Can The President Cancel Federal Student Loans?

The President does NOT have the legal authority to forgive student loans

According to Forbes magazine, “The President does not have the legal authority to forgive student loans on his own. Only Congress has the power of the purse. Executive action can be used only when it has been specifically authorized by Congress.

The executive branch cannot spend money that has not been appropriated by Congress, per 31 USC 1301 et seq (Antideficiency Act (P.L. 97-258)) and Article I, Section 7, Clause 7 of the U.S. Constitution.

The claims that the President has the authority to forgive student loans are based on a misreading of the Higher Education Act of 1965 at 20 USC 1082(a)(6). That section of the Higher Education Act of 1965 provides the U.S. Secretary of Education with the authority to:

President Biden holds a press conference.

“…modify, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.”

But that quote is taken out of context. The preamble to that section of the Higher Education Act of 1965 limits this authority to operating within the scope of the statute:

“In the performance of, and with respect to, the functions, powers, and duties, vested in him by this part, the Secretary may—”

In other words, when Congress authorizes a loan forgiveness program, such as Public Service Loan ForgivenessTeacher Loan Forgiveness or the Total and Permanent Disability Discharge, the U.S. Secretary of Education has the authority to forgive student loans as authorized under the terms of these loan forgiveness programs.

Biden does NOT have the legal authority for large-scale student debt cancellation

According to FullStakeEconomics.com, “It’s far from clear that Biden has the legal authority for large-scale student debt cancellation by executive order. And a standalone policy of loan forgiveness is bad policy. It would only encourage students to take on more unmanageable debt burdens in the future.  Any program of broad loan forgiveness should be approved by Congress and it should be part of a broader package of reforms to the education finance system.

Without authorization by Congress of a specific loan forgiveness program, the President does not have the authority to forgive student loan debt. As the U.S. Supreme Court ruled in Whitman v. American Trucking Assns., Inc., (531 USC 457, 2001), Congress does not “hide elephants in mouseholes.”

Biden’s Executive Order would be illegal, leading to impreachment

There’s enough of a legal question that any move by the president would likely prompt litigation, experts say.

“There are instances of presidents’ executive orders being thrown out in the courts because they take actions that were not authorized by laws in the past,” said Jason MacDonald, a political scientist at West Virginia University.

President Biden delivers remarks before signing the Inflation Reduction Act at the White House.

The Trump administration saw this kind of judicial pushback with its initial travel ban for people from Muslim-majority countries, MacDonald said.

While modest efforts to roll back student debt might not prompt legal obstacles, “the more ambitiously this authority is used, the greater the possibility of a legal challenge,” said Judith Scott-Clayton, a professor of economics and education at Columbia University.

Why did Biden lie about canceling student loans?

Before the election, Joe Biden and the media had tens of millions of distressed student loan borrowers believing that he was going to eliminate their student loan debt, and return bankruptcy protections to all federal student loans- perhaps by executive order- on day one.

Since winning the presidency, however, he (and the corporate press covering him) are singing a very different tune. Gone are the claims in the press that Biden will cancel all undergraduate debt for people who attended public universities or Historically Black Colleges and Universities (HBCU’s). Biden is also going out of his way to kill expectations of him cancelling loans by executive order, as leading Senators were calling for going back to last September, and as nearly a millions citizens have been petitioning for since last March. He has made the point twice in his first 28 days as President that he doesn’t have the power. By all indications, it would appear that Biden will only support loan cancellation of $10,000, and only through congressional legislation.

Why is Joe Biden now throwing so much shade on using his executive authority to cancel student loans? He obviously has no problems using his pen, having signed over 30 executive orders in his first month as President.

His claim that he doesn’t think he has the authority is just not believable. The Higher Education Act gives the Secretary of Education all the power needed to waive, compromise, or release the government’s interest in federally owned student loans. A simple reading of the legislation make this abundantly clear, and scholars from both Yale and Harvard have confirmed this. Of critical importance: This requires $0 to be raised in taxes (or other sources), requires $0 from the Treasury, and instead is taking from the book value of the Department of Education’s loan portfolio. In other words, no money is actually spent.

Cancelling loans through congressional legislation (rather than executive order), on the other hand, requires vast sums of money to be raised and spent. Because of “Paygo” rules, Congress would have to raise $1 for every $1 in loans cancelled. So new tax money would have to be raised, taken from existing prolems, or money printed and added to the national debt, and these funds would have to be used to pay the Department of Education (presumably) to cancel the loans.

Compared to cancelling loans by executive order, Congressional loan cancellation is very expensive. Even $10,000 across the board cancellation would require roughly $440 Billion in new revenue.

While cancelling loans is very expensive for the taxpayer, the Department of Education- which is infamous for disqualifying 99% of the borrowers out of the various Income Driven Repayment (IDR) cancellation programs created over many decades- would be thrilled to have hundreds of billions- or even trillions in new funding so that they can continue to pretend to cancel student loans while not actually actually doing it.

Make no mistake, the Department of Education is the most ruthless lender, overseeing the most predatory lending instrument in US History. The loans have been weaponized against the citizens, with bankruptcy protections, statutes of limitations, and other vital consumer protections stripped. This gives the Department of Education unchecked power to extract huge amounts of wealth from the citizens through the hyperinflation of these loans (often through default), and collection of the inflated amounts using collection powers that would “make a mobster envious” (Elizabeth Warren’s words). Many years and decades of White House Budget data show, for example that the Department actually makes a profit on defaulted loans- a claim that no other lender for any other type of loan can make. Typical examples:

Typical Examples of Hyper-inflated Loans

While this predatory lending model served the Department of Education and its financial partners for many years, the lending system is now catastrophically failed by all rational metrics. Before the pandemic, nearly two-thirds of all federal student loan borrowers weren’t paying on their loans. Almost no one is paying on their loans currently because of the payment suspension. Very few will resume paying if/when the repayment suspension is finally lifted.

In conservative parlance- the lending system needs to be taken to the bath, and drown in the tub. But almost no one inside the beltway seems to have the courage to acknowledge this fact. They appear to be far more determined to keep this predatory lending scheme operating, by foisting another fake loan cancellation gimmick onto the citizenry, and keeping bankruptcy rights gone from the loans.

This obvious trick will no longer work. The people are at their wit’s end, and they will not be fooled again. One can only imagine how bad the mid-term election results will be for the Biden and the democrats in November if they continue down this path. One has to wonder what is so sacred about this lending program (one that Biden had a strong hand in weaponizing and now appears to have a fealty to) that they are willing to sacrifice so much to keep it going. It is truly baffling.

By abandoning, teasing, and even insulting the people he promised to help- and who put him into the White House- he has effectively alienated 42 million distressed voters, and created the largest untethered voting bloc in US History. He is now plunging headlong into what could be the biggest political mistake of any President in modern times.

President Trump promised to drain the swamp, and he largely failed to do it. Joe Biden, however, never made such a promise, and that is truly disturbing.