A discussion about the federal student loan decision

Student loans have received a lot of attention lately in light of the recent U.S. Supreme Court decision invalidating President Joe Biden’s partial loan forgiveness program. The court’s official summary stated in the case of Biden v. Nebraska et al. decided June 30, 2023, described the issues for the majority as follows:

“Title IV of the Higher Education Act of 1965 (Education Act) governs federal financial aid mechanisms, including student loans…The Act authorizes the Secretary of Education to cancel or reduce loans in certain limited circumstances. The Secretary may cancel a set amount of loans held by some public servants…He may also forgive the loans of borrowers who have died or become ‘permanently and totally disabled’…; borrowers who are bankrupt… and borrowers whose schools falsely certify them, close down, or fail to pay lenders…”

The summary continued, stating that the issue in the case before it was “whether the Secretary has authority under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) to depart from the existing provisions of the Education Act and establish a student loan forgiveness program that will cancel about $430 billion in debt principal and affect nearly all borrowers…”

There are some qualifiers to the description “will…affect nearly all borrowers.” Borrowers with incomes over $125,000 would not qualify. Private student loans would not be included. Also the student loan debt would need to have been incurred on federal student loans obtained prior to June 30, 2022. Borrowers with incomes below the stated amount could qualify for a $10,000 reduction in debt or for those with Pell Grants — a type of student loan based on financial needs — up to $20,000 total.

The court allowed that the secretary may issue “waivers or modifications” in connection with a national emergency (here COVID-19) as may be necessary to ensure that recipients of student financial assistance are not placed in a worse position financially in relation to that financial assistance because of a national emergency. The question was whether, in the case they were considering “waivers or modifications” were acceptable. The majority found they were not with strong objection from the minority.

The case has some interesting side issues, one of these, for instance, related to “standing” an idea we learned in law school. Although the case is listed as Biden v. Nebraska, et al. the court actually found that a Missouri loan servicer, MOHELA, was the only party that had standing to challenge the administrative action of the Secretary of Education. The idea was that MOHELA would lose revenue if the debt reduction amounts listed went into effect. Actually, a number of sources have indicated that MOHELA did not approve the action, did not file, did not solicit, and did not want to be associated with the case at all. See “The Student Loan Case’s Unwilling Participant, https://prospect.org/ justice/2023-06-19-student-loancancellation-supreme-court-mohela/ (David Dayen). It appears that Missouri referenced MOHELA without its express permission. Also that MOHELA would actually profit if the student debt relief described went into effect.

Another discussion that resulted from the case is a comparison with federal government relief given to businesses under PPE which are higher than $430 billion. In the meanwhile Biden has indicated he intends to present student loan debt relief in another manner.

All of this discussion may lead to one positive effect which is a discussion of college and higher education debt as it stands today. Here are some observations.

• Student Debt Is Not Like Other Unsecured Debt. Debt might be “secured,” that is it comes with collateral or other party intended to guarantee repayment. If you buy a car and fail to make payments, the car can be repossessed. Student debt does not have this feature (although certain types of loans involve other parties such as parents for repayment). It is expected that when the student graduates he/she will earn enough to pay the loan over time. For many students that can be several years. If the student does not complete his/her education or does not obtain employment sufficient to make inroads repayment can be difficult and interest continues to accrue.

• Bankruptcy, generally speaking, cannot be used to erase student debt.

• The cost of higher education continues to increase and a debate how this can be handled in coming years may be due.

• Discussion of trade school and other forms of education might be added to the debate.

Janet Colliton is a Certified Elder Law Attorney by the National Elder Law Foundation and a member of the Pennsylvania Association of Elder Law Attorneys. She limits her practice to elder law, life care, special needs and retirement planning, Medicaid, estate planning and estate administration and guardianships and is located at 790 East Market St., Ste. 250, West Chester, 610-436-6674, colliton@collitonlaw.com. She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.