan have standing to bring the suit in the first place. Even if the court leaves the order intact, it could do so in a way that invites other legal challenges.
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The Biden White House is most likely preparing for an adverse outcome. “We do not expect the administration to stop trying to make this policy goal a reaility,” Beacon Policy Advisors wrote in a March 2 analysis. “If the administration loses the legal cases, we believe that it is going to refuse to take no for an answer. [Biden] cannot be seen to just accept the court’s decision.”
So what can Biden do? A few things. He could try to rewrite the debt-forgiveness order using a different legal justification, such as one Democratic Sen. Elizabeth Warren has cited. The income limits and forgiveness thresholds could be the same. This would probably also face legal challenges, but it would win Biden and his fellow Democrats the political points they need with young voters who feel strongest about debt relief. It would also appease liberal Democrats pushing hardest for debt relief.
Another tack might be changing a new income-based student-debt repayment plan so that it effectively waives a certain amount of debt over time. The Biden administration could do that by sharply raising the income thresholds that limit the amount of debt borrowers must repay each month. The savings to borrowers would accrue from interest that doesn’t accumulate for borrowers who qualify. But future administrations could easily undo such a change if opposed to it.
Another wild card is the moratorium on nearly all student-debt repayments that first went into effect during the Covid pandemic in 2020. Presidents Trump and Biden both extended the repayment pause several times. Last year, Biden said the moratorium would end 60 days after the Supreme Court issued its ruling on his executive order, regardless of the outcome. That means payments will be due against starting sometime in late August—unless Biden changes his mind and extends the moratorium again.
All of this means the whole issue of student-debt forbearance could remain completely unsettled going into the 2024 elections. This was an important issue for many voters in 2020 and it could be more potent in 2024, since Biden’s debt cancellation may live or die based on who wins. Forty million Americans will have a lot of money resting on the outcome.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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