On April 25, President Joe Biden gave his strongest indication yet that he would unilaterally force taxpayers to pay off other people’s student loans. Biden is hopeful to restore his dire approval rating among young people, 85 percent of whom apparently want other people to pay for their personal spending. What politician could resist giving out other people’s money?
Let’s put aside for a second that forgiving student loans is a regressive wealth transfer, unfair to past loan holders, an inflation bomb, and incentivizes colleges to raise tuition even higher. There’s another real problem—the administration has no legal authority to pursue its punishment of the working class in favor of lawyers, doctors, and unemployed art history PhDs.
When our founders gave the president the authority to command the Army and receive ambassadors, they never mentioned the president’s student loan forgiveness powers. So, he can only take this action if Congress has authorized it. Congress hasn’t.
1. You Can’t Forgive Loans You Don’t Own
Proponents of nationalizing $1.75 trillion in student debt claim the U.S. secretary of education has the power to absorb such debt pursuant to the Higher Education Act of 1965. This act set up a public-private loan program where the federal government didn’t directly own any student’s loan. Rather, private lenders lent money to students at capped rates, in exchange for the federal government backing the loans.
These government-backed loans had specific terms on deferment, default, and repayment. For example, if the borrower served in the Peace Corps, the borrower could defer paying principal (but interest would accrue) for up to three years. Also, for students whose families made less than $15,000 per year, the government would pay a portion of the interest.
In addition, Congress provided general authorities to the secretary of education to oversee the program, including that the secretary may “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right or redemption.”
Today, this catch-all provision is cited by big-government advocates like Sen. Elizabeth Warren to authorize the secretary of education to force taxpayers to assume all student loans. But it could not have worked to do this when drafted and passed, as the federal government was unable to “compromise” debt it didn’t own. The Higher Education Act held the federal government responsible for owning the debt if the loan was in default, after a set period of time.
2. Congress Gets Specific Without Loan Bailouts
Later developments make the federal loan bailout case even more difficult. Fast-forward to 1992: Congress granted specific loan flexibility to students experiencing financial hardship by allowing for up to three years of principal deferment. Congress clearly articulated that “economic hardship” meant making minimum wage or living at 100 percent of the poverty line for a family of two.
Fast-forward again to 2003, when Congress passed another specific law, following the attack on 9/11, to provide the secretary flexibility to provide forbearance and occasionally cancellation, but only to “affected” students, meaning students who joined the military or who were harmed by a national emergency.
Under President Barack Obama in 2010—hilariously to “pay for” Obamacare—the public-private loan system was subbed out for one of direct government loans, and the secretary’s broad powers to oversee the program carried over. But words only have meaning in context, and for five reasons, Congress undeniably did not give the secretary blanket bailout power. Not in 1965, not in 1992, not in 2003, and not today.
3. When Congress Writes Clearly, Its Words Have Meaning
First, standard legal interpretation requires that specific provisions be given effect over more general provisions. That is, if Congress took the time to define how and when the secretary can forgive loans, we use that specific provision to interpret the secretary’s power, not the general authorization.
Second, and relatedly, another basic interpretative tool is that a statute should be read to give effect to every provision, not to render certain provisions meaningless. Forcing taxpayers to assume student debt would, in effect, delete multiple provisions governing the student loan system. Such a reading cannot be squared with Congress passing multiple, unique limitations on the secretary’s loan forgiveness authority.
4. If No-Questions-Asked Loan Forgiveness Actually Existed, You Would Know
Third, a statute must be read with a lens of reasonableness, recognizing that Congress does not “hide elephants in mouseholes.” Congress does not secretly give a sweeping power that changes the fundamental details of a regulatory scheme, just like no nationwide vaccine mandate authority was hidden in a workplace safety rule.
Not only would the 1965 Congress be shocked to know today’s proposed interpretation, given the public-private scheme back then, but more importantly, mass forgiveness would not have been a possible interpretation.
5. No One Is Above the Law
Fourth, under our system of constitutional governance, presidents lack “dispensing” authority, that is, the power to override the law in the interests of justice. That’s with good reason: If an executive official can bypass specific prohibitions in the law, based on a vague reference to a broad authority, our country risks transforming into exactly the monarchical dispensation system our founders sought to avoid.
Fifth, agencies, by law, cannot spend money they don’t have and must try and collect on debts owed to the U.S. government. The Antideficiency Act, for example, captures the seriousness by which Congress regards its constitutional power over the budget, by holding federal employees personally and criminally responsible for spending funds not appropriated.
The Congressional Budget Office in 2010 predicted that the student loan system would earn the government $68 billion over ten years, which eliminates the idea that Biden can spend $2 trillion in loan bailouts. As related to debts owed the federal government, “Federal agencies shall aggressively collect all debts arising out of activities of, or referred or transferred for collection services to, that agency.”
The Obvious: The Loans Aren’t Working
In sum, there is no secretive student loan “delete” button. This is not to say our student loan system isn’t tragic: it is tragic. The system operates exactly contrary to basic lending principles, leaving the Department of Education with so much debt that it represented 84 percent of our gross domestic product in 2017.
And all this debt has gotten us nowhere. Since 1965, the percentage of young people in the bottom income quartile who have attained a bachelor’s degree has barely budged, from 6 to 11 percent. Meanwhile, the average debt owed per loan holder since just 2007 has skyrocketed 229 percent.
The real problem is that federal student subsidies are causing college to become unaffordable and many graduates cannot find jobs. The cost of college has more than doubled since 1964, after adjusting for inflation, and the source of colleges’ revenue is increasingly tuition. This means colleges are consciously raising their costs, knowing students will just borrow larger and larger amounts.
When a student gets to college, the college also has no financial incentive to equip her for success. So if she ends up unemployed and defaults on her loan, the college gets paid in full by the taxpayers regardless. This is no way to help the poor—by encouraging them to take on debt and attend an institution (literally) uninvested in their future.
Universities Need Skin in the Game
If our politicians really want to bail out student loans, how about this—make the universities pay half. Some people object to such reforming, claiming that tying the universities to the success of their students will shut down universities that “serve” low-income communities.
But no college should be rewarded for loading first-generation college students up with debt, providing a watered-down education, and wiping their hands of them. If we have fewer, but more dedicated colleges paired with new, innovative post-high school options that actually lead to good-paying jobs, our nation will be a more prosperous place.