How the Supreme Court, Like the Fed, Reshapes Your Finances

Biden’s student debt forgiveness plan isn’t the only change coming for student loan borrowers. His plan also fundamentally changes how loans will be repaid, turning many into, essentially, free college grants.
Biden’s student debt forgiveness plan isn’t the only change coming for student loan borrowers. His plan also fundamentally changes how loans will be repaid, turning many into, essentially, free college grants.

Summary

  • The justices’ coming decision on student-debt cancellation is among cases with direct impact on people’s wallets

The Supreme Court can’t set interest rates or manage the money supply, but its rulings can have as powerful an influence on Americans’ financial lives as the Federal Reserve.

The high court’s ruling on President Biden’s student-loan cancellation program, expected in the coming weeks, will have an unusually direct impact on people’s monthly budgets.

The panel’s decisions have shaped our financial lives over centuries, from income taxes to the minimum wage to what people pay for healthcare. While not explicitly about money, the court’s landmark rulings on abortion have also affected people’s finances, legal scholars say.

If upheld, the student-loan plan will wipe up to $20,000 in debt from borrowers’ balance sheets. If not, the debt will remain on the books when their monthly bills resume late this summer after a three-year pause.

The student-debt ruling will make a difference in people’s budgets, but “I don’t think this is going to make anyone’s list of the top 10 most important Supreme Court decisions ever in terms of economic impact," said Daniel Hemel, a professor at New York University School of Law.

Here are some court decisions with the greatest direct impact on Americans’ money:

Social Security

The bedrock of a stable retirement, the Social Security Act was signed into law by President Franklin D. Roosevelt in 1935. Social Security’s fate was settled in a pair of cases decided on the same day in 1937. Helvering v. Davis and Steward Machine Co. v. Davis upheld the constitutionality of the Social Security program and a payroll tax that helped pay for it.

When it became law, roughly 300,000 older Americans received retirement benefits from a state government. About three years later, some 1.7 million got them through Social Security, which became “a lifeline for millions of destitute elderly people in the country," Hemel said.

In April 2023, about 49 million Americans received an average of $1,834.80 in monthly retirement benefits through the program.

Health-insurance costs

The 2010 Affordable Care Act included tax credits designed to make insurance coverage more accessible for millions of people. In 2015, in King v. Burwell, the court decided that the federal government could continue providing those tax credits in the 34 states that didn’t create their own health-insurance exchanges. (The Act also survived a broader legal challenge in 2012, in National Federation of Independent Business v. Sebelius.)

At the time of the decision, some 6.4 million people in those 34 states received an average tax credit of $272 a month, or $3,264 a year, according to estimates from KFF, a health-policy research organization. If the court had struck down those tax credits, the health-insurance premiums of those 6.4 million people would have increased an average of 287%, KFF estimated.

Minimum wage

The Supreme Court has also shaped workers’ paychecks. For decades, it maintained that neither states nor the federal government could set a minimum wage, said Victoria Nourse, a professor at Georgetown Law. The “first break in the court’s refusal," she said, was its 1937 decision in West Coast Hotel Co. v. Parrish, which allowed states to establish a minimum wage for female workers.

Roosevelt signed the Fair Labor Standards Act into law a year later, establishing a federal minimum wage. The new minimum wage covered around 11 million workers, according to a government economist’s rough estimate in 1939. In a 2021 paper, the economists Price Fishback and Andrew Seltzer calculated that to be about half of those employed in the private sector at the time.

Credit cards

There were once legal limits on the interest rates Americans pay on their credit-card debt. A 1978 case effectively erased those limits, said Mehrsa Baradaran, a professor at University of California, Irvine School of Law.

The case, Marquette National Bank of Minneapolis v. First of Omaha Service Corp., was a legal duel between two banks. One was based in Minnesota, where a state usury law capped credit-card interest rates at 12%, and the other was based in Nebraska, where they were limited to 18% for balances under $1,000. The Minnesota bank wanted to stop the Nebraska bank from offering Minnesota residents credit cards with Nebraska-level interest rates.

The court sided with the Nebraska bank, which meant that banks based in states with high interest-rate ceilings could charge those rates to customers in other states. The ruling inspired some banks to relocate their credit-card operations to states such as South Dakota and Delaware that got rid of their caps on interest rates altogether.

Those states’ regulations, Baradaran said, effectively became those of the whole country.

The court’s decision also contributed to putting credit cards in the wallets of more Americans. The share of U.S. families that had a bank-issued credit card rose from 38% in 1977, the year before the case was decided, to 56% in 1989, according to the Federal Reserve.

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