The transfer of $400 billion of debt to federal taxpayers was halted today by the U.S. Supreme Court, which ruled 6 to 3 that the Biden Administration student debt cancelation program violated the law.
The Biden Administration’s student debt plan, unveiled in August 2022, offered $20,000 in debt cancelation for Pell grant recipients and $10,000 for non-Pell borrowers based on the COVID-era HEROES Act which authorized the Education Department to “waive or modify” borrower provisions during a national emergency such as the pandemic. Borrowers who earn more than $125,000 ($250,000 for a couple) would be ineligible. The Department of Education also later proposed changes to income-driven repayments. A resolution to roll back the Biden student loan plan was passed by the House 221 to 206, and by the Senate 52 to 46, but vetoed by the President earlier this month.
When the Biden plan was announced, NTUF estimated that it would cost taxpayers approximately $400 billion, or around $2,500 in added debt per taxpayer. We noted that President Biden was “wiping away the first decade of deficit reduction from his signature legislation just a few weeks after its passage into law, and with the stroke of a pen.” Our estimate of the cost was later proven right by the Congressional Budget Office, which also added the cost of the income-driven repayment plan for a total cost of over $530 billion. In many congressional districts, taxpayers without college degrees would see their share of the national debt rise by as much as $4,000 to cover the forgiveness.
In striking the plan down, the Court invoked the “major questions doctrine” - that if Congress intended to allow “a Department Secretary [to] unilaterally alter large sections of the American economy,” it would have clearly said so. Specifically, they held that the power to “waive or modify” borrower provisions does not equate to a power “to rewrite that statute from the ground up.” The plan’s changes, the Court states, “created a novel and fundamentally different loan forgiveness program” that “not only nullifies existing provisions, but augments and expands them dramatically.” The majority approvingly quotes then-Speaker Nancy Pelosi in 2021: “People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.”
Justice Amy Coney Barrett concurred separately, joining the Court’s opinion in full but explaining that the “major questions doctrine” is not separate from statutory interpretation, but instead provides context in interpreting a statute delegating power to an agency. Barrett offers examples from everyday life: a boss directing an employee to buy supplies, or a parent telling a babysitter to make sure the kids have fun. Unstated context gives more clarity to how broadly the words should be interpreted. “In my view, the major questions doctrine grows out of these same commonsense principles of communication.”
Justice Elena Kagan dissented, joined by Justices Sonia Sotomayor and Ketanji Brown Jackson. They argue that the states lack standing and have no stake in the decision, and also that Congress adopted a broad statute and the Secretary utilized it, and this is now “the Court substituting itself for Congress and the Executive Branch in making national policy about student-loan forgiveness” (to which the majority responds that “it is the Executive seizing the power of the Legislature”).
The cases were brought by various states, including Missouri, and two borrowers whose debts did not qualify for the program as President Biden designed it. A key impediment a challenger had to face was “standing”—could they demonstrate sufficient particularized harm beyond that of any general taxpayer. The Court held that the borrowers could not demonstrate that, but Missouri could because MOHELA is a government agency of Missouri, giving the state standing.
Congress will now have the opportunity to speak more clearly about what it wants here. A major downside of the executive-order approach is the inability to adopt badly needed reforms to the student loan system that would curtail incentives for universities to raise prices and reduce excessive borrowing in the first place. Without changing how it is essentially costless for universities to raise tuition and costs, a one-time forgiveness would do nothing for future students who would end up in the same situation. Reforms should also include properly accounting for the risk of taxpayer-backed loans and bipartisan proposals to reform origination fees. An executive order short-circuits that process and that debate. As we previously wrote:
This cancelation of debt places the burden on all taxpayers for the benefit of a select few who attended college at a specific point in time.
The Biden administration’s use of the COVID-19 national emergency in combination with the Higher Education Relief for Students Act of 2003 is a major expansion of executive authority and an extremely novel interpretation of the underlying law. This expansion could lead to further issues and executive branch usurpation of Congress’ power of the purse.
It is a good thing that the executive branch cannot simply decree new spending and debt commitments. If we are going to shift around hundreds of billions of dollars in debt, Congress should do it openly and clearly. The power of the purse rests with Congress under our Constitution.
Biden v. Nebraska, No. 22-506 & Department of Education v. Brown, No. 22-535.