Before heading out of town, the Supreme Court [6-3] struck down 80-uear-old President Joe Biden’s executive order excusing federal student loan debt, forcing millions of borrowers to resume making payments in Oct. Biden suspended student loan debt in 2021 in the height of the Covid-19 pandemic, giving student borrowers debt relief. Biden, under pressure from progressives like Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocaso-Cortez (D-N.Y.) pushed Biden to make student loan debt forgiveness permanent, with some $1.6 trillion at stake to U.S. lenders. Ruling 6-3, the conservative majority ended what economists saw as something good for the U.S. economy during the pandemic’s hard times. Now that the pandemic is over, it was a matter of time before the free ride ended. Of the $1.6 trillion in student loan debt, only $440 billion were eligible for debt forgiveness.
Progressive Justices on the High Court, led by Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson, dissented, arguing that student loan debt forgiveness helped the U.S. economy, improving discretionary spending for millions of student borrowers. Economists have mixed feelings about whether resuming payments, averaging between $200 to $300 a month, would make much difference in consumer spending habits. Since consumer spending is some 66% of U.S. Gross Domestic Product, it remains to be seen whether resuming debt payments would slowdown the economy. When it comes to repaying student debts, student borrowers signed federal promissory notes or lending documents promising to repay loans. Conservatives thought it was unfair to exclude some borrowers from debt while other had already repaid student loans per their federal lending contracts.
Liberal arguments on forgiving student debt stem from the idea that minorities, especially Blacks, are financially strapped, needing help with debt relief to make their education pay off. When you consider that Rep. Cori Bush (D-Mo.) asks the government to pay $14 trillion in slavery reparations, more that half the U.S. GDP, over double the 2023 U.S. federal budget. When it comes to student loan forgiveness, the temporary hiatus on student loan debt seemed reasonable based the economic hardship. With $440 billion debt slated to resume payments in Oct., some economists wondered whether it would contribute to a slowdown in consumer spending. Commerce Department reported yesterday that U.S. GDP had risen in the first half to two percent, mitigating fears about a 2023 recession. Consumer spending rose 5.9% in the preceding 12 months through May 2023.
Investment bank Jefferies said the economy could be impacted negatively by resuming student debt payments. “I have been anticipating a pretty significant impact on consumer spending as soon as the payments start against,” said Jefferies economist Thomas Simons. “My suspicion is that most of the folks who are going to have to start paying again have limited capacity to handle the increase expenses,” Simons said, concerned about consumer spending. When the Supreme Court ruled to strike down Biden’s student debt forgiveness, it was based on the principle behind lending contracts, not whether student loan forgiveness helped or hurt consumer spending. If contracts are broken, it throws a society into chaos because borrowing money has real legal consequences. Why should some borrowers have debt forgiven, while others met debt obligations to meet their lending contracts?
Whatever effect of resuming student debt payments have on the U.S. economy, it has zero to do with repaying debt obligations. Morgan Stanley doesn’t think resuming payments would have much impact on U.S. GDP growth. Average student loan debt obligations would reduce discretionary spending by only 0,2% to 0.3%. Researchers at the New York Fed see things differently, saying that only a small fraction of borrowers most recently graduated would create economic hardship. Whatever the effect on borrowers, the government can’t be in the business of guaranteeing student loan debt if Biden issues executive orders eliminating debt obligations. Each loan default has a consequence on lenders’ bottom lines, or, more accurately, the fiscal solvency of lending institutions in the business of student debt. So, ordering debt forgiveness by fiat hurts the lending industry.
Writing for the minority, Justice Sonia Sotomayor slammed the conservative majority for showing no mercy on student borrowers, especially minorities facing economic hardship. Sotomayor hinted that if the court had a large progressive composition, student debt forgiveness would have been made permanent. Progressives like Sanders and AOC believe that Biden should by fiat increase the size of the Supreme Court to neutralize the current conservative majority. Packing he court with liberals would accomplish the goal of one-party rule in the United States, ending Democracy under the U.S. Constitution. Whatever the composition of today’s court, it will change over time with expected retirements, depending on whether liberals hold onto the White House. Liberal justices, frustrated over conservative rulings, should remember that they’ll eventually get their day in court
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.
