In a long-awaited Supreme Court ruling on President Joe Biden’s student loan forgiveness program, the court blocked the plan in a 6-3 decision Friday.
The program would have allowed eligible borrowers to eliminate up to $20,000 of debt, but was deemed an illegal overreach of executive power. The plan had an estimated cost of $400 billion.
The Supreme Court decision is important to Biden, who has made the fight against student loan debt a key pillar of his 2020 campaign. However, the court’s decision hinges on whether the plan is an overreach authority, arguing that this program cannot be implemented without congressional authorization.
The Biden administration previously defended the motion by citing the Higher Education Student Aid Opportunities Act (HEROES Act) of 2003, which allows the government to provide aid during a national emergency. Still, the court has ruled that the language of the HEROES Act is not specific enough to authorize a plan as broad as Biden’s.
Related: Supreme Court rules against affirmative action at Harvard, UNC
“The Secretary claims the HEROES Act gives him the authority to write off $430 billion of student loan principal. He doesn’t,” he added. Chief Justice John G. Roberts Jr. he wrote in the ruling. “Today we hold that the Act allows the Secretary to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up.”
The Biden administration disagrees with the decision, a source familiar with the matter told CNN. and that he wants to make it “very clear to borrowers and their families that Republicans are responsible for denying them the relief that President Biden has been fighting to get them.”
How will the decision affect the economy?
The student loan repayment process, which was halted during the pandemic, will resume in August, and monthly payments will begin in October. While the pause would always end regardless of the court’s decision, millions of them may have jumped on Biden’s plan to eliminate their student loan debt, and experts have expressed concern about the potentially wide impact on the economy.
Laura Beamer, a research fellow in higher education finance at the Jain Family Institute, said News from New York than any progress made during the refund break, such as upgrading Borrowers’ credit scores, which allowed them to make big purchases like cars and homes, can quickly come undone as the break ends.
Related: 9 Million People Were Mistakenly Told Their Student Loan Forgiveness Was Approved
“It will quickly reverse all the progress that was made during the amortization pause,” Beamer said, “especially for those who took on new mortgage or auto loan debt where they had financial leverage because they weren’t making their payments. student loans.”
In early June, Mark Zandi, the chief economist at Moody’s Analytics, expressed similar concerns to CNBC.
“It’s going to shave a couple of tenths off GDP over the next year. Now, in a more typical time, that’s not very big. The economy can digest it gracefully. But in the current environment with the The economy for however weak, however high the recession risks, a couple of tenths of a percent can matter,” Zandi said.
Related: FTC cracks down on student loan schemes that defrauded borrowers out of $12 million