BLOG: Money for Nothing

January 18, 2022

Why You Should Pay Attention to the Student Loan Forgiveness Debate.

Much ink has been spilled criticizing the Biden administration’s $1.9 trillion American Rescue Plan and stalled $2 trillion Build Back Better legislation, but there’s another policy under consideration by the administration that deserves a lot more attention from outside the Beltway. This is the effort to forgive the debt owed by borrowers who have received hundreds of billions in federal student loans, funded by the taxpayers, to attend college. 

For those who have not followed the issue, here’s what’s going on.

In a nutshell, progressives want President Biden to forgive taxpayer-funded student loans for every borrower, for any reason, up to $50,000. Known as “blanket” or “mass” loan forgiveness, such a plan would forgive the entire debt for about 80% of federal student loan borrowers and write off about $1 trillion of the student loan portfolio owned by the federal government.  

To his credit, the President has resisted this push, deflecting the issue by feebly stating that he is open to forgiving up to $10,000 in debt for each borrower (a write-off of $370 billion). But much has changed since that utterance. His signature Build Back Better proposal has collapsed in Congress. Senators in his own party have blocked changes in Senate procedural rules that would have allowed progressives to pass a massive voting bill of critical importance to his base. The President’s poll numbers have crumbled. His party is likely to lose the House and possibly the Senate in the fall midterm elections. The base is disappointed, frustrated, and angry. This raises the question of whether he can withstand the intense political pressure from a left-wing for which blanket loan forgiveness is a core ideological doctrine. 

Whatever the politics, three sound reasons exist for the President to stay the course. 

First, blanket discharges are illegal. 

Simply put, Congress hasn’t granted anyone in the Executive Branch the authority to grant blanket student loan forgiveness. Neither the President nor the Secretary of Education has the statutory authority to cancel, compromise, discharge, or forgive Title IV loans on a blanket or mass basis.  

A U.S. Department of Education legal opinion supports that interpretation of the law. In 2020, the Secretary requested the Department’s Office of General Counsel (OGC) to analyze whether she had the statutory authority to grant mass student loan forgiveness. On January 12, 2021, OGC issued a well-researched, well-reasoned legal opinion concluding that the Secretary did not have that authority.  It speaks volumes that the Biden administration quickly removed it from the Department’s website after taking office.

Interestingly, the Biden administration has apparently prepared its own legal memo on the issue but, unlike the prior administration, refuses to release an unredacted version to the public.  One wonders whether there’s some agreement with the Trump administration about their lack of legal authority that they don’t want folks to know about.

Second, blanket discharges will beget more blanket discharges.

Such a move would create an ongoing constituency agitating for blanket loan forgiveness. Federal student loan borrowers in coming years would surely ask a number of questions:   

  • Why wipe the slate clean for debtors in 2022 but not in 2029, 2033, 2049, or some other future date? 
  • Why should past borrowers receive this benefit but not others? 
  • Knowing the precedent set by the Biden administration, why should any borrower honor his or her obligation to pay back his or her loan? 
  • Why shouldn’t future debtors view their liabilities as contingent, to be discharged after the requisite political pressure is applied against a receptive administration? 

Moreover, on the bet that the federal government would provide blanket forgiveness again, institutions would feel free to hike tuition, thus adding to the cost of higher education (already too high); students would feel comfortable piling up debt to pay for that tuition.  Result: more skyrocketing tuition and an avalanche of debt. 

Third, blanket discharges are unfair. 

It’s odd that those who believe in “equity” are so enamored of blanket forgiveness. As Preston Cooper recently noted, the top fifth of households holds $3 in student loans for every $1 held by the bottom fifth. Accordingly, it’s the higher income, credentialed class—college graduates, those with graduate degrees, and professionals—that would benefit from student loan forgiveness at the expense of lower income workers. Why should those who have never attended college pay for those who have? And why should those who have paid off their student loans pay for those who haven’t?

Let me leave you with a final observation. The Left has been working this issue for years. Since the Obama administration nationalized the federal student loan program more than a decade ago, progressives have been hard at work looking for any basis to forgive student loans.  We’ve seen efforts to expand loan discharges based on alleged (but loosely defined and unproven) fraud by (mostly proprietary) colleges and universities; total and permanent (but poorly documented) disability of the debtor; government service and nonprofit work (a payoff to the teacher unions and other public employees); closed colleges (even when students can complete their programs at other schools); and the like. 

At least in those instances, Congress had expressly authorized the basis for the discharge. Now, as with so many other issues, progressives have dropped any pretense of legality; they’re perfectly comfortable exercising federal bureaucratic power to achieve their policy ambitions. Yet, the administration can no more use that power to write off a trillion dollars in debt owed to the American taxpayer than it can to sell the U.S. Capitol Building. Congress holds the purse strings. Only Congress, its House and Senate accountable to the people, can authorize the Executive Branch to grant blanket forgiveness. If progressives are so bent on massive loan forgiveness, they should see if a majority of Congress agrees with them. Perhaps they haven’t because they’ve received all the bad news they can handle for now.

We’ll continue to keep our eye on this issue and offer solutions and further commentary about the federal student loan program down the road.

Robert S. Eitel
President and Co-founder
, Defense of Freedom Institute