Mass Student Loan Forgiveness Is Terrible Policy

President Joe Biden, joined by Education Secretary Miguel Cardona, delivers remarks on student loans, Monday, October 17, 2022, in the South Court Auditorium in the Eisenhower Executive Office Building at the White House. (Official White House Photo by Erin Scott)

At the Cato Institute, Andrew Gillen explains why mass student loan forgiveness is terrible policy. He writes:

Mass student loan forgiveness is terrible policy (see this report for a comprehensive list of reasons), but that hasn’t stopped the Biden administration from trying to forge ahead. While the Supreme Court overturned the administration’s student loan forgiveness plan, every few weeks the Biden White House announces another batch of loans that have been forgiven. In fact, the administration recently celebrated that since taking office, it has succeeded in forgiving $143.6 billion of student loans for around four million borrowers by transferring the responsibility to repay from the students who took out the loans to taxpayers who did not.

But if student loan forgiveness lost in the Supreme Court, how are so many student loans still being forgiven? The answer is that there isn’t a student loan forgiveness plan, there are many plans, some of which are already up and running. Previous laws had already left a plethora of methods to forgive student loans, and many of those laws give the Secretary of Education the ability to expand those programs.

The administration also claims existing law gives it the authority to create new ways to forgive student loans. So the student loans the Biden administration already has or wants to forgive are a combination of existing programs, existing programs the administration has expanded, and new programs the administration is trying to implement.

Here’s a rundown of the administration’s student loan forgiveness plans and actions, which I’ll update monthly.

HEROES (New plan—overturned in court)

This was the big plan that got a lot of attention in 2022 and 2023. The plan was to forgive $10,000 for borrowers making less than $125,000, and $20,000 for borrowers who received a Pell Grant, at a total cost of $469 billion to $519 billion. The alleged authority for the plan was the 2003 HEROES Act. While designed to alleviate loan‐​related hardships for soldiers and reservists serving in Iraq and Afghanistan, the law also covered national emergencies, and the Biden administration argued the COVID-19 emergency gave it the authority to give virtually everyone loan forgiveness.

Most observers were skeptical of this supposed authority. But it was unclear who had standing to sue (standing is the requirement that those filing the suit have a concrete injury from the policy). The companies that service student loans would be the most obvious injured party. However, there was a perception that the Biden administration would punish any servicer that challenged the policy in court, a perception that now appears accurate.

Fortunately, the Supreme Court ruled that Missouri had standing to sue (due to a quasi‐​public student loan servicer that would lose revenue under the plan) and that the plan violated the major questions doctrine (which holds that there needs to be clear congressional authorization for programs of substantial economic or political significance), preventing the policy from being implemented.

Read more here.