Emergency Pod: Supreme Court Hearing on Student Loan Cancellation

Hello and welcome to an emergency episode of the Single Planner Podcast. I thought we would gather today to talk about the Supreme Court case because a whole lot happened this week and I just thought might as well just get it out there before the weekend. You had the Solicitor General of the United States who argued in favor of the cancellation plan for the administration and then you had really two cases that happened. One was Biden v Nebraska and this is viewed as the more serious of the two cases and then you had the second one which is basically two individual borrowers who were challenging the legality of the program because they didn't get the max benefit that was available under the program. The Supreme Court handled both of these cases at once, it was about three hours and it has a lot of implications if you don't really benefit that much from the 10 or 20k cancellation because of the reactive effects that are going to happen because of this with the administration. So let's talk about those. The first case, that's the more serious one, Biden v Nebraska. Why is it more serious? So to be able to bring a lawsuit you have to have standing. We've talked a little bit about this in the past. Standing just means that you have a party that was harmed by an action and so you're challenging that action in court to stop it as a way of remedying the hurt that you had. And so if you think about who can bring that kind of a lawsuit, you can bring something if you are harmed. Now the question is, in the case of these two individuals that brought the lawsuit, if they threw out this Supreme Court program they are not going to get any additional benefit. So it's very questionable as to whether or not they meet the threshold of standing. The other practical problem is if you gave standing to individuals that don't like government programs then you basically have the courts gummed up and people wouldn't be able to really bring any kind of case because so many people would be suing in the courts and it would be impractical. So for that reason we're kind of thinking that that case brought by the two individuals probably gets dismissed. But the Biden v Nebraska case is more serious and really if you want to drill down into it, what really was really interesting I think about that case that went first on the Supreme Court case docket that day is they spent a ton of time talking about Mujila, the student loan servicer. And you might ask, why would they do that? Keep in mind that this whole show is for both of these political sides to score points and achieve their desired outcome, right? At the end of the day, this is a means to an end. And so if you think about the truly believe that due to the pandemic emergency that they have to cancel debt to make sure borrowers are no worse off? I mean, they're just using the exact words in the statute to basically do something that they want to do. Now they might believe that they have to do this particular plan for cancellation. But I think what's interesting is if you think about candidate Biden, he was skeptical that he could do this and they rolled this program out basically when they couldn't restart payments politically, they rolled this program out right before the midterms. It's pretty obvious if you're kind of more of a cynical political observer that this was something that they were just trying to make the law fit what they were trying to do. And the same thing is true of the Republicans, right? Like bringing this suit, did they really believe that Mujila was harmed and that they would take away substantial revenue from the state of Missouri? They didn't care about that. They were seeking a legal avenue to challenge something that they didn't agree with. So both sides are trying to use very questionable legal arguments, I think, to try to achieve their desired outcome. So what did a 6-3 conservative majority Supreme Court think of this? The reality is you need five justices to vote for a majority decision, right? And if you think about the different groups on the court, you've got your very conservative group, your minority liberal group, and then you've got the kind of swing votes, right? So in this case, you've got Thomas and Alito that are very conservative and then you have the three minority liberal group, which is Kagan, Sotomayor, and Ketanje Brown-Jackson. And then you've got your folks sort of in the middle. And so that's Roberts, Amy Coney Barrett, and then Kavanaugh. So if you listen to each individual justice as to what they said, it's very telling. So Roberts, who often votes with the court's three liberal justices, that he's often on the wrong side of the 5-4 decision, so to speak, right? So he came out, was very hostile to the idea of cancellation just because of separation of powers. He just kept bringing this up over and over again. He had some interesting examples of, what about the lawn care guy that's got a loan in his truck that's not getting any benefit from this? But then he was like, but it doesn't matter what I think of fairness. It's what Congress thinks is fair. And so in other words, he was really previewing that he really thinks that this needs to be decided by Congress and not by somebody else. So he seemed to be a lot to vote against this. So that brings you to the two other justices that could have their minds switch either way, Kavanaugh and Amy Coney Barrett. Now, I don't think that anybody thinks that they believe that this is legal, but what the court's liberal minority in the administration is hoping for is that these two justices would view this idea that Mohila has standing as kind of a ridiculous argument that wouldn't hold water. And so if you listen to both of these two individuals talk, Amy Coney Barrett really, I thought, ripped apart the lawyer for the plaintiffs, the Nebraska Solicitor General, who is basically arguing that he was like, well, Mohila's not here today, but Mohila's interests are here today. And she was like, well, if you really control Mohila, why couldn't you have compelled Mohila to be here? And he was like, I don't know. So the one thing is that this case is being decided as to which side had the better lawyers. Goodness sakes, the Solicitor General for the United States was amazing. She did a great job. And then the lawyers for the folks challenging this cancellation, you kind of see why the conservative side of the aisle for student loans is really lacking in talent. I mean, sorry for offending anybody there. I mean, there's some very talented people on both sides of the student loan equation, but it just always has seemed to me that the progressive side of the student loan policy team is just way more talented on average. Think about it like an NBA team. You're like Team USA on the progressive side of the student loan policy aisle. And then you've got, I don't know what a good example is, like Serbia on the other side. And you've got one guy that's really good, like one guy that's an NBA player and everybody else is like a random person. I don't know. I kind of feel like that's the way it is sometimes with student loan policy land in terms of just analyzing the two sides. But anyways, I digress. Basically, the point is the plaintiff lawyers didn't do a very good job on the conservative side. It's kind of like the gist. What does that mean? Does that really matter to Kavanaugh and Amy Coney Barrett that the conservative legal side didn't make very good arguments? Maybe yes, maybe no. So Amy Coney Barrett seemed to be pretty persuaded that the people bringing this challenge might not have standing, which means they have to throw out the whole case. And if you had to throw out the entire case, then you wouldn't be able to challenge Biden's cancellation and the administration could proceed canceling the debt. So it really kind of seemed like she might have a really big problem with the idea that they had standing. Now, maybe she just wanted to ask those questions to clarify some things. And maybe she'll write her own argument saying that they have standing in spite of the conservative plaintiff side not doing a very good job. But it wouldn't surprise me if she voted against, you know, well, she voted to uphold the administration's cancellation plan just due to lack of standing, which is basically like a legal technicality. Now, the reason I think that this case goes 5-4 against the administration and cancellation gets blocked is because Kavanaugh said something that I thought was very telling as to where his head is at. He specifically stated some of this court's greatest moments, I'm paraphrasing, he said some of this court's greatest moments were when we stood up to executives abusing their authority. And he brought up a couple examples. Now, when you're talking about the glory of the Supreme Court and the power of the Supreme Court and how the most righteous powers it has are standing up to abuses of power, do you then like say that? And then do you then just let the administration spend $400 billion because of some legal technicality that you can't figure out? I don't think so. So that's kind of why my thought is, is I think Kavanaugh is going to figure out a way to write a pretty narrow opinion about standing for Mohilla. There's a reason why the justices spent so much time on Mohilla. That's the ballgame. It's very clear to me that the goal of the conservative side, I think, is to find a very narrow lane for standing for Mohilla and to say that because Mohilla was harmed, therefore they can proceed to the merits. And because they can proceed to the merits, the major questions doctrine applies, which means that issues of major economic or political significance can't be decided by the executive branch alone. It has to be decided by Congress. I think that that's the way it's going to go based on Kavanaugh's statements, because he would be the swing judge in this case if Amy Coney Barrett voted with the administration. So it's going to be really interesting to see this happen. Now, the real question is, if the administration loses here, what will they do next? I think one reason why I enjoy history is because you can look back in history and kind of see what the future might hold, right? So if you look at a similar case that the administration was involved with, the eviction moratorium, what happened? CDC claimed this very wide-reaching power during an emergency to pause all evictions nationwide. And the difference between that case and the Sulum case is there was a powerful business interest that was against that, which was landlords, right? So landlords were suing to stop that. And then the Supreme Court basically ruled against the administration saying, no, you can't do that. And Kavanaugh was the one that was like a pivotal vote in that. Basically, Kavanaugh was saying, hey, no, you can't do that. That's not a power that the administration has. But because his ruling was basically because the eviction moratorium is going to expire in about 30 days anyway, we won't strike it down right now so the administration can have an orderly transition to restoring the normal order. So that's what he did. And then the administration basically was looking at its options and Biden basically sort of flashed his sort of pragmatic streak that's kind of long-term placed him in the middle of the Democratic Party, wherever the Democratic Party is. And Biden was basically like, I don't think I can do this. I don't think I can extend the eviction moratorium. The Supreme Court ruled against me. They made it clear they would strike down any kind of additional extension. And what happened? President Biden being, I don't want to be offensive, but nobody's first choice. I don't think that's offensive. I think that's reality, right? Even Democrats that are very passionate Democrats wouldn't say that President Biden is probably their favorite idea of who should be president, right? President Biden needs to have a lot more political support probably than the median Democratic president. So when he got challenged from his own party, right, his own progressive base on the eviction moratorium, he said, well, okay, I'll go along with it. I'll do that. And so he extended the eviction moratorium, even though the Supreme Court explicitly said that that wasn't legal to do. And the reason they did that is because it bought them some additional time so that tenants would have additional relief offered to them so that they would get a little bit more breathing room before the eviction process started. And so I really think that we might see basically a repeat of this with the Supreme Court case. So let's just assume for a moment, well, first off, let's say that the administration cancellation plan goes forward. Let's say that it gets thrown out on a technicality, the legal case, and the administration can proceed. Well, then it would be very much normal, you know, manner of operations. The new IDR plan would go into place as is probably around July or August. That's when payments would start approximately, and it would, student loans would really become a non-issue because people would just move on. All of the sort of worst debt, the debt and default for lower income borrowers, that would kind of be off the books. And some people would care about student loans, but by eliminating, you know, so many people's balances, a lot fewer voters would care about it. And so, you know, student loans would really kind of move to the back burner, I think, for a while. Now, if they don't, if they vote against the cancellation plan, which is what we're expecting, what happens next? So the emergency authority or emergency declaration of the pandemic is supposed to expire May 11th. So when it expires, presumably the Supreme Court would make their announcement after that date. And so the real question is, is can the administration extend the payment pause because they lose and they want to go about trying to cancel student debt a different way? And so I think that one of the reasons that they use the HEROES Act to try to do this cancellation is because I think that they knew that they would probably lose this. And when, and if they did, then they could do cancellation via a different method. In other words, use all of the different paths for cancellation that might be available to you. Don't just settle with like going straight to the Higher Education Act, because if you lose that, you can't go back and use the emergency authority of the HEROES Act. Right? So I think that the plan probably, the strategy is probably use the HEROES Act first, see if we get struck down. And if we do, we can blame the, I'm going to use what I think the administration would use for their language, the Republican Supreme Court. And then what's going to happen is, will the administration still have a lot of pressure to act on student loans? Absolutely. Right? The pressure for the cancel student debt movement is not going to go away. And so President Biden going into being the oldest president to stand for reelection ever, if that's his plan, he's going to need, desperately need that progressive base of support. And student loans are just one of those straightforward issues that you can adopt a very progressive position on that's not quite as expensive as other things. And it's got more realistic paths for success and other things that definitely have to have congressional approval. So then I think what would happen is, what the lawyer for the plaintiffs for the individuals that were opposed to the cancellation suggested in the front of the Supreme Court, that lawyer specifically said, well, the reason why our individuals have standing is because education department could have canceled debt via the Higher Education Act. And then when they would have had to go through a negotiated rulemaking process. And I thought to myself, wow, this lawyer is probably describing accurately what the administration's plan has been all along, but they're also like just making a very blatant blueprint for what to do next for the administration. I mean, very smart people on that side of the aisle for student loan policy. So I'm sure that that lawyer wasn't giving them any ideas they hadn't thought of. But that's what I think probably comes next is the administration says, well, you know what? We got this case in summer or fall of 2023. Presidential election season is going to be heating up at that point where the peak noise of whether or not Biden should run will be present. And this is a way that you can show you're a fighter and keep hold of that support from the progressive base. So the administration could come out in September or probably when they make the Supreme Court announcement in May or June, the administration could come out and say, we're going to try to cancel debt by the Higher Education Act. And they'll probably wait up to the last second too. So say the Supreme Court comes out with the announcement in May, they'll probably wait 30 days before the payment pause is supposed to end. And then they might say, we're going to go through the negotiated rulemaking process for cancellation via the Higher Education Act. And because we're doing this, because it's unfair to ask borrowers to make payments on loans that could be canceled because of the ongoing effects of the pandemic, right? We need to extend the payment pause on payments and interest until we're able to implement our plan from the Higher Education Act. Then there'll definitely be lawsuits all over again. But the problem is, is I'm not an expert in the Supreme Court calendar, right? So with that caveat, I think it tends to go October to June, something like that. So probably the soonest if they do that, that the Supreme Court could hear a challenge to the Higher Education Act would effectively be sometime in the fall or even winter of 2024. And so if that were to happen, the alternative would be the House GOP is basically unwilling to fund the government in late 2023 because the budget expires September of 2023. You have to have a new budget then. So the House GOP could just sort of say, hey, we're not going to fund anything unless you restart student loan payments and stop trying to do this cancellation. Will Democrats be willing to shut down the government over that? I don't know. Probably not. But will Republicans be willing to shut down the government over that? Probably not too, I think. It probably would focus on other issues. But that's kind of the problem that we could really have because all this is very political on both sides. Each side is taking whatever action that they think will benefit it politically the most. And I don't think that they don't necessarily believe in these things either. I think a lot of the folks on both sides of the aisle legitimately believe that this is the right course of action too. I'm not trying to be dismissive of that. But I think that that's what we might see happen is administration responds with trying to use Higher Education Act to show their base. We've used every tool at our disposal because we don't have control of Congress. We've used every tool at our disposal and we're still getting blocked. And then Republicans would say, on their side, they would probably say, this is ridiculous. We're going to sue to block this. But it would take them forever to sue to block it while the payment and interest pause is continuing. Because again, somebody would have to strike down the payment and interest pause and nobody's challenged that yet. And who would challenge it? It would probably have to be some sort of servicer, but the servicers have shown unwillingness to sue. You'd probably need a student loan refinancing company to sue, but they don't want to get involved with this because they have other business lines that they don't want their name tarnished with. So they'll probably stay out of it. And so then who has standing to sue over the national emergency continuing for student loan payments and interest? Maybe the House GOP, that's probably the only group. And would they sue? Probably or possibly, but they have not shown an ability to get their act together as a coherent opposition to the administration, in my view, on student loans in particular. It's a lot of talk on Twitter and no action. We'll see what happens with the House GOP trying to be an opponent for the administration's student loan policies. But in the middle of this, you also have other victories the administration is waging and winning. So let's be real for a second. The Sweet v. Cardona settlement, I'm a little stunned. Only three schools challenged the Sweet v. Cardona settlement. And those three schools are going through the appeals court as to whether or not the merits are legitimate for them to get their loans canceled for those students. But for the other 150 schools in the settlement, that's proceeding. And so they're actually going through with forgiving like $6 billion for anybody who applied for borrower defense from any of the schools in the settlement, including a lot of people that are doing just fine. And again, a lot of the people are not doing just fine. I want to be clear about that. But a lot of people, for example, we had a lot of veterinarians from Ross reach out and they said, basically, should we apply for borrower defense or should we do the IDR waiver? And initially, we were skeptical and worried that they would mess up the IDR waiver if they applied. But what we ended up telling folks right before the deadline is, yes, go ahead and apply. Get your application in. We don't see a downside to this. And so those people who applied under this suite via Cardona settlement are probably going to get their loans in an aggregate. They're going to get $6 billion just forgiven in a way that's really, frankly, super aggressive from a legal strategy perspective and really smart. And so while the administration is just dealing with the B-team, the junior varsity, the G-league squad on student loan cancellation and just probably losing on that front because of just the composition of the courts, the administration is going to be just doing a bunch of body blows coming out with the new IDR plan and all these new PSLF regulations and counting deferment and forbearance on student loans. And again, the progressive student loan policy group is just running circles around the conservative opposition that kind of doesn't know what the heck's going on. It's pretty interesting to watch, but that's kind of my expectation is you're going to see this just very extended battle over student loans. It's going to be focused on cancellation. Meanwhile, the administration just keeps getting all these body blows in with new IDR and forbearance and PSLF rules and IDR waiver. They're probably going to take their sweet time getting that implemented because they can't get off their butt and publish the FAQ. Maybe we'll have that in the next couple of days, but that's a big thing, a big shoe to drop. The IDR waiver consolidation deadline is supposed to be May 1. It sure would be freaking great if we could get the FAQ published somewhere where we could actually make it very clear to borrowers what the Department of Education plans to do in terms of how they'll count payments after the consolidations that they're doing. We have ideas. We're pretty sure about what they're going to do. We need that to be explicit. I made a joke the other day that whoever makes the big decisions on when to publish stuff at the Department of Education must be throwing back tequila and playing solitary because they're sure as heck not doing their job. So I hope we'll see that pretty soon. I hope we'll see the IDR waiver published. Then we'll be able to get better advice on that in terms of when and how people should consolidate. I think that we'll probably see a deadline extension past May 1, just because it seems almost impossible that they're going to stick to that deadline with just how poorly they've implemented everything. Then we have the big thing that'll happen even if there's a bunch of fighting over the student loan stuff and the administration tries to extend the pause. The House GOP does have to be involved when they negotiate new service or contracts, and they need a lot of money from Congress to be able to do that. The Department of Education can't just go and do that themselves. So then the House GOP really could say, hey, guess what? We're not going to allow you to issue any additional loans unless you follow what we say. They'll be give and take on that, but probably you'll have to restart payments when you get to that point sometime in the spring of 2024. Now, all that to be said, I could see a scenario where the payment and interest pause does end. If it does end, I think that the reason that they'll let it end is because they decide that they're just exhausted with this. They want to focus their political capital in other areas. They want to go ahead and blame the Supreme Court and have this be a focal point, and then come out with a very progressive campaign pledge for the re-election campaign and just hope that you can do it that way and just move on. So I do think that there's a possibility, and there could be legal scholars, administration that just decide that, you know what? It's just not possible to extend the student loan pause yet again once that emergency declaration ends. So their argument is that they can keep going until July or August based on the Supreme Court case, because that's what they've already said. The question is, do the legal scholars and the administration think that they can't extend it yet again even after the national emergency declaration is over? I don't know. I don't think that the administration would let that get in the way of them doing it simply because their approach to student loans has sort of been, let's do it and let's make somebody tell us that we can't do it. So that's kind of what's informing my theories on this. And, you know, we'll see what happens. I would not get worked up too much in terms of how you file your taxes. I would say probably your 2022 taxes could probably be joint for the most part, because you're probably not going to be using them for IDR recertification. You probably can, in most cases, use your 2023 tax returns. Now, if you've had a consult with us, we've gone into that on a one-on-one basis. I would say our advice is not changing on that front. There are some good reasons to be filing separate just in case you need to recertify your income or get a lower payment because of the new repay plan offering a better payment and allowing you to file separately. In a lot of cases, you do want to have a filing separate tax return on file. We can obviously help with that if you have questions with tax filing season in terms of how to file your taxes because of your student loans. It's a core competency of what we do for folks. So just go to studentloanplanner.com and book your plan. Thank you everybody for listening. You know, obviously this political stuff can give you a headache, especially if you're not really that into politics, but it's really important to dive into the politics because that's ultimately how we best predict what's going to happen next with student loans, and that's what we're ultimately trying to do here. So if you have any questions, studentloanplanner.com. Thank you all for listening to today's emergency episode covering the Supreme Court case for student loans.