In what is being viewed as a blatant effort to court voters ahead of the midterm elections, President Joe Biden has finally announced his long-anticipated plan to cancel student debt.
Described in a tweet as “a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023…Pell Grant recipients can (now) qualify for up to $20,000 in debt forgiveness as part of Wednesday’s broader announcement on student loan forgiveness. Other student loan borrowers who don’t have Pell Grants will still have loans forgiven up to $10,000, as has been previously reported. Both forgiveness options are for people who earn less than $125,000 per year, or $250,000 as a household.”
Naturally, many people (including this writer) paid off the loans we used to pay for our education by devoting a portion of our salary and other financial resources to the repayment of those loans. For us, the words of Michael MacDowell in the News-Press resonate strongly; “Those who sacrificed to pay off their student loans are not happy with President Biden’s plan to forgive remaining student loans…all American taxpayers will cover the cost of loan forgiveness through higher taxes. Americans will pay for this misguided policy in another way as well because loan forgiveness dollars will stimulate the economy causing further inflation…(f)orgiving student loans will only exacerbate income inequality because those college graduates are having their debts paid with the tax dollars from those who did not attend college. Senator Tom Cotton summed it up best when he asked, ‘Why should a trucker who didn’t go to college have to pay off a lawyer’s student loan debt?’”
Beyond these practical objections is another, more basic legal question – Is Biden empowered to do this? Does he have the authority to transfer hundreds of millions of dollars in private debt to the public with the use of his pen?
According to House Speaker Nancy Pelosi (D-CA), “People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.” But according to law professor John Brooks of Fordham University, “The president has some pretty broad authority under the Higher Education Act…the president through the secretary of education does have the power to adjust the amount of loan principle that any borrower has.”
This would not be the first time the Biden Administration exceeded its Constitutional authority and acted unlawfully. We have detailed several instances where the US Supreme Court reversed various Presidential initiatives on the grounds that Congress did not delegate power to the President’s Secretaries to act. For instance, in National Federation of Independent Business v. Department of Labor, “the Court found that the Department’s Occupational Safety and Health Administration (OSHA) did not have the authority to mandate that private employers with more than 100 employees must require their employees to receive the Covid-19 vaccine.”
Then, in May of this year, a Federal District Court Judge in Florida found that the Center for Disease Control (CDC) did not have the authority to mandate masks for travelers on public transportation, including airplanes.
Here however, the question of the authority of the Secretary of Education may be more open to interpretation.
Under Title IV of the Higher Education Act (HEA), first signed into law in 1965 as part of Lyndon Johnson’s “Great Society,” “nine parts (of Title IV) authorize a broad array of programs and provisions to assist students and their families in gaining access to and financing a postsecondary education. The programs authorized under this title are the primary sources of federal aid to support postsecondary education.” These programs include “the Federal Pell Grant program, which is the single largest source of grant aid for postsecondary education attendance funded by the federal government,” and the Federal Family Education Loan Program (FFEL), which consists of “several types of federal student loans to assist individuals in financing the costs of a postsecondary education; those loans included Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and graduate and professional students, PLUS Loans for graduate and professional students and the parents of dependent undergraduate students, and Consolidation Loans.”
“Under the FFEL program, loans were originated by private sector and state-based lenders and were funded with nonfederal capital. The federal government guaranteed lenders against loss due to borrower default, permanent disability, or, in limited circumstances, bankruptcy,” however, the FFEL loans program was terminated in 2010. Instead, “Title IV (now) authorizes the Direct Loan program, which is the primary source of federal student loans…(u)nder the program, the federal government lends directly to students using federal capital. While the government owns the loans, loan origination and servicing is performed by federal contractors.”
What happened in 2010?
“President Obama…signed into law the final piece of the health care puzzle, which mandates sweeping changes in the way the nation provides health care and makes the federal government the primary distributor of student loans… the Health Care and Education Reconciliation Act of 2010…ends the current program that subsidizes banks and other financial institutions for issuing loans, instead allowing students to borrow directly from the federal government.”
The Health Care and Education Reconciliation Act of 2010 was an attempt to make changes to the Patient Protection and Affordable Care Act (more popularly known as “Obamacare“) through the use of a “reconciliation” bill – that is, “a special legislative process…to quickly advance high-priority fiscal legislation. Created by the Congressional Budget Act of 1974, reconciliation allows for expedited consideration of certain tax, spending, and debt limit legislation. In the Senate, reconciliation bills aren’t subject to filibuster and the scope of amendments is limited, giving this process real advantages for enacting controversial budget and tax measures.”
It is important to note that the 2010 bill had some provisions for forgiveness of loans; “As part of the expanded income-based repayment plan, new borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years. Public service workers such as teachers, nurses, and those in military service will see any remaining debt forgiven after just 10 years.”
The law also gives the Secretary of Education very broad authority to “cover” a student borrower’s default at taxpayer expense – for instance, at 20 USC 1078, “The Secretary may enter into a guaranty agreement with any guaranty agency, whereby the Secretary shall undertake to reimburse it, under such terms and conditions as the Secretary may establish, with respect to losses (resulting from the default of the student borrower) on the unpaid balance of the principal and accrued interest of any insured loan. The guaranty agency shall be deemed to have a contractual right against the United States, during the life of such loan, to receive reimbursement according to the provisions of this subsection.”
With this history, one would think the Biden Administration would argue that that over the course of 50 years, Congress has granted the Secretary of Education increased power over student loans, including control over loan extensions and forgiveness, and that this latest initiative is nothing new in the increasing burden the Department of Education has placed on the American taxpayer.
Instead, what argument does the Biden Administration use to justify their actions?
“The Justice Department issued a…legal opinion contending the Education Secretary had power under the 2003 HEROES Act ‘to reduce or eliminate the obligation to repay the principal balance of federal student loan debt, including on a class-wide basis in response to the COVID-19 pandemic, provided all other requirements of the statute are satisfied.’”
The 2003 Heroes Act?
According to the memorandum, “The Higher Education Relief Opportunities for Students Act of 2003…vests the Secretary of Education…with expansive authority to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies…(i)n 2020, the Secretary invoked this authority in response to the COVID-19 pandemic to suspend the repayment obligation and to waive interest payments on student loans for every borrower in the United States with a loan held by the federal government…(y)ou have asked whether the HEROES Act authorizes the Secretary to address the financial hardship arising out of the COVID -19 pandemic by reducing or canceling the principal balances of student loans for a broad class of borrowers. We conclude that the Act grants that authority.”
To be fair, the memorandum does discuss the Secretary’s powers under Title IV of the Higher Education Act. But is pretty clear that the Biden Administration intends to invoke its authority to act in an emergency as the basis for its sweeping student loan forgiveness plan.
Will this broad exercise of power be upheld by the Courts? Let us give the final word on the issue to Jonathan Turley, Law Professor at George Washington University; “While the Biden Administration might have some early success with a lower court judge, it will face a chilly reception on the Supreme Court…President Biden has been a constitutional recidivist in executive overreach in a series of major court losses. The authority cited is highly challengeable. To assume such a massive power to excuse as much as $500 billion, that authority should be both express and clear. It is not.”
Judge John Wilson (ret.) served on the bench in NYC.