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Biden, Student Debt, and the Supreme Court

By Clarice Mullady

In August of 2022, President Biden announced that he would be taking executive action under the Heroes Act to cancel student debt, an effort to make good on his campaign promise. The Education Department estimates that the initiative would wipe out debt for 40 million individuals, the hefty bill of $400 billion footed by the taxpayer. Biden’s proposal is set to forgive $10,000 of federal loans to those making less than $125,000 per year or a total of $20,000 of debt relief to those who received a federal Pell Grant.

Who will not qualify? Those who no longer have outstanding debt; those who chose not to pursue a higher education at all; and those who financed their education with private loans or bank loans not held by the US government.

Since 1980, there has been a 180% increase in American college tuition prices, accounting for inflation. The increase in price of tradeable goods, which is common across developed economies, cannot explain the extremity of the education cost increase in the US. Whether and where to go to college and what field of study to pursue is not just an educational choice, but a serious financial decision. Critics point out that the administration’s plan will effectively redistribute wealth to citizens and relieve them of individual responsibility for their financial decisions. It is important to note that those who opted to take on debt to study also stand to earn higher salaries than those who decided against going to college– however, one will be subsidizing the other.

It is possible that the skyrocketing prices of a university degree are fueled by government backing of student loans. If a lender no longer must fairly assess the credit risk of the borrower or guarantor, the supply of loans surges. Universities in turn can raise prices without fear of not being paid, and students take out even larger loans. This is an artificial environment of risk elimination. Perhaps government intervention is not the solution, but rather a part of the problem.

Jason Furman, an economist from the Obama administration has claimed that the proposed debt relief is like “pouring roughly half trillion dollars of gasoline on the inflationary fire.” However, research published by Goldman Sachs disagrees, concluding that the short-term aggregate effect on the economy will be negligible. They project that the deficit will increase by roughly an additional 1.6% of the GDP over the next couple of years, but the impact on Treasury issuance would be limited. Goldman’s analysis also rejects the claim that the forgiveness would noticeably boost spending. They concluded that the plan would not have very many positive or negative macroeconomic effects in the long-term. However, if expectations of future forgiveness are formed, a case of moral hazard may arise, and the debt cancellation may worsen inflationary pressures in the long term. Universities would continue to raise their tuitions without fear of debtor defaults and the size of the loans would increase.

So why not forgive what the administration calls the “unsustainable debt of the middle class”? This question will be asked before the Supreme Court. A group of states led by Nebraska contends that the plan is outright illegal. They succeeded in persuading the US Court of Appeals for the Eighth Circuit to issue an injunction prohibiting the plan’s implementation while its validity is contested in court. In November 2022, a federal judge in Texas struck down Biden’s plan because it is an “unconstitutional exercise of Congress’ legislative power”, the issue has escalated. The Supreme Court has been presented with two separate cases.

The first was brought by Republican officials from six states which sued to block the plan put forth by Biden and the Education Secretary, Miguel Cardona. They claim, among other things, that the plan would harm state finances because the forgiveness will not be taxable. They deny that the Heroes Act gives legal authorization for the president to unilaterally bring about a mass cancellation of debt owed to the Treasury, without consideration by Congress. The second case was filed by borrowers who are not eligible for debt relief under the plan.

The court will be deciding the extent of limitation on the executive’s ability to implement policies without the legislative branch. The administration has defended its legal authority to implement the plan by citing Covid-19 and the financial consequences it had for the borrowers.

It reversed a Trump administration memorandum that denied the power for broad debt cancellation and is using the Heroes Act in an unprecedented way.

The Heroes Act allows the executive to offer relief “in connection with a war or other military operation or national emergency” and has generally been used to help military personnel. Biden announced the White House’s intent to use the Heroes Act for debt cancelation in August 2022– a couple months before the mid-term elections for Congress.

The economic, legal, and political implications of this policy are being vigorously disputed. Whether the executive power has the power to cancel half a trillion dollars of individual debt, at discretion, lies at the center of the debate. The Court is expected to issue its decision by the end of June 2023.


Carpenter, Julia. "What the Supreme Court Case Means for Student-Loan Forgiveness."The Wall Street Journal, Dow Jones & Company, Inc., 28 Feb. 2023.

Goldstein Steve. "Goldman Sachs Says Canceling Student-Loan Debt Would Help Economy." Barron's, Dow Jones & Company, Inc., 26 Aug 2022.

McGurran, Brianna. "Why College Tuition Keeps Rising Despite the Facts." Forbes Advisor, Forbes, 28 Mar. 2022.

Restuccia, Andrew, and Rubin, Gabriel. "Biden to Announce Student-Loan Forgiveness Plan." The Wall Street Journal, Dow Jones & Company, Inc., 24 Aug. 2022.

Rubin, Gabriel, and Carpenter, Julia. “Biden’s Student-Loan Forgiveness Plan: Who Qualifies and How Much Debt Will Be Canceled." The Wall Street Journal, Dow Jones & Company, Inc., 8 Feb. 2023.

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