Biden’s Promise to Forgive Student Loans Faces Huge Hurdles

Joe Biden announced a nonspecific intention to compel taxpayers to pay off a broad range of outstanding student loan debt last month. The blatant attempt to pump up his tanking approval ratings among younger voters has some significant issues standing in the way.

May Davis wrote an opinion article for The Federalist this week that outlines some of the legal problems the Biden promise faces. Those hurdles are in addition to the inflationary effects and the incentives forgiving student loan debt would give colleges to bump up tuition costs even higher.

The largest problem Biden faces is the lack of executive power under the Constitution to unilaterally order debt relief without some expressed delegation of the authority to do so from Congress. There is no such authority that Congress has passed on to the president.

Most proponents of a presidential order to forgive student debt look to the Higher Education Act of 1965. That law created a loan program involving the federal government and private lenders. The lenders agreed to provide student loans at lower rates in exchange for a federal guarantee of the loans. The federal government does not directly own the loans outside of some specific default conditions. It is generally impossible under contract law to forgive a claim for a contract one does not own.

In 1992, Congress granted some repayment grace periods for persons experiencing “financial hardship.” In 2003, Congress acted again to grant deferments and in some cases cancellation to students affected by 9/11, either by joining the military service or being directly harmed by a national emergency. Even when the government made the loan program a system of direct government loans rather than guarantees in 2010, the executive branch was not granted the power to “bail out” borrowers.

Courts interpret statutes by giving priority to specific provisions over general statements. When Congress makes the effort to lay out specific instructions on when the executive branch can defer or forgive loans, the power granted is limited to the specifics and is not a general grant of power to act in ways not set out in the statutory language.

In 2010, the Congressional Budget Office reported to Congress that the revised student loan system would provide additional revenue to the federal government of $68 billion over 10 years. That projection alone smashes the idea that Biden somehow has the authority to obligate taxpayers to a $2 trillion bailout for borrowers including doctors, lawyers, and PhDs.

The question that also becomes a serious problem has to do with what happens to the student loan system after there is a widespread forgiveness of existing debt. The true problem facing the education system is that the existing loan program creates perverse incentives. Colleges are encouraged to jack tuition up as high as possible, knowing that taxpayers will be paying the bill. Students are incentivized to enter programs that are not likely to result in graduation or career success, knowing that there will not be a bill for the poor decision later.