Mariam Zuhaib/AP Photo
People in favor of canceling student debt protest outside the Supreme Court on June 30, 2023.
“Today’s decision has closed one path. Now we’re going to pursue another.” With that, President Biden committed his administration to a second option for canceling student debt, just hours after the first one was struck down by the Supreme Court.
Cynics are already grumbling that the goal is less to cancel student debt than to appear to be fighting for it. Chief Justice John Roberts and his colleagues were determined enough to nullify the first student debt relief program based on a non-injury by an unwilling plaintiff. Why would a second bite at the apple go any better? In any case, the timeline of the president’s path would likely put an ultimate reckoning out past the 2024 election.
Still, supporters of this Plan B can point to what tripped up the first effort at debt relief, and how a new process could fix those missteps in a way that would make it harder for the Court to work its will.
The first thing to be said is that this is not Plan B as much as it is Plan A. Four years ago, when the Prospect first suggested that presidents have the authority to cancel student debt without further congressional approval, that was based on the Higher Education Act of 1965 (HEA), and the statutory language enabling the secretary of education to “compromise, waive, or release any title, claim, lien, or demand” on student debtors. It also specifically authorizes the department to waive equity claims, compromise “a debt in any amount,” and modify “any provision of a loan note.”
The White House instead used the HEROES Act of 2003, a law that gave the secretary the ability to “waive or modify” statutory or regulatory provisions to keep borrowers financially harmless from a national emergency like the pandemic. Because Donald Trump used this very statute to pause collection of student loan payments, the White House thought it might entice conservative justices.
In other words, it was about political tactics as much as the law, but it didn’t work. In terms of legal language, the HEA argument is clearly stronger.
(There’s a minor detail that, under the rules, the Education Department must consult with the Justice Department about any forgiveness totaling more than $1 million, but that’s easily done.)
What it would take to invoke the Higher Education Act to forgive student debt is a source of controversy. On one side, advocates say it could be done immediately, using the broad discretionary authority of the statute, and framing it as an “order” rather than a “rule,” which has a lower standard for administrative procedure. However, the Biden administration has long desired to confine debt relief to needier borrowers, which requires some form of means testing, and an application to boot.
A letter sent by advocates to the White House in May suggests that, because the government has already collected this information for the initial student debt cancellation program—which 16 million borrowers filled out—the secretary could immediately act for those borrowers. But the administration is not taking this approach. It has instead decided to engage in the “negotiated rulemaking” process to hammer out regulations governing debt relief under the HEA.
This was actually a live controversy from back when talk of debt relief first came up. It was discussed extensively in a January 2020 letter from the Legal Services Center at Harvard Law School to then-presidential candidate Elizabeth Warren, when she announced her debt cancellation plan. It’s monstrously complicated, but I will try to explain.
To be clear, the administration could have initiated this rulemaking on January 20, 2021, and it would almost certainly have been done by now.
Though the HEA contains compromise and settlement authority, the Federal Claims Collection Act also purports to lay out when the government can collect, and settle, a federal debt. The FCCA does not supplant the secretary of education’s separate authority to cancel debts; however, regulations put forward by the department have occasionally referenced the FCCA and its implementing rules (known as the Federal Claims Collection Standards, or FCCS). For example, a 2016 Education Department rule said that the secretary can compromise, suspend, or terminate debts “under the provisions of the FCCS.” Those provisions are somewhat circumscribed and would not necessarily permit blanket forgiveness.
Both the Legal Services Center at Harvard and the advocates who wrote the White House in May do not believe that this limited the secretary’s authority. But of course, six unelected hacks in robes will give the final answer on that. One way out for the department is to rewrite the 2016 rule, to clarify its compromise and settlement authority.
This is what the department appears to be going with. Last Friday, it put out a hearing announcement for July 18, kicking off the negotiated rulemaking process. As is standard for Education Department regulations, negotiated rulemaking brings together “organizations or groups with interests that are significantly affected by the subject matter of the proposed regulations.” They have one or several sessions discussing the proposed rules, and then the department makes a determination, taking these viewpoints into account.
Negotiated rulemaking takes quite a while. The hearing is just to establish a committee and take input; after that, you have to write the proposed rule, again go through notice and comment, and publish a final rule. The negotiating committee can meet through every step of this process. While President Biden committed to moving as fast as possible, Politico has suggested this will stretch into next year, and that’s likely accurate, though the advocate letter cites many ways it could be accelerated. National Economic Council deputy director Bharat Ramamurti said in a press conference last week, “It’s going to be months … we are aiming to do it as quickly as possible.”
Because the Supreme Court only decides cases and controversies, and a rule would have to be issued for any litigation to commence (at least in theory), it would be until mid-2024 before the inevitable lawsuit could be filed. Given the usual Supreme Court schedule, that would put out disposition of the case until this time in 2025, well beyond Biden’s re-election campaign. A cynical reading would suggest that this is the point, to keep students believing that Biden is working on their behalf against a recalcitrant Court through Election Day.
To be clear, the administration could have initiated this rulemaking on January 20, 2021, and it would almost certainly have been done by now. Then we would not be in this position of delay.
Those facts are the reasons why some advocates are angered that this is a shadow play. They believe Biden should just ignore the FCCS issue and cancel debts now, based on the information received from 16 million borrowers. Implicitly, the feeling is that actually sending a cancellation notice puts the Supreme Court in the difficult spot of having to take away relief already granted. But I wouldn’t really put that past this Court, and certainly they can use the FCCS issue and the lack of new regulations to rerun the current case. I wouldn’t be surprised if that went right to the shadow docket with a swift reversal.
Whether you think the administration is being craven or just making the best of a bad call and a combative Court depends on whether you think negotiated rulemaking can actually overcome the hurdles placed in front of them to complete debt cancellation. Here’s one reading of what they might be thinking.
It’s shocking that it hasn’t received much attention, but the initial debt relief program did in fact deal with the fact that student loan servicers (private companies that handle day-to-day operations on federal loans) would be injured with lost revenue. The Supreme Court’s ruling hinged on this very fact, claiming that the Missouri Higher Education Loan Authority (MOHELA) would be harmed. Putting aside that they didn’t bring the case and weren’t interested in doing so, they also weren’t harmed, because MOHELA was poised to receive $61 million in additional funds to process cancellations. That was more than the $44 million plaintiffs in the case claimed would be the injury to MOHELA.
In a negotiated rulemaking, servicers would be at the table. And there would be a public record on how much servicers would receive. If the administration is sharp, they would make this extremely clear; they would be compensating servicers for buying out their servicing rights, effectively. You might say that a one-time fee doesn’t make up for the ongoing harms to servicers from losing loans, but the government signs short-term contracts with servicers, so the lost revenue is simply as big as presumed.
I am sure the Court will try to get creative; Chief Justice Roberts, in his opinion last Friday, already tried to foreclose on this by claiming, wrongly, that the HEA “authorizes the Secretary to cancel or reduce loans, but only in certain limited circumstances and to a particular extent.”
But a public process under stronger authorities that buys out the servicers who might have claims to an injury in fact could cut off standing avenues. Remember, there were two challenges to the initial debt relief plan, and the Court unanimously rejected the first one, from debtors who felt like they didn’t get enough relief. If debtors are unavailable, and servicers are unavailable because they weren’t harmed, it becomes really hard to find anyone else who is available to have standing.
Again, it’s reasonable to see that as a long shot, and to look at this as a case of how to lose well: forcing the Court to rip debt relief away after people are notified of the forgiveness, or waiting years without clarity for an inevitable second rejection.
There’s a third option, however. Because 16 million borrowers have been contacted and applied for debt relief under the older program, they could immediately be processed under a new program with the same terms but new administrative authority. So when the rule is finalized next year, 16 million borrowers could get immediate debt relief. That would create the same dynamic as advocates want, forcing the Court to take money out of the hands of borrowers, while doing what defenders of negotiated rulemaking want, putting the action on stronger legal footing. It’s unclear whether the administration will do that. Stay tuned.
