Supreme Court docket once more declines to dam Biden’s scholar mortgage reduction plan

Supreme Court nominee and US Circuit Court Justice Amy Coney Barrett on Capitol Hill in Washington, October 21, 2020.

Ken Cedeno | Reuters

The Supreme Court on Friday denied a second motion to block the Biden administration’s student-loan deleveraging program.

Judge Amy Coney Barrett denied an emergency motion to block the program filed Tuesday by the Pacific Legal Foundation, a conservative rights group, on behalf of two Indiana borrowers.

On October 20, Barrett denied a similar request from the Brown County Taxpayers Association in Wisconsin.

Barrett has jurisdiction over such motions issued from cases brought before the US 7th Circuit, which includes Indiana and Wisconsin.

Friday’s decision has little practical impact. For now, student loan forgiveness remains on hold due to a challenge put forward by six Republican-led states. An 8th Circuit Court of Appeals judge in October granted the states’ emergency motion to stay the plan pending the states’ appeal.

More from Personal Finance:
Treasury announces new Series I bond rate of 6.89%
Department of Education to cut ‘bureaucracy’ in forgiving public sector loans
26 million borrowers have applied for student loan forgiveness

It has been facing at least six court cases since the White House unveiled its plan in August to eliminate $10,000 in student loans for most borrowers and up to $20,000 for those receiving Pell Grants for low-income families confronted.

Nearly 26 million Americans have already applied for student loan forgiveness, and the Biden administration has approved 16 million of the applications, the White House said Thursday. The administration has continued to encourage borrowers to apply for relief despite recent challenges.

Caleb Kruckenberg, an attorney for the Pacific Legal Foundation, said in an emailed statement, “We are disappointed with today’s rejection but will continue to fight this program in court.”

“Virtually since the announcement of this program, the administration has attempted to avoid judicial review,” Kruckenberg said. “So far they’ve succeeded. But that doesn’t change the fact that this program is illegal through and through.”

“Standing” remains a theme for forgiveness challenges

The biggest obstacle for those hoping to thwart the president’s action has been finding a plaintiff who can show they have been harmed by the policy, experts say.

“Such a breach is required to determine what the courts call ‘standing,'” Laurence Tribe, a Harvard law professor, recently told CNBC. “No individual, company or state is demonstrably harmed in the way private lenders would have been if, for example, their student loans had been cancelled.”

With that in mind, Barrett’s decision to reject the Pacific Legal Foundation’s application is not surprising, said higher education expert Mark Kantrowitz.

“There were very few substantive differences between their original lawsuit and the new lawsuit, indicating a lack of legal capacity,” he said.

In the Pacific Legal Foundation case, Indiana-based plaintiffs Frank Garrison and Noel Johnson said they would be financially harmed if part of their student debt was automatically forgiven because they would pay state taxes on that forgiven debt.

Indiana is one of several states that have declared that forgiveness would be taxable at the state level and possibly at the county level.

Both Garrison and Johnson are attorneys; Garrison works for the Pacific Legal Foundation and Johnson for the Public Interest Legal Foundation. They are seeking relief through the Civil Service Loan Forgiveness Program, which allows those who work for the government or certain nonprofit organizations to forgive their debt after 10 years or 120 payments. PSLF Waiver is not considered taxable income.

After the first lawsuit, the Department of Education said borrowers can opt out if they don’t want their loans forgiven.

Student loan borrowers ‘in limbo’

As legal challenges mount, financial advisors say borrowers are wondering where student loan forgiveness stands.

“Court interference is really concerning because people are looking for reassurance about what’s happening with their student loans,” said Ethan Miller, a certified financial planner and founder of Planning for Progress in the Washington, DC area. Miller specializes in student loan clients.

“There was a plan that clearly outlined the steps,” he said. “And yet everyone has fallen into limbo.”