Justice Department Asks Supreme Court to Let Student Debt Cancellation Proceed

The Biden administration asked the Supreme Court on Friday to allow its student loan relief plan to go forward, arguing that delaying enactment of a proposal to cancel billions of dollars in debt would leave borrowers in limbo.

The Justice Department asked the court to lift a decision this week by the Court of Appeals for the Eighth Circuit in St. Louis, which granted a request by six Republican-led states to halt the plan. Under President Biden’s plan, federal borrowers with less than $125,000 in annual income could receive up to $20,000 in relief.

In its filing, the department called the Eighth Circuit’s ruling “erroneous” and said it left borrowers unable to make financial decisions with “an accurate understanding of their future repayment obligations.”

Multiple lawsuits challenging the plan are progressing through courts across the nation, but the one filed by six Republican-led states, Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina, is widely viewed as the most serious threat to the administration. The states have argued that Mr. Biden’s proposal exceeds his executive authority and would deprive them of future tax revenue.

A White House spokesman, Abdullah Hasan, said that the Biden administration was confident in its legal authority to enact the program. He added that the administration was “taking this fight to the Supreme Court so that borrowers can get the clarity and relief they deserve quickly.

Since March 2020, most federal student loan borrowers have been able to skip making their payments under a pandemic relief measure that began under President Donald J. Trump and was extended eight times, including across the Biden administration. But the Biden administration has told borrowers that their payments will restart in January — a deadline that is adding urgency to the debt cancellation issue.

Nearly 26 million borrowers have applied to have federal student loan debt wiped out, and the government has already approved 16 million applications, but no debt has been canceled yet. Last week, the Education Department, which owns and manages the government’s $1.5 trillion student debt portfolio, stopped accepting cancellation applications because of the mounting legal battles.

One of the biggest obstacles for legal challengers has been establishing standing to sue. A district court judge initially dismissed the states’ action, finding that they had not cleared that threshold. The states appealed to the Eighth Circuit, which overturned the district court’s decision. A three-judge panel ruled that the states had standing to proceed because Mr. Biden’s plan “presents a threatened financial harm” to the states’ tax revenue and other income streams.

The Justice Department called that stance overly broad in its court filing on Friday.

“If the Eighth Circuit’s contrary theory were taken to its logical conclusion, banks could sue anyone who causes financial harm to their borrowers, credit-card companies could sue anyone who causes financial harm to their customers, and governments could sue anyone who causes financial harm to taxpayers,” the department wrote.

The department is seeking to have the Eighth Circuit’s nationwide injunction vacated. If the Supreme Court is unwilling to go that far, the administration asked for the injunction to be narrowed and applied only to the suing states.

Mr. Biden’s proposed debt cancellation would be one of the most expensive executive actions in history, with a price tag the nonpartisan Congressional Budget Office estimated at around $400 billion. His administration maintains that he has the authority to do it under the Heroes Act of 2003, which allows the education secretary to waive regulations related to student loans during times of war or national emergency. The country has been operating under an emergency declaration, imposed by Mr. Trump, over the coronavirus pandemic since March 2020.

The states have argued that the Mr. Biden’s debt cancellation plan “is not remotely tailored to address the effects of the pandemic” and is instead aimed at fulfilling “the administration’s political agenda on student loans.”

The Justice Department pushed back on that characterization, saying in Friday’s filing that when payments restart, “lower-income borrowers will be at heightened risk of delinquency and default because of the continuing economic consequences” of the pandemic. Reducing low- and moderate-income borrowers’ overall debt burdens is necessary to prevent a spike in defaults, the department said.

The Supreme Court is widely expected to rule on the issue.

Justice Amy Coney Barrett has, without comment, rejected two previous challenges to Mr. Biden’s debt cancellation plan. Last month, she turned away a case brought by a taxpayers’ association in Wisconsin, and this month, she rebuffed a complaint from borrowers in Indiana. In both cases, lower courts had previously rejected the challenges.