Student Loan Forgiveness Violates Federal Law And Is Based On Illogical Reasoning

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Student Loan Forgiveness and the Shifting Standards of the Department of Education
Adam Kissel – August 29, 2022, AIER.ORG:

On August 24, 2022, the U.S. Department of Education (DoEd) announced arbitrary amounts of student debt cancellation and arbitrary income cutoffs for eligibility for the cancellation. Borrowers who earn at least $125,000 per year ($250,000 if married or head of household) are completely ineligible for debt cancellation. Among those who are eligible, borrowers who received a Pell Grant at any time in the past qualify for up to $20,000 in cancellation, while those who never had a Pell Grant qualify for no more than $10,000. These arbitrary decisions undermine the legal basis on which the DoEd is relying for mass debt cancellation in the first place.

The DoEd is relying on an August 23 memo from the Department of Justice, which argues that mass debt cancellation is authorized under the HEROES Act of 2003. This law, representing some of the federal grab of emergency powers following the 2001 terrorist attacks, appeared again during the pandemic “emergency.” It was invoked to justify, for example, the pause on student loan repayment (at a cost of $5 billion per month). Now, this law is being used as emergency aid for people with student loans.

Emergency powers under the HEROES Act kick in when the President declares a national emergency. Of course, the Department of Education is delighted to observe that the United States is still in a pandemic “emergency.” That means the Secretary of Education is authorized to waive or modify rules that, for instance, help ensure against waste, fraud, and abuse in the repayment of federal student aid. More than two years into the “emergency,” several rules remain waived, including the rules pertaining to paying one’s debts and accruing interest when not paying one’s debts.

The previous administration considered whether the HEROES Act could justify mass debt cancellation and, fortunately, determined that it cannot. Most importantly, the waiver is limited to “affected individuals” who “suffered direct economic hardship as a direct result” of the “national emergency.” Moreover, the previous administration noted several laws and regulations directing agencies to collect debts, not cancel them.

But the current administration has been thrilled to discover the needed emergency authority in the HEROES Act after all. The administration sees no meaningful difference between delaying the requirement to pay one’s debts, such as already exists in forbearances, and waiving or modifying the requirement to pay one’s debts at all, ever. If mass delays in repayment are allowed because nearly every American with a student loan has been directly affected with economic hardship as a direct result of the pandemic, the argument goes, mass cancellation is allowed because nearly all of the Americans being helped today are still directly affected with economic hardship.

The biggest problem with this argument is that large numbers of these borrowers have no economic hardship due to the pandemic, and many of them never did. Vast numbers of white-collar workers continued to get their paychecks while working from home, and a substantial portion of these workers had student loans. They did not need the repayment pause in the first place, and they need debt cancellation even less today.

The other key problem involves the arbitrary cutoffs in the cancellation plan. On the current (but flawed) reading of the HEROES Act, the Secretary of Education has extremely wide discretion to determine what is “necessary” to provide relief such that those who were harmed by the emergency will not be in a worse financial situation, after all, because of their student loans. Even such wide discretion, however, cannot include such arbitrary decisions. The Justice Department’s memo insists, “the Secretary can use the HEROES Act only to offset that portion of the harm that has a ‘relation to’ the borrower’s title IV assistance.” Yet, without any written discussion, analysis, or notice and comment from the public, the Secretary has declared which borrowers will get what, and which borrowers will get nothing.

In particular:
  • There is no reasonable ground to imagine that borrowers who at some time in the past were Pell Grant recipients have financially suffered twice as much from the pandemic compared to borrowers who never received a Pell Grant. It is true that Pell Grant recipients, by and large, more often drop out of college and more often attend two-year colleges, so their lifetime income trajectories are lower. But these differences appear entirely irrelevant to harm related to the pandemic.
  •  Even if the plan survives that challenge, the $10,000 and $20,000 cancellation figures are drawn out of thin air. The decision was clearly political. The amounts needed to be enough to count as “loan forgiveness” without reaching the politically infeasible $50,000 per borrower or full forgiveness insisted upon by progressive advocates. The amounts are entirely disconnected from the actual economic harms of those who hold student loans. No attempt whatsoever was made to estimate harms.
  • Again, Americans’ economic situations are very extremely diverse. Accordingly, there is no justification at all for creating three classes of borrowers. None of the purported classes has anything relevant in common that reflects harm from the pandemic related to federal student aid. The department does not even attempt to explain its division of borrowers into meaningfully separate classes.
  •  In particular, what magically happens at the $125,000 annual income level such that those borrowers have zero harm from the pandemic? Of course, this decision is also political. It helps avoid the charge that debt forgiveness is regressive, making less educated, less wealthy people pay for the college educations of the more educated, more wealthy, while still providing a perk to the richer among us. (The poorest four states have a median family income around $60,000, just one fourth of the family-income cutoff of $250,000.)
  •  Furthermore, why are both the Pell and non-Pell classes distinguished from a third class, those with an income of at least $125,000 per year, whether Pell or non-Pell? Does the Pell vs. non-Pell distinction simply disappear at this income level?
  • Finally, to justify a continued repayment pause for all borrowers, the current administration must rely on the HEROES Act and show that all borrowers are still being directly harmed by the pandemic “emergency.” If that’s true, the Department of Education must argue and acknowledge that even the wealthier borrowers, those with annual income above $125,000, are being harmed, such that a repayment pause for them remains “necessary.” Well, are they being harmed, or aren’t they? Are they being harmed for the purpose of a repayment pause, but not harmed for the purpose of debt cancellation? That would be absurd, much like the other arbitrary decisions described here.
In sum, the HEROES Act provides no shelter for the arbitrary, capricious, political decisions announced by the Department of Education.

The Department’s full announcement, unfortunately, is even worse. It also proposes major changes to income-driven repayment plans. These are plans that are affordable by definition because they are based on ability to pay. But now they may get even more affordable: After just 10 years of paying only 5 percent of one’s disposable income (redefined so as to exclude even more income), one’s debt will be forgiven. There’s no need to be shy about calling the Department’s plans a new socialism of higher education: pay only what you can, the minimum amount vanishes toward zero, and the taxpayer will cover the rest.

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MEMO:

Today, the U.S. Department of Education (Department) announced a final extension of the pause on student loan repayment, interest, and collections through December 31, 2022. Borrowers should plan to resume payments in January 2023. While the economy continues to improve, COVID cases remain at an elevated level, and the President has made clear that pandemic-related relief should be phased out responsibly so that people do not suffer unnecessary financial harm.
To address the financial harms of the pandemic by smoothing the transition back to repayment and helping borrowers at highest risk of delinquencies or default once payments resume, the Department will provide targeted student debt cancellation to borrowers with loans held by the Department of Education. Borrowers with annual income during the pandemic of under $125,000 (for individuals) or under $250,000 (for married couples or heads of households) who received a Pell Grant in college will be eligible for up to $20,000 in debt cancellation. Borrowers who met those income standards but did not receive a Pell Grant will be eligible for up to $10,000 in relief. The Department will be announcing further details on how borrowers can claim this relief in the weeks ahead. The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year. Nearly 8 million borrowers may be eligible to receive relief automatically because relevant income data is already available to the Department. The Department is also making available a legal memorandum regarding its authority for these discharges.

The Department is also proposing a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle-income borrowers. The proposed rule would protect more income from loan payments. It would cut in half—from 10% to 5% of discretionary income—the amount that borrowers have to pay each month on their undergraduate loans, while borrowers with both undergraduate and graduate loans will pay a weighted average rate. It would also raise the amount of income that is considered nondiscretionary income and therefore protected from repayment. The rule would also forgive loan balances after 10 years of payments, instead of the current 20 years under many income-driven repayment plans, for borrowers with original loan balances of $12,000 or less. Additionally, the proposed rule would fully cover the borrower’s unpaid monthly interest, so that—unlike with current income-driven repayment plans—a borrower’s loan balance will not grow so long as they are making their required monthly payments. The plan would also simplify borrowers’ choices among loan repayment plans. The proposed regulations will be published in the coming days on the Federal Register and the public is invited to comment on the draft rule for 30 days.

"Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams—including buying a home, starting a business, or providing for their family. Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers, " said U.S. Secretary of Education Miguel Cardona. "Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap."

Additionally, the Department is proposing long-term changes to the Public Service Loan Forgiveness (PSLF) program that will make it easier for borrowers working in public service to gain loan forgiveness. Specifically, the Department proposed allowing more payments to qualify for PSLF including partial, lump sum, and late payments, and allowing certain kinds of deferments and forbearances – such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service – to count toward PSLF. These proposed regulatory changes build on the progress made with the temporary changes announced last year by the Department that expire on October 31, 2022. Since the start of the temporary changes, the Department has approved more than $10 billion in loan discharges for 175,000 public servants. To apply for forgiveness or payments to count toward forgiveness under the temporary changes, visit the PSLF Help Tool.

The Department is also taking steps to reduce the cost of college for students and their families and hold colleges accountable for raising costs, especially when failing to deliver good outcomes to students. The Department has already re-established the enforcement unit in the Office of Federal Student Aid and recently withdrew authorization for the accreditor that oversaw schools responsible for some of the worst for-profit scandals. The agency will also propose to reinstate and improve a rule to hold career programs accountable for leaving their graduates with unaffordable debt. And the Department is announcing new steps to take action against colleges that have contributed to the student debt crisis. These include publishing an annual watch list of the programs with the worst debt levels in the country and requesting institutional improvement plans from colleges with the most concerning debt outcomes that outline how the college intends to bring down debt levels.

The Biden-Harris Administration will keep fighting to reduce the cost of higher education by working to make community college free and doubling the maximum size of the Pell Grant.

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