Biden’s Student-Debt Rescue Plan Is a Legal Mess

The Biden administration’s recently announced plan to reduce student debt for borrowers who earn less than $125,000 is popular, according to recent polls. Unfortunately, the plan has a major legal flaw: The administration’s arguments for its executive power to make such a broad effort under federal law will likely lose—and should lose—in the courts. The good news, for President Joe Biden and for borrowers, is that the administration has time to change those arguments.

In conjunction with the announcement of the program, the Office of Legal Counsel at the Department of Justice issued a memo explaining the legal basis for it: the COVID-19 emergency. Unfortunately, no evidence has emerged that the Biden administration is tailoring the program to fit this justification, nor have Biden and his team offered any sign that they are taking seriously the Supreme Court’s recent administrative-law rulings or its clear skepticism about invoking the COVID-19 emergency as a reason for any far-reaching government policy.

Legal challenges are inevitable. Private banks administer many of these loans, and they will incur millions in losses when the debts are canceled, meaning that those banks would have standing in federal courts. State programs may also be concretely affected, and such states also are likely to sue. These plaintiffs will probably prevail unless the Department of Education narrows the plan’s scope or relies on a different statute when it finalizes the policy.

In its memo, the Office of Legal Counsel relied on a post-9/11 statute—the Higher Education Relief Opportunities for Students (or HEROES) Act of 2003—as the legal basis for this executive action. That statute, the OLC explained, allows the secretary of Education to make major changes to policy if “a national emergency” caused student borrowers to be “placed in a worse position financially.”

The OLC concluded that the coronavirus pandemic fit the text of the statute as a “national emergency” and that a debt-relief program would ensure that Americans with student debt were not left in a “worse position.” As a matter of narrow textualism, all of this seems plausible. And as a matter of administrative law circa 1990 or 2000 or 2010, under a famous (or infamous) precedent known as Chevron, courts were supposed to defer to reasonable interpretations of ambiguous statutes.

However, a lot of administrative law has changed over the past decade, especially in the past year. The Roberts Court has effectively abandoned Chevron deference to the executive branch in questions of “vast economic and political significance.” This new approach, known as “the major-questions doctrine,” does not turn on “textualism”—reading just the words of the statute on their own—but instead emphasizes the context, purposes, and legislative history of the statute. As a matter of theory and common sense, this distinction between “major questions” and more mundane or technical agency policies makes sense: Judges do not have the time or expertise to dig into the historical details of statutes in many mundane or technical cases, but when the policy is major, the statutory purposes are more readily discoverable, and they must be clear and salient to permit an executive agency to make a major policy change.

The Roberts Court relied on this “major-questions doctrine” approach to strike down two of the Biden administration’s boldest COVID-emergency policies—the eviction moratorium and the vaccine-or-testing mandate at certain places of employment—and a significant Obama-era climate-change policy in West Virginia v. EPA.

The OLC never cited any of these cases and never even hinted at this important new doctrine that demands thorough arguments about context and purposes. Instead, Biden’s OLC assumed that thin textual arguments would be sufficient. In a 25-page memo, it included less than one page focusing on the HEROES Act’s purpose and legislative history, and that page was cursory and unpersuasive. The context of the 2003 law was clearly the September 11 terrorist attacks, and an “emergency” would be shaped by that context. To suggest that COVID was not a national emergency in March 2020 or even March 2021 would be absurd. But it is far from obvious that we are still in a national emergency in August 2022, and it is even further from obvious that everyone making less than $125,000 is still in a “worse position” specifically because of COVID. Surely many middle-class Americans with student loans are, but many are not.

The OLC memo and the shorter Department of Education memo are confusing on this COVID-impact question, but they both seem to concede that the program would have to be tailored to the COVID emergency in order to fit the statute. The OLC memo concludes, “Thus, to invoke the HEROES Act in the context of COVID-19, the Secretary would need to determine that the COVID-19 pandemic was a but-for cause of the financial harm to be addressed by the waiver or modification.” The Department of Education memo hints at the same limitation, but without any detail.

Perhaps the biggest problem here is that the administration’s COVID explanation seems to be just a pretext for a broader program. The Biden administration offers no hint that its program would focus on COVID or proof of COVID causation, because COVID is not the real reason for sweeping debt relief. President Biden himself told us the real reasons for the program: long-term structural problems with education costs. “But here’s the deal,” Biden said. “The cost of education beyond high school has gone up significantly. The total cost to attend a public four-year university has tripled—nearly tripled in 40 years—tripled … An education is a ticket to a better life … But over time, that ticket has become too expensive for too many Americans.”

Biden suggested only once that this program was related to COVID relief: After listing past COVID-relief programs, he said, “Now it’s time to address the burden of student debt in the same way.” But Biden never suggested that debt-relief applicants have to demonstrate that they are in a worse position because of COVID. Instead, he introduced the program as broad and applying categorically based on income, not pandemic effects.

A narrowing for COVID causation is also not consistent with the Biden administration’s estimates for the program’s cost and breadth: On Friday, the White House estimated a total of canceled loan repayments of $24 billion a year, or about $240 billion over a decade. Some nonpartisan groups estimate a cost of $500 billion over a decade. This size is inconsistent with a COVID-tailored relief program.

That COVID is not the real reason for such a sweeping program is a serious legal problem. In another recent case, Department of Commerce v. New York, the Roberts Court struck down a citizenship question on the census because the Court correctly assessed that the Trump administration’s publicly stated reason was just a pretext, and that the real reason was partisan advantage. Quite obviously, the Biden administration’s reasons for student-debt forgiveness are nothing like the odious motives (and apparent racism) underlying the Trump Commerce Department’s census design, but nevertheless, administrative law requires that an agency’s policy not be “arbitrary and capricious.” If the Biden Department of Education student-debt policy does not fit the public rationale and statutory argument of a COVID-relief program, then the Biden administration could lose, possibly 9–0, when a case about the program comes before the Court. The Biden administration needs to tailor the program to COVID causation if it sticks with this statute.

But even if the program were to meet that bar, the major-questions doctrine will still be a hurdle. And if the administration keeps relying on thin and narrow textual arguments rather than context, it will lose. Keep in mind that the Biden administration lost when it relied on statutes with closer purpose-based connections to pandemics in the eviction-moratorium and vaccine-mandate cases. The Roberts Court would probably find the nexus between student debt and a fading pandemic even more tenuous.

Finally, there is a matter of legal and democratic principle. Democrats were outraged when the Trump administration abused executive power and invoked emergencies to achieve cynical wins. Progressives were rightly critical of that administration’s bad-faith reasons for Muslim bans, border walls, citizenship questions, family-separation policies, and more. Relief from student debt is entirely unlike those policies on a moral level, and in fact, means-tested student-debt relief is probably good policy, on balance. But as a matter of principle, the Biden administration should give its real reasons for a good policy, and it should do so under a statute that supports those reasons.

Such a statute may exist in plain sight: the Higher Education Act of 1965, which allows the Department of Education to “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” The purpose of this clause and this statute appears to fit the real structural social reasons for the Biden administration’s broad policy.

Maybe the administration has already researched the text and context of the Higher Education Act and found a problem with Plan A that other experts have missed. But this Plan B COVID argument is likely doomed, so Plan C would be a much smaller and more complicated program focused on COVID-causation claims.

Alternatively, the Biden OLC may be relying on COVID as a onetime emergency to reassure Wall Street and the banks that it is not interested in deeper structural reform. Not only will the Roberts Court likely kill this program before it can even go into effect, but the Biden administration will have added yet another bad precedent of presidents invoking emergency powers as a pretext. No matter which party is in power, no matter how well-intentioned a policy is, this approach is a dangerous one, and the Biden administration should know better.