The Biden Student Loan Forgiveness Plan: Is It Legal?

Blog Post
Friday, September 30, 2022

This week on Facing the Future, we revisit President Biden’s executive action forgiving billions of dollars in student loan debt owed by millions of Americans, through the analytical lens of The Concord Coalition’s chief economist Steve Robinson asking the very simple question: Does the President have the authority to take this action without Congressional approval? 

The Constitution gives Congress exclusive authority to appropriate federal funds, and some unofficial estimates peg the cost of the college loan debt forgiveness plan at somewhere between $500 billion to $1 trillion. Forgiving up to $20,000 in student debt for some Americans would be the single largest expenditure of federal funds without Congressional authorization. Robinson recently wrote an issue brief concluding that the Biden Administration executive action exceeds presidential authority and encroaches on the congressional power of the purse.

Later on in the program, we hear from both Robinson and Concord’s policy director Tori Gorman about the latest congressional action to temporarily fund the government by  today’s end of the 2022 federal fiscal year and avoid a partial government shutdown. We also took a look at how the economy is reacting to the Fed’s actions to try to reduce inflation, actions that are also having a global impact.

The Congressional Budget Office recently estimated that just the loan forgiveness part of President Biden’s action on student debt would cost at least $400 billion. This does not  take into account changes affecting income-driven repayment plans, which CBO has not finished scoring. The Administration’s legal argument for its executive action is that due to the  COVID-19 pandemic emergency, the president has the ability to suspend or eliminate the need to pay back the loans for those who suffered economically because of the emergency. But Robinson says that this argument is highly suspect.  

“My argument is that that power is not unlimited, they just can’t say it’s an emergency, all student debt is hereby canceled,” said Robinson. “The language has certain conditions on which debt can be written off, and for what reasons. And if you go through those conditions that restrict that authority, the one they’re relying on says so that affected individuals are not placed in a worse financial condition because of the emergency. They’re saying well, all these students had these loans, and then the pandemic came along and clearly that made some people worse off, so we’re just going to write off their loans. I don’t think that’s the right interpretation of the language. To simply issue a blanket waiver of all the debt that existed prior to the pandemic I think that vastly exceeds the congressional intent of that provision of law.” 

For  Gorman, the administration’s action is another dangerous expansion of executive authority and a further erosion of congressional authority, an envelope that has been pushed in each of the last three presidential administrations.

“Even if you agree with the concept in principle, what we’ve done is we’ve got an administration that has added potentially $1 trillion to our debt without any kind of input from Congress, which I think is stunning,” said Gorman. “Let’s suppose this wasn’t student debt, let’s suppose this was something else. Would Democrats and Republicans  stand up for a future president who uses this same sort of argument but in a different way? Perhaps in a way that isn’t so benevolent? Regardless how you feel about student loan debt, the precedent that this sets for future presidents who may not always be acting in the best interests of taxpayers should be shocking. It should be a warning shot across the bow for many.” 

Robinson says another problematic part of President Biden and U.S. Education Secretary Miguel Cardona’s executive actions involve the income related repayment plans for the student loans. The Biden plan doubles the income threshold for lower-income borrowers who are allowed to repay their debt at a fixed percentage of their income, and lowers the maximum repayment amount in half to 5% of income per year. It also writes off all remaining loan balances for many of those lower income borrowers after 10 years of repayment, which is half the time currently required. This makes it much less likely that these loans will ever get repaid, and accounts for the other big expense of the action.

“Lowering the repayment standards to such a degree, you incentivize both the colleges and the students to raise prices and borrow more to pay for those higher prices, because they’re confident that they’ll never have to repay the money anyway,” said Robinson. “Essentially, it’s a back-door way of increasing college tuition and providing it for free. Because you’re going to say well, instead of free college, we’re going to let you borrow money, but if you don’t have to pay it back, that’s the same as making it free anyway. And of course, it’s not really free, the taxpayers are going to have to pay for it.”

In the final segment of the show, Robinson said, “I don’t think the Fed is done raising interest rates.” Gorman noted that this will have budgetary consequences because interest rates on 10-year Treasury notes have already hit a level (roughly 3.8%) that the CBO isn’t projecting would happen until 2028. “You’re obviously going to see net interest costs rise significantly above what the Congressional Budget Office has projected,” she said.

Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join my guests and me as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.