Will the recent news about the U.S. Supreme Court impact student loan borrowers?
This week’s announcement that Justice Anthony Kennedy would be retiring from the Court certainly sent shockwaves through the country. While generally a conservative justice, Kennedy has been widely seen as a swing vote and force of moderation in an increasingly polarized court. With the filibuster for Supreme Court nominees gone, and Republicans maintaining slim but firm control over the United States Senate, most people expect President Trump’s eventually nominee – who will likely be far more conservative than Kennedy – to be confirmed. This could cause a significant idealogical shift for the Court.
It’s difficult to know what this might mean for student loan borrowers. There haven’t been any major recent student loan-related Supreme Court decisions, nor have any new student loan cases been accepted yet by the Court for its next term. But with student loans increasingly becoming a major national issue, I think it’s inevitable that cases impacting student loan borrowers will find their way to the Court. Here’s my take on some of the most likely cases that would impact student loan borrowers during the next few years.
The Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) has been a major force protecting student loan borrowers from incompetent loan servicers and predatory debt collectors since it was first established in 2011. The CFPB has also been under constant attack, and multiple lawsuits have been filed against the agency challenging its constitutionality. One federal court found that the CFPB’s structure is constitutional; however, a recent decision from another federal court found that it’s unconstitutional. This is a classic type of case that the Supreme Court would take up – conflicting federal court decisions about the constitutionality of a federal agency. With a solid conservative majority that tends to be highly skeptical of federal government intervention, I think it’s very possible that a post-Kennedy Supreme Court would effectively gut the CFPB.
Conflicts Between the Federal Government and States
With the federal government becoming less interested in regulating federal student loan servicers and collectors, state legislatures have been stepping in to pass statewide consumer protections designed to shield their residents from predatory federal contractors. However, the current administration opposes these efforts, arguing that states have no legal authority to regulate federal contractors. Conflicts between state and federal governments is another classic example of the type of case that the Supreme Court loves to take up. However, it’s more difficult to predict how a conservative court may rule in such a conflict — on the one hand, the conservative justices tend to be pro “states rights,” but on the other hand, they tend to frown upon public regulation of private entities.
As many people know, it is very difficult (although not impossible) to discharge student loans through bankruptcy. Changes to the bankruptcy code in the 1990’s and 2000’s effectively created a separate and very difficult standard that borrowers must meet to prevail. While there’s been no appetite in Congress to reform the bankruptcy code, individual bankruptcy judges have been increasingly trying to adapt this difficult and outdated standard to today’s reality. I anticipate that as more bankruptcy judges do this, student loan lenders (including the federal government) will start appealing bankruptcy discharges to federal appeals courts, and eventually the issue may come before the Supreme Court. The conservative justices who currently are in the majority tend to be what we call “strict constructionists” and they defer heavily to Congressional statutes. I think this means that they will defer to the bankruptcy code itself – and without Congressional changes to the code, they might be inclined to rule against student loan borrowers.