Debt Cancellation hits a Legal Wall
By Dov Katzenstein
From the moment it was announced, President Joseph Biden’s plan to allow millions of people to cancel their student debt elicited controversy. Now, more than three months after its unveiling, courts have stopped the program in its tracks, forcing the government to cease accepting applications while challenges are pending.
Dealing a particular blow to one of the administration’s flagship initiatives was a ruling by Texas federal judge, Mark Pitman, who in stark terms called out the program as an unconstitutional overreach.
“No one can plausibly deny that it is either one of the largest delegations of legislative power to the executive branch, or one of the largest exercises of legislative power without congressional authority in the history of the United States,” he wrote in his opinion.
A few days later, the plan was dealt a second blow, when a federal court of appeals blocked it from operating while a separate legal challenge brought by six states is litigated.
In a statement, the White House pledged to fight challenges, touting the plan’s value and attacking those who have sued to stop it.
“The President and this Administration are determined to help working and middle-class Americans get back on their feet, while our opponents — backed by extreme Republican special interests — sued to block millions of Americans from getting much-needed relief,” it said. “We will never stop fighting for hardworking Americans most in need — no matter how many roadblocks our opponents and special interests try to put in our way.”
Student debt cancellation has been on Democrats’ wish list for some time.
In 2020, under pressure from the Democratic left, most prominently the progressive New England duo, Senators Bernie Sanders and Elizabeth Warren, then-candidate Biden made student loan forgiveness a campaign promise.
This past August, the White House unveiled details of the plan and the Department of Education opened the application process. Some viewed the move and timing as political payoff to young voters who the Democrats then feared would not turn out in sufficient numbers on this past Election Day.
Under the program, people who took out student loans can erase $10,000 of debt, or up to $20,000 for Pell Grant recipients, given they have under $125,000 in annual income, or $250,000 per household. The Congressional Budget Office estimates that if fully realized, the plan would cancel $430 billion of $1.6 trillion in outstanding student debt in America.
The White House said that 40 million Americans could qualify. 26 million have already applied and 16 million have been approved, though no funds have been distributed yet.
Critics see the plan as fiscally fraught for lenders and an unethical affront to people who worked to pay back their debt or did not incur any. They also argue that the cancellation enables what they see as the root problem, the exorbitant cost of higher education. Legal critics argue that the President illegally circumvented Congress by enacting the program without consultation, let alone legislation.
Those objections materialized into a slew of court challenges. Two have prevailed so far. The case decided in a Texas district court was brought by the Job Creators Network Foundation (JCNF) on behalf of two borrowers who did not qualify for the full benefits of the program. The other was advanced by Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina, who claim the plan could hurt state investments in entities that grant student loans. Both suits are chiefly aimed at attacking the constitutionality of the program, arguing that the President overstepped his authority in enacting the program and did not follow proper procedures in doing so.
Elaine Parker, President of JCNF, celebrated the Texas ruling in a statement.
“This ruling protects the rule of law which requires all Americans to have their voices heard by their federal government. This attempted illegal student loan bailout would have done nothing to address the root cause of unaffordable tuition: greedy and bloated colleges that raise tuition far more than inflation year after year while sitting on $700 billion in endowments. We hope that the court’s decision today will lay the groundwork for real solutions to the student loan crisis.”
Other suits already caused the Biden administration to adjust the program. One that claimed it would raise the tax burden on borrowers moved the White House to add an opt-out for those who thought they would lose out on the tax side. A different challenge claimed it would hurt banks and lenders who profit from facilitating government-sponsored education loans, to which the administration created a set of carveouts.
Debt forgiveness supporters cast the Texas ruling as ideologically driven.
“I don’t have any doubt that the president has the legal authority to cancel this student loan debt…But we have a court down in Texas, and if they’re going to play politics instead of actually following the law, they do put the program at risk,” Senator Warren told an NBC interviewer.
Critics of the ruling were also quick to point out that the Judge was appointed to the bench by former President Donald Trump.
While motivations are unknowable, Judge Pittman did give skeptics fodder with the broad nature of his striking down of the law, as well as some of the language he employed in doing so.
“In this country, we are not ruled by an all-powerful executive with a pen and a phone,” he wrote in an obvious reference to the phrase employed by former President Barak Obama as to how he could govern without cooperation from Congress.
Judge Pittman’s opinion calls out the plan as a patently illegal abuse of executive authority.
The administration hinged its authority to cancel student debt on the Higher Education Relief Opportunities for Students (HEROS) Act of 2003. That law gave the Secretary of Education authority to grant a waiver or grant relief to loans given under Title IV of the 1965 Higher Education Act “in connection with a war or other military operation or national emergency.” The Biden administration contended that the COVID pandemic granted the Secretary this authority.
With the pandemic largely in the past when the White House opened the program, Judge Pittman said that the President’s justification was tenuous.
“Indeed, the COVID-19 pandemic falls within the HEROES Act’s definition of an emergency…[but] The COVID-19 pandemic was declared a national emergency almost three years ago and declared weeks before the Program by the President as ‘over’,” he wrote.
If the pandemic cannot be used to grant authority, the court said, the rug was pulled out from beneath the administration’s ability to act alone.
“The Court is not blind to the current political division in our country. But it is fundamental to the survival of our Republic that the separation of powers as outlined in our Constitution be preserved. And having interpreted the HEROES Act, the Court holds that it does not provide ‘clear congressional authorization’ for the Program proposed by the Secretary,” said Judge Pittman.
However, equally contentious as the Constitutionality of the program is whether plaintiffs belong in court at all. Most challenges to the White House’s policy were turned down by judges as they lacked “standing,” the ability to show they have been injured by the law and thereby entitled to have their objections heard before a court.
The administration argues that none of the parties have been negatively impacted by cancelling student debt, making quibbles over the President’s authority academic, though it contends that it would win on that point as well.
The Eighth Circuit Court, which stopped the program from proceeding due to the suit brought by the six state governments, upheld their standing partially based on Missouri’s Higher Education Loan Authority’s role in distributing loans to colleges. The office still owes $105 million and debt cancellation, the state argues, would impair its financial stability and function.
Judge Pittman said that the plaintiffs in his case were injured since the administration failure to hold a public comment period deprived these borrowers of “their procedural right…to provide meaningful input on any proposal from the Department to forgive student-loan debt and their accompanying economic interest in debt forgiveness.” He also held that they deserved standing based on being disqualified from the program’s full benefits.
The Texas ruling also contended with an embattled legal doctrine known as Chevron deference, based on a 1984 Supreme Court ruling that granted government agencies wide latitude in interpreting laws that applied to them. The Biden administration argued that Chevron left the present matter to the discretion of the DOE, but Judge Pittman noted that the high court has slowly shifted away from this approach.
“In recent years, however, the Supreme Court has chipped away at Chevron—giving back ‘the benefit of doubt about the meaning of an ambiguous law to the individual’ instead of the government,” he wrote.
The recent favorable rulings have been hailed by critics of debt cancellation.
“This is what happens when the President subverts the law for election politics,” read a Wall Street Journal editorial on the Eighth Circuit’s ruling.
Yet, while stalled, the fight is far from over. The administration is in the process of appealing rulings, and it is widely assumed that it is only a matter of time before it arrives at the Supreme Court. Some political commentators assumed the program will quickly be shot down by a conservative-leaning court. Yet, since it is most likely that Justices will be asked to consider not the constitutionality of the law, but the plaintiffs’ standing, that outcome is far from certain. Typically, textualist judges take a narrower approach to who has a right to have their claims heard. This past October, Justice Amy Coney Barrett turned down an appeal from a state taxpayers advocacy group challenging the program, saying they failed to show they were negatively impacted.
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