The Biden Administration Just Won’t Give Up on Loan Forgiveness

The courts must put a stop to the president’s latest illegal moves.

On June 30, the Supreme Court handed down its decision in Biden v. Nebraska, the case that challenged the legality of the president’s executive order cancelling federal student-loan payments for millions of borrowers. In their ruling, the Court’s majority held that the president had no authority to declare such a cancellation. The statute that the administration had relied upon, the HEROES Act, could not be stretched, the Court decided, to mean that the president had been empowered to make a sweeping loan-forgiveness decree. Nor does anything in the Constitution give the president such authority.

Thus, Biden’s loan-forgiveness plan was struck down as legally invalid.

The Biden Administration, however, is not one to let mere illegality stand in the way of anything it sees as politically advantageous. The same day that the Court issued its decision against executive action to cancel student loans, the White House released a fact sheet entitled “President Biden Announces New Actions to Provide Debt Relief and Support for Student Loan Borrowers.” Under this new initiative, the student-loan debts of some 3.6 million borrowers will be wiped out, costing the Treasury approximately $175 billion.

How can these new actions be legitimate if the president’s previous student-loan order was not?The obvious question is how these “new actions” can be legitimate if the president’s previous order was not.

Under the new plan, the Department of Education is crediting student borrowers who did not make their monthly payments during periods of “forbearance” with having actually made their payments. Here’s the background.

Borrowers who find themselves in difficult financial circumstances can ask that they be permitted not to make their monthly loan payments, and such periods are called “forbearance.” Federal law clearly allows this, and many borrowers have taken advantage of it. The law does not, however, say that months of forbearance can be counted as months in which payments were made. The Education Department is attempting to make new law.

The laws in question are three statutes passed by Congress regarding student loans, all meant to ease the burden of paying off one’s college debts. One of them is the College Cost Reduction and Access Act of 2007, which created the Public Service Loan Forgiveness (PSLF) program. Under it, students who borrow for college and later go into a “public service” field (such as government work or employment in a non-profit organization) are entitled to have whatever balances remain on their loans cancelled after 10 years of that work—if they have made all of their monthly payments.

What the Education Department intends to do is credit these borrowers with having made their payments during periods of forbearance, which means that their loans will be discharged sooner. This move will cost the Treasury the money that these borrowers would otherwise have paid. It also means that borrowers with public-service jobs who get their loans cancelled will be free to seek employment in the for-profit sector, where compensation tends to be higher.

Crucially, nothing in the law states that the Education Department is authorized to credit borrowers as having made payments in months when they did not. The Department is changing the law to suit the administration’s desire to be seen as aiding student borrowers.

Another federal law pertaining to student-loan repayment is the Income-Contingent Repayment (ICR) program begun in 1993. This program caps a borrower’s monthly payments at 20 percent of his or her income above the federal poverty line. After the borrower has made his or her monthly payments for 25 years, the remaining debt is cancelled. Under the Department’s new rules, payments that were missed during forbearance will be counted towards the 25-year cut-off. This, too, means that the taxpayers will be hit with a new burden, one that Congress has not legislated.

The Education Department is changing the law to suit the administration’s desire to aid student borrowers.Another law that was intended to ease the burden of paying back student loans is the Income-Based Repayment (IBR) plan. This puts a cap on the amount that a borrower has to pay at no more than 10 percent of the amount by which his or her income exceeds 150 percent of the federal poverty line. After 20 years of payments, the remaining balance is cancelled. Again, that cancellation occurs after 20 years of payments. The Department now intends to count months of nonpayment during forbearance as if the person had actually paid.

Those changes are beneficial to borrowers who availed themselves of forbearance, but there is no legal authority for the Education Department to indulge in this vicarious generosity.

A legal challenge was promptly mounted against the Department by the Mackinac Center for Public Policy (a Michigan think tank) and the Cato Institute (a think tank located in Washington, D.C.). In their complaint, Mackinac and Cato argue that the court should issue a declaratory judgment that the Education Department’s plans are unauthorized under the Constitution or federal statute and issue an injunction against it from crediting non-payments as payments.

On the merits, it’s impossible to see any difference between the Biden executive order cancelling student-loan payments under the HEROES Act, which the Supreme Court found to be legally unwarranted, and the Education Department’s decision to accelerate the cancellation of loans by crediting periods when borrowers were not making monthly payments due to forbearance. In both instances, the executive branch is making law, which the Constitution reserves for Congress.

But in litigation against unconstitutional governmental action, it is not enough just to point out to the court that the government is acting illegally. The plaintiff must first show that it is an appropriate party to make the challenge, or in legal parlance that it has “standing to sue.” This is a judicial rule meant to exclude frivolous suits by insisting that a complaining party show that it has or will suffer a serious injury as a result of the government’s action. The standing-to-sue requirement has blocked many suits by taxpayers against unconstitutional spending, because the courts have decided that it isn’t a sufficient injury just to show that some of your tax money is being spent illegally.

Do Mackinac and Cato have standing? They argued that they do because they benefit significantly from the public-service incentive—both seek to hire college-educated workers for work that qualifies them for public-service loan forgiveness—and they will be harmed if the Education Department can change the law in a way that diminishes the value of that benefit. As the complaint states, “Unlawful cancellation of student loan debt reduces the amount of a borrower’s PSLF-cancellable debt and thus reduces the amount by which PSLF benefits qualified employment.”

The Supreme Court needs to rethink its “standing-to-sue” jurisprudence.That argument did not, however, convince the judge. On August 14, Judge Thomas Ludington dismissed the complaint on standing grounds. He ruled that the plaintiffs had not shown “sufficient concrete, particularized, actual, imminent injury.” Mackinac and Cato will appeal Judge Ludington’s ruling to the Sixth Circuit Court of Appeals.

In Biden v. Nebraska, the three justices sympathetic to the administration wanted the Court to rule that the plaintiffs did not have standing. That’s the easy way for judges who want to allow questionable if not flagrantly unconstitutional federal activity to continue—declaring that the plaintiff doesn’t have standing. That way, the illegal governmental activity goes on until such time as a “proper” plaintiff manages to get into court. That might be never.

In my view, two things are clear.

First, the Biden administration continues to trample over the rule of law by having the Department of Education rewrite the rules on loan forgiveness. Only Congress has the power to do that. Somehow, this lawlessness must be stopped.

Second, the Supreme Court needs to rethink its “standing” jurisprudence. Especially with a chief executive who’s so willing to flout the law for political gains, it’s far more important to scrutinize the government’s action than to fret about whether a particular plaintiff is the ideal party to challenge it.

George Leef is director of external relations at the James G. Martin Center for Academic Renewal.