Now, the Biden Administration is attempting to use the HEROES Act to achieve a policy goal that is far different, and far more sweeping, than anything the law has been used for in the past. In August of last year, the administration announced that after a nearly three-year pause on federal student loan payments, certain borrowers meeting an income cutoff would receive $10,000 to $20,000 in debt forgiveness on their principal student loan balance. While the total cost to taxpayers from this program is uncertain, the Congressional Budget Office has estimated it to be around $400 billion.
To enact this massive debt-forgiveness plan, the administration relied on a section of the HEROES Act that gives the Secretary of Education authority, in certain circumstances, to “waive or modify” provisions of law applicable to federal student loans. The Secretary may do so “as may be necessary to ensure that … recipients of student financial assistance” who are affected by war or national emergency “are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals.”
The administration argues that this section grants the secretary the authority to forgive billions of dollars in student loans across millions of borrowers. It argues that some borrowers will default on their student loans once payments finally resume after the multi-year pandemic pause. And it further argues that forgiving some (or all) of millions of borrowers’ principal balances will lower their monthly payments and thus lower their overall risk of default, ensuring that their risk of default is no worse than it was before the pandemic.
Several groups (including the Cato Institute itself) sued to challenge this action in multiple lawsuits. Two of those suits have now reached the Supreme Court, one brought by a group of states and another brought by a group of private citizens. And the Cato Institute, joined by the Manhattan Institute, has filed an amicus brief supporting the challengers in both cases.
In our brief, we explain that the HEROES Act does not authorize the debt-forgiveness plan because lowering the principal balances for millions of borrowers is not “necessary” to keep the default rate at its pre-pandemic level. Several far less drastic means are available that would achieve the same goal, including initiatives to increase enrollment in income-driven repayment (IDR) plans. Further, the Secretary could waive the negative legal consequences for default itself, ensuring that those who do miss payments do not find themselves in a worse financial position.
Finally, the brief points out that the “Major Questions Doctrine” applies to this case, which makes it an easy case. In several recent decisions, the Supreme Court has expressed justified skepticism of an agency suddenly discovering novel and sweeping powers that it had never claimed before. All evidence indicates that the government suddenly discovered the power to enact debt relief not because it is legally plausible but instead because it is politically desirable.
A policy as consequential and controversial as a $400 billion debt-forgiveness plan must be supported by a clear statement in the statutory text. Because the HEROES Act does not come close to meeting that standard, the Supreme Court should invalidate the plan.
