Biden’s student loan bailout is on shaky legal ground
The Biden administration’s decision to shift debt from college graduates to working Americans — euphemistically called loan “forgiveness” — raises a host of political and legal issues.
This decision has an exorbitant price: at least 570 billion dollars. And that’s not including the continued “pause” of refunds in place until the end of the year, costing taxpayers $5 billion each month. The cost is exceeded only by the injustice of the action, which punishes the millions of Americans who dutifully paid off their student loans or avoided taking on debt altogether.
Then there are the inflationary effects, both on the overall economy and on college tuition in the future. Federal grants have increased 295% since the 1991-92 school year, and colleges have doubled tuition in real terms in response over the same period. This massive bailout will further drive up college costs if university administrators think students can take out loans without consequence.
These moral hazards have been evoked to nausea in recent days. But an under-explored question is whether the administration actually has the legal authority for this “pardon” regime.
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The Ministry of Education released a memorandum from its general counsel purporting to provide legal justification for the annulment decision. The memo cites the HEROES Act of 2003 as the basis for Secretary Miguel Cardona’s power to cancel student debt for millions of borrowers in 2022.
The law gives the secretary the ability to “waive or vary” laws governing federal student loans during a national emergency like the COVID-19 pandemic, which remains, officially, an ongoing emergency. But a national emergency is not carte blanche, and the Biden administration’s plan does not respect the limits of the HEROES Act.
Congress gave the secretary the power to waive or change the laws only if the change was necessary to help borrowers whose ability to repay their loans was directly compromised by the emergency in question. By canceling $10,000 of debt (and an additional $10,000 for those who were eligible for the Pell Grant when they took out their loans) for anyone earning less than $125,000 (or $250,000 for couples), the secretary made little effort to limit debt relief to those in difficulty. borrowers. Indeed, it is estimated that 42% of the profits from this loan forgiveness will go to the richest 40% of Americans; the bottom 20% only get 12%.
Many of the estimated 40 million borrowers covered by Biden’s cancellation plan never saw their ability to repay their loans dwindle during the pandemic; they kept their jobs and their wages remained the same, or they found new jobs and increased their wages. Now, with an extra $10,000 in their pockets, tax-free, those borrowers are better off than they would have been without the pandemic. This is not what the HEROES law authorizes.
The legal problems do not end there. The Biden administration is implementing its cancellation plan through an executive order. But debt cancellation changes the legal rights and relationships between the federal government and millions of borrowers. By adopting a previously unknown interpretation of the HEROES Act, the administration is conferring massive and tangible benefits on a certain class of people.
These considerations indicate that executive action is, in fact, a substantive rule. Usually, these substantive rules must go through a public notice and comment period before they can be implemented.
No such public process has taken place here. The cancellation plan announced Wednesday was designed in isolation without the benefit of the public participation normally required. This can undermine the legal viability of the plan, not to mention its credibility with the public.
Despite having had more than a year and a half to accomplish one of Biden’s initial campaign priorities, the administration has been resorting to a tightrope, waiting for the student loan payment pause to expire and midterm elections were looming to hastily enact debt cancellation as an emergency measure.
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Even if the HEROES Act allows this shortcut, there is considerable doubt that the Secretary has the power to cancel the debts of millions of student borrowers. Some policies are so broad and consequential that only Congress, not a government agency, can authorize them. The Supreme Court reminded us of this in its June decision in West Virginia v. EPA.
Here, as in this case, the Department of Education is relying on a new interpretation of vague language in an old law to accomplish a priority of great importance, a priority that the administration has failed to achieve. to pass through Congress. While previous secretaries have invoked emergency powers under the HEROES Act, Secretary Cardona cites none that are similar in nature or scope to the planned cancellation of billions in student debt.
Thus, a court is likely to view the secretary’s assertion of authority with skepticism. Because the HEROES Act nowhere speaks of canceling student loans outright, let alone millions of them, a court can conclude that Congress never gave the Secretary that power.
The administration’s decision to forgive up to $20,000 in student loan debt and extend the repayment pause is unfair, regressive and inflationary. And it can also be illegal.