Yesterday was an eventful day for America after the U.S. Supreme Court overturned Affirmative Action. Today, the highest court in American jurisprudence has struck again. This time, the Court ruled against student loan forgiveness debt.
The U.S. Supreme Court ruled 6 to 3 this Friday. The Court argued that President Biden exceeded his authority with a plan to forgive more than $400 billion in federal student loan debt. According to Vox, President Biden is planning to announce additional relief measures Friday afternoon, but barring any drastic executive actions. The left-leaning journal argues that the struck down against student loan debt could make it harder for many Americans to make progress in paying down their loans and send them deeper into debt.
Some experts believe that repayments will make life difficult for just about every borrower though some segments of the population—namely younger and middle-aged people of color, particularly those at lower income levels—will likely be more affected than others, according to Vox.
The Court rejected the Biden administration’s arguments that the plan was lawful under a 2003 law called the Higher Education Relief Opportunities for Students Act, or Heroes. According to NCB News, the law says the government can provide relief to recipients of student loans when there is a “national emergency,” allowing it to act to ensure people are not in a “worse position financially” as a result of the emergency.
The point missed here is that student loan forgiveness affects everyone else, not just those in the low-income brackets. Student loan debt has deep economic implications. First, it is important to reiterate that student loan forgiveness has no impact on reducing the cost of higher education. As a matter of fact, adding more student loan debts will only incentivize universities to increase tuition costs with the assumption of future forgiveness.
More importantly, it is essential to comprehend that the cancellation of student loan debt would not erase the amount of student debt owed but would rather shift the liability from an individual’s balance sheet to the federal government’s balance sheet. The real value of outstanding government debt must be matched by future surpluses of revenues over spending. The issue is that the U.S. government currently runs on a budget deficit.
The real value of debt is backed by the real value of future resources. If the Supreme Court validated Biden’s student loan relief plan, the immediate impact of the relief plan would be that debt cancellation would reduce future interest and principal payments, which is revenue of the future federal budget. Thus, the approval of this student loan relief would have led to a decline in expected net revenues, which then becomes insufficient to back the outstanding level of debt.
While the Court’s decision to strike down the student loan relief plan may not have been necessarily based on economic reasoning but rather on legal reasoning, the approval of that legislation would have led to an increase in inflation, the very thing that makes borrowing difficult since the Federal Reserve hiked interest rates.
It is important for the ordinary American to understand that every issue we are confronted with has underlying economic implications, even the issues that aren’t necessarily about economic policy, and this is the very case with the student loans relief plan of President Biden.
If this student loan relief plan had a direct impact on the cost of tuition, meaning reducing the future cost of tuition, then it would have made sense to move forward with this legislation. But since student loan cancellation will encourage colleges to hike their tuition, it makes sense to strike down this legislation. Consequently, the Supreme Court’s decision to invalidate the legislation is logically valid.