What's going on with student loan cancellation?
Plus: Two Republican plans to address student debt, and new research from FREOPP on degree inflation.
Welcome to The Tassel, FREOPP’s newsletter on higher education policy, written by senior fellow Preston Cooper. Each month, The Tassel dives into our latest work on higher education, along with a handpicked selection of research and articles from around the web that we think are worth your time. To manage your subscription preferences, visit your Substack settings.
When I started out in higher education policy, I never imagined I’d have to pay much attention to the Supreme Court. But on every decision day for the past month, I dutifully loaded SCOTUSblog just before 10 a.m. to await the announcement of opinions. To heighten the tension, the Court waited until the very last day of the month to drop its most controversial ruling.
Writing for a 6-3 majority split along ideological lines, Chief Justice John Roberts ruled in Biden v. Nebraska that President Biden lacks the authority to enact his signature student loan cancellation plan by executive fiat. That means the scheme is dead, though the Biden administration has signaled that it will try again using a different legal strategy. More on that in a moment.
The court’s decision
The loan-cancellation plan, which would have forgiven up to $20,000 in federal loans per borrower ($430 billion in total), relied on a 20-year old law, the HEROES Act, which gives the Secretary of Education the power to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs … as the Secretary deems necessary in connection with a war or other military operation or national emergency.” Every student loan borrower in the country was affected by the Covid-19 national emergency, Biden’s reasoning went, so the Secretary had power to forgive everyone’s loans.
The Court didn’t buy it. "The HEROES Act allows the Secretary to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs,” Chief Justice Roberts wrote, “but does not allow the Secretary to rewrite that statute to the extent of canceling $430 billion of student loan principal."
“Waive” and “modify” cannot be redefined to mean “cancel.” While the HEROES Act grants the Secretary power to make “modest adjustments” to statutory and regulatory provisions, the Court ruled that “it is highly unlikely that Congress authorized such a sweeping loan cancellation program through such a subtle device as permission to ‘modify.’”
Chief Justice Roberts went on to invoke the Court’s previous decision in West Virginia v. EPA, which held that questions of major economic significance must be left to Congress, not executive branch agencies:
Imagine instead asking the enacting Congress a more pertinent question: “Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?” We can’t believe the answer would be yes. Congress did not unanimously pass the HEROES Act with such power in mind. “A decision of such magnitude and consequence” on a matter of “‘earnest and profound debate across the country’” must “res[t] with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.”
In her concurrence, Justice Amy Coney Barrett supplied an apt metaphor regarding what the HEROES Act—or any act of Congress, for that matter—does and does not authorize:
Consider a parent who hires a babysitter to watch her young children over the weekend. As she walks out the door, the parent hands the babysitter her credit card and says: “Make sure the kids have fun.” Emboldened, the babysitter takes the kids on a road trip to an amusement park, where they spend two days on rollercoasters and one night in a hotel. Was the babysitter’s trip consistent with the parent’s instruction? Maybe in a literal sense, because the instruction was open-ended. But was the trip consistent with a reasonable understanding of the parent’s instruction? Highly doubtful.
All this suggests that the Court will take a skeptical view of any attempts by the Biden administration to enact student loan forgiveness through alternative legal routes—which is exactly what the administration intends to do.
If at first you don’t succeed…
Shortly after the Court handed down its ruling in Biden v. Nebraska, President Biden announced that his administration would try to enact a student-debt relief plan through a separate legal authority. The Higher Education Act gives the Secretary of Education the authority to “compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” Progressive activists claim that this provision makes debt cancellation through unilateral executive action legal.
As I wrote in 2021, this argument is dubious. The Secretary’s discretion to forgive loans is limited to actions taken “in the performance of, and with respect to, the functions, powers, and duties, vested in him by this part.” For instance, the Secretary may forgive the loans of borrowers who meet the requirements of the Public Service Loan Forgiveness program, since that program was expressly authorized by Congress. But the Secretary cannot create entirely new loan-cancellation schemes out of thin air.
The Biden administration intends to charge ahead regardless. But there’s a catch: the Higher Education Act requires the Department of Education to jump through several more legal hoops before any loans can be forgiven. The first step is a public hearing, which the Department has scheduled for July 18. After that will come a negotiated rulemaking process. Next, the Department will issue a proposed regulation detailing its debt-cancellation plan, which will be subject to public comment for at least 30 days. Then, the Department will issue a final rule and set an implementation date for the loan forgiveness. At this point, opponents of the program will invariably file their lawsuits, which will lead to further delays.
The end result will almost certainly be the same: the courts will strike down this backup loan-cancellation scheme. But the process is unlikely to resolve itself before the 2024 elections, which will allow President Biden to run for reelection as the loan-forgiveness candidate. The problem is that the federal government is also required to resume student loan payments this fall. Millions of borrowers may refuse to pay if they imagine their loans will eventually be cancelled. That will further complicate what is already expected to be a daunting return to repayment.
What I’m writing
Senate Republicans unveiled a major higher-education reform package last month, providing a thoughtful conservative response to President Biden’s forgiveness bonanza. I cover the legislation in Forbes. Led by Sen. Bill Cassidy (R-LA), Republicans introduced five bills that would limit federal loans, simplify repayment plans, improve the collection and dissemination of data on student outcomes, and boot low-value degrees from the student loan program.
House Republicans introduced their own proposal aimed at incentivizing loan repayment in the fall. The House bill would limit the accumulation of interest on federal loans and guarantee that low-income borrowers who make consistent positive payments will see their balances decline. I argue in Forbes that the proposal would fix one of the student loan program’s biggest challenges—negative amortization—but the cost could be steep.
Employers are requiring college degrees for jobs that simply don’t need them, which limits opportunities for upward mobility for the 62 percent of Americans who lack a four-year degree. In an op-ed for Fox News Opinion, I highlight my latest research paper for FREOPP—which shows that “degree inflation” has affected nearly all sectors of the economy. For instance, just 9 percent of secretaries had a four-year degree in 1990; today, the figure is 33 percent.
What I’m reading
Ivy League universities should fund a network of “feeder” high schools to prepare disadvantaged students to apply to elite colleges, argues economist Roland Fryer in the New York Times. After the Supreme Court’s ruling banning affirmative action, society should take steps to expand the number of qualified underrepresented minorities applying to top colleges so racial preferences in admissions are no longer necessary to achieve a diverse student body.
Don’t forget the Biden administration’s sleeper loan forgiveness plan, Nat Malkus writes in the Wall Street Journal. Even though the Supreme Court struck down President Biden’s signature cancellation initiative, his administration’s move to make income-driven repayment plans more generous could prove costlier in the long run. The Congressional Budget Office pegs the cost of the IDR scheme at $276 billion; independent analysts think the number could be even higher.
Governor Ron DeSantis is suing the Biden administration for making it harder for Florida colleges to change accreditors, reports Amber Jo Cooper (no relation) of Florida’s Voice. Last year, the Sunshine State passed a law requiring public colleges to periodically find new accreditors, in a bid to take power away from “unaccountable” accreditation agencies, but the federal government recently adopted a policy requiring schools seeking a change in accreditation to secure pre-approval from the Department of Education. The lawsuit sets up a showdown between state and federal accreditation policy.
Outcomes matter in K-12 education as well as higher education. Standardized testing has a bad reputation, but my FREOPP colleague Dan Lips argues in a new research paper that testing has an important role in ensuring that public schools are performing up to standard. Congress should require states to continue standardized testing in K-12 education and ensure that outcomes information is accessible to parents in a timely manner.
What I’m doing
I took a very brief trip out to Illinois at the beginning of July to visit Charles Mound, the highpoint of the Land of Lincoln. This small hill near the Wisconsin border is perhaps the most inaccessible state highpoint, given its location on a private farm. Fortunately, the owners open the site to visitors a few weekends per year.
Next up: Washington’s Mount Rainier during the first weekend of August. It might be a tad snowier.
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