Certainly Hillel (or any rabbi) cannot abrogate the Torah law which dictates that a loan is cancelled by Shmittah. What Hillel did was to create a mechanism whereby, according to the Torah’s own rules, Shmittah does not cancel certain debts.
To explain: By Torah law, one may transfer one’s debts to the court before Shmittah who may then collect them and keep them for the use of the courts. This is called Moser Shtarotav LeBeit Din, handing over one’s documents to the court (Makkot 3b). The Sifri derives this from the text (of verse 3) which says תַשְמֵֵ֥ט יָדֶֶֽךָ - your hand shall remit, i.e., only a private debt is remitted but not a debt owed to a communal body such as a court.
The Ritva (on Makkot ibid) explains that, by Torah law, it is necessary to physically hand over the documents of debt to the court before the Shmittah year. At that point they “own” the debt and may collect it as they see fit. (See also Rashi on Makkit ibid.)
What Hillel established is that the creditor need not hand over the documents to the court. Rather he makes one document (some say it may be an oral declaration) which transfers all of his debts to the court. He may then collect those debts as an “agent of the court” which authorizes him to do so and to keep the money for himself (see also Jerusalem Talmud Shvi’it 10:2).
How Can Hillel Override Torah Law?
The Talmud (Gittin ibid) questions how Hillel could establish something that goes against the Torah’s laws (as the documents aren’t physically given to the court). Two answers are offered:
- Rabbinic Shemittah
Some say that the laws of Shmittah nowadays (both that of resting the land and that of cancelling debt) are only of Rabbinic origin. As such, the rabbis have the power to decide which debts will be cancelled and which will be upheld. - Hefker Beit Din
Another explanation is that, even by Torah law, the rabbis have the right to declare property ownerless. This is called Hefker Beit Din Hefker. As such, Hillel declared that the money owed to the debtors (which were cancelled by Shmittah) should be removed from the “property” of the debtors and become the “property” of the creditors.
