Supreme Court Student Loan Forgiveness Case Starts This Week: What Investors And Students Should Know

Zinger Key Points
  • The Supreme Court will rule on the legality of President Biden's student debt forgiveness plan.
  • Student loan stocks may experience an uptick in volatility surrounding the cases.

American college students and investors exposed to student loan stocks will be watching the beginning of a new Supreme Court case involving President Joe Biden's student debt relief plan this week.

The Biden Plan: Biden announced his plan last August to cancel $10,000 in federal student loan debt for Americans earning less than $125,000 or households earning less than $250,000. In addition, Pell Grant recipients would be eligible for an additional $10,000 in student debt forgiveness.

The Biden administration estimates 43 million Americans would qualify for at least some debt forgiveness under the plan and 20 million Americans would get their student debt wiped out completely.

Related Link: Student Loan Tutor Launches Partnership with PSLF Counsel Serving Student Loan Borrowers

The Congressional Budget Office estimates the program would cost taxpayers $400 billion over 10 years.

The Court Case: The Supreme Court will rule on two different challenges to the student debt forgiveness plan starting on Tuesday.

Republican-led states of Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina are appealing a dismissal by a lower court, which ruled the states could not challenge the program because they were not financially harmed by it.

In addition, two students are challenging the plan on the grounds that the Biden administration did not go through the proper process in enacting the program. A Texas judge previously ruled the administration overstepped by enacting the program without authorization from Congress.

Related Link: Ascent named 'Best Private Student Loan Overall' from NerdWallet's annual 2023 Best-Of Awards

The administration has argued the COVID-19 pandemic allows the secretary of education to waive or modify federal student loan terms under the Higher Education Relief Opportunities for Students Act, legislation that was initially implemented to provide debt relief for service members fighting in Iraq and Afghanistan.

Why It Matters: Student loan stocks, such as SoFi Technologies Inc SOFI, Navient Corp NAVI, Maximus Inc MMS and SLM Corp SLM have experienced extreme volatility in recent years tied to the Biden administration's moratorium on student loan repayments and the proposed student loan forgiveness plan.

In November, the administration extended the student loan payment moratorium for a "final" time, which could keep students off the hook for loan payments until summer 2023. However, that forbearance could also end at any time if the Supreme Court rules against the program altogether.

Benzinga's Take: Student loan stocks may experience an uptick in volatility surrounding headlines related to the beginning of the Supreme Court case this week, but it could take the court months to make a final decision.

Conservatives currently outnumber liberals on the court by a 6-3 margin, but it's unclear at this point whether or not the forgiveness plan challengers can make a compelling enough legal case against it for the nation's highest court to strike down the plan completely.

Photo: J Main via Shutterstock

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