PRESS RELEASE: New Report Shows Biden Administration’s Scheme to Cancel Student Loan Debt Through New Income-Driven Repayment Plan Is Illegal, Flies in the Face of Congressional Intent

WASHINGTON—A new report published by the Defense of Freedom Institute for Policy Studies (DFI) reveals that the Biden administration’s costly loan cancellation scheme known as “Saving on a Valuable Education” (SAVE) is illegal as it defies the clear intent of Congress in authorizing income-driven student loan repayment plans.

Effective July 1, 2024, SAVE will cancel student loan debt under the guise of a loan repayment program. The plan excludes more income from the amount of “discretionary income” used to calculate borrowers’ monthly payments (225% of poverty thresholds versus no more than 150% in prior plans) and allows for a much lower payment relative to a borrower’s discretionary income (5% versus at least 10% in existing plans). Other studies have found that nearly half of borrowers will make “zero-dollar payments” under SAVE but still have their loans fully forgiven. SAVE will balloon tuition and result in irresponsible borrowing. In addition, under SAVE, the Department will cancel entire balances for some borrowers starting at 10 years.

These costly and unfair features go far beyond the bounds of what lawmakers intended when Congress first created IDR plans in the early 1990s.

The report, titled “Defying Intent: Biden’s SAVE Plan and the Original Goal of Income-Contingent Repayment for Student Loans,” demonstrates that lawmakers granted the Secretary of Education authority to create only limited, cost-effective income-driven repayment plans, not a sweeping loan cancellation plan like SAVE.

“Congress intended income-driven repayment to be a flexible repayment option with a last-resort loan forgiveness benefit that imposed negligible costs on taxpayers,” says the report’s author, Jason Delisle. “The Biden administration’s SAVE plan runs roughshod over those intentions, and it may not survive pending legal challenges as a result.”

DFI contributor Jason Delisle is a public policy expert who held various staff positions in Congress. He took a deep dive into the legislative history of IDR and concludes that SAVE is far outside the type of IDR plan Congress authorized the U.S. Secretary of Education to create.

Based on public statements, press releases, legislative proposals, hearing transcripts, and other materials from the time, Delisle says three consistent themes emerge to support his conclusion:

1. Lawmakers assumed that any IDR plan would entail minimal or no budget costs. They expected few borrowers to have debt forgiven under the plan and that costs would be mostly offset by some borrowers paying for longer or avoiding default.
   
2. Lawmakers assumed that the secretary would set loan forgiveness at 20 or 25 years, not starting at 10 years, as SAVE does. Moreover, loan forgiveness was clearly an afterthought in the congressional debates about authority and was not considered a valuable benefit for borrowers.
   
3. Lawmakers believed that appropriate monthly payments in an IDR plan would be much higher than those in the SAVE plan, increasing the odds that borrowers would fully repay their loan principal before reaching the 25-year loan forgiveness point.

“The Biden administration’s SAVE plan is clearly a violation of the spirit of the law Congress passed,” said Delisle. “At the time, lawmakers thought that IDR should be designed to have virtually no budget cost. Fast forward 30 years and the Biden administration’s IDR plan has brought the annual cost of the federal student loan program to nearly $42 billion. Congress never would have agreed to that.”

To read the full report, click here.

“It’s a pattern with this administration to stretch the law to the breaking point, and then hope both that Congress will be gridlocked and unable to respond and that no one will challenge them successfully in the courts,” explains Jim Blew, a co-founder of DFI. “We hope the courts, if not Congress, will let the administration know it cannot create a plan like SAVE and use federal student aid to buy votes and cater to special interests.”

DFI is committed to putting forth long-term higher education policy solutions that improve the return on federal investments in postsecondary education, protect taxpayers, and meet the demand for alternatives to four-year degrees.