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Millions of student borrowers now face uncertainty about a repayment program established decades ago, and implementers of the student loan system will struggle to comply.
Two federal judges decided minutes apart on Monday that elements of the Biden administration’s income-driven repayment program, versions of which have been in place without legal concerns since 1994, should be temporarily blocked.
On July 1, eight million undergraduates in the Saving on a Valuable Education (SAVE) program will not see their payments cut from 10 percent of discretionary income to 5 percent, because Kansas-based judge Daniel Crabtree ruled that this new feature could harm three states that have holdings in student loans. Across the state line in Missouri, judge John Ross then swiped at a different feature of SAVE, ruling that full debt forgiveness after the payment period may not be supported in statute, despite the fact that the government has forgiven loan balances through this program since its introduction.
What’s incredible here is how much each ruling contradicts the other. It demonstrates the extent to which judicial policymaking these days involves making it up as you go along, rather than presenting a stable conception of the law. Judges may conceive of themselves as diligently examining the evidence to make a decision, but the fact that no two see the evidence the same way speaks to the deficiencies of this approach.
The result is that millions of student borrowers now face uncertainty on a repayment program established decades ago, and implementers of the student loan system will struggle to comply. Basic questions around what a borrower owes in principal and interest, and how long they must keep paying, are now mostly unanswerable. The rulings “may render the largest portfolio of consumer credit in the world uncollectible,” says Mike Pierce, executive director of the Student Borrower Protection Center.
Both Judge Crabtree and Judge Ross were Obama appointees, which is supposed to eliminate concerns about “right-wing” judges defying the actions of a Democratic president. Of course, anyone with a passing knowledge of judicial confirmation customs, at least when Democrats are in power, knows that judges in Kansas and Missouri only ascend to the federal bench with the assent of their home-state senators, thanks to the ridiculous “blue slip” rule. At the time these judges were confirmed, only one of the four senators in question was a Democrat. So that’s how you get an “Obama judge” in Missouri who was an assistant to John Ashcroft when he was state attorney general in the 1980s.
But these judges’ ideological leanings matter less than the dog’s breakfast the (very ideological) Supreme Court has made for them to decide cases like this. The “major questions” doctrine, invented out of whole cloth by conservative activists, now governs much of the process of what presidents can do under their own authority. As long as an executive action has important economic or political significance, the courts can scrutinize it to see if Congress granted explicit authority, a question to be determined by judicial fiat. Eighteen red-state attorneys general invoked this, and many other arguments, in attempting to throw out the entirety of SAVE.
On July 1, eight million undergraduates in the Saving on a Valuable Education program will not see their payments cut from 10 percent of discretionary income to 5 percent.
Income-driven repayment was established by Republican president George H.W. Bush, and its intellectual history stems from Milton Friedman. It scales monthly loan repayments to a borrower’s income. The Biden administration’s updated version, SAVE, is certainly generous. It raises the threshold of exempted income to 225 percent of the poverty line, setting the payment for someone making around $30,000 a year at $0. Forgiveness on a small loan of under $12,000 kicks in at ten years, rising gradually to 20 years for larger loans. And it cuts the percentage of income that goes to monthly payments to 5 percent, down from 10 percent. Eight million borrowers have enrolled in SAVE so far, and roughly half of them qualify for a $0 payment because of their low income.
The Higher Education Act of 1965 (HEA) states very clearly that the executive branch can “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand” in their possession, which would include student loans. More specifically for this case, the education secretary has explicit authority to create an income-driven repayment program, “with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years.” This was first put in statute in 1993, and revised in 2012 and 2015. All Biden education secretary Miguel Cardona did was follow the lead of his three predecessors in updating the program.
Neither Judge Crabtree nor Judge Ross disagrees with this. “The HEA’s plain text authorizes the SAVE plan,” Judge Crabtree writes. “On its face, the HEA provides the Secretary with significant authority” for income-driven repayment plans, Judge Ross writes. “The only express limitation of that authority is that repayment under [IDR] plans cannot exceed 25 years.” In other words, all Congress said when enacting this law was: Don’t make the payment period too long.
So what’s the problem? Well, Judge Ross takes a magnifying glass to the text and decides that it doesn’t technically say that loan balances can be forgiven after the full payment period. “The Court is not free to replace the language of the statute with unenacted legislative intent,” the judge says.
This is disputed by none other than Judge Crabtree, who applies basic logic. If the monthly payment is decided by a formula of the education secretary’s discretion, and the term of repayment cannot exceed 25 years, then the only option for a remaining balance after that term is forgiveness. “Indeed, every Secretary of Education since the HEA’s enactment has interpreted this provision to mean that the Secretary must forgive the remaining balance of the loan after 25 years,” writes Judge Crabtree, who agrees that this interpretation is correct.
Judge Crabtree makes his way to invalidating part of SAVE for different reasons. He calls it an “enormous and transformative” expansion, based in part on a calculation error. The Education Department initially said SAVE would cost $156 billion over ten years. But that assumed that the earlier attempted debt relief of $10,000 to $20,000 per loan would go through. Because the Supreme Court shot that down, that cost is now higher.
For his part, Judge Ross rather reasonably rejects the idea that you can blame the Education Department for the unforeseeable nullification of its prior student debt relief plan. Besides, the Education Department is under no obligation to conduct any cost estimate whatsoever, the judge writes.
But Judge Crabtree also finds problems with reducing the repayment window for some borrowers to ten years and cutting the percentage of discretionary income owed per month to 5 percent, mainly because it’s never been done before. But he arbitrarily decides to permit everything currently in place as part of SAVE to go on as is, because the plaintiffs didn’t sue until after it took effect. “If these parts of the SAVE Plan promised an irreparable harm to plaintiffs, why didn’t they move to enjoin the SAVE Plan before they took effect?” Crabtree asks rhetorically.
The only part of SAVE that has not yet taken effect is the halving of the percentage of discretionary income, scheduled for July 1. That’s what Crabtree felt like he could block. It’s something of a reprieve for the Education Department, which hadn’t fully recalculated those changes for every borrower. But what does this mean for other parts of SAVE that may be unauthorized, according to the judge, but can still go forward? If Judge Crabtree ultimately decides they are unlawful, are borrowers going to owe a giant lump sum that they were supposed to owe before SAVE went into effect?
Judge Ross didn’t have a problem with the percentage of discretionary income, or the reduction in the repayment window, or anything else, except for the ultimate loan forgiveness. So he decided to “sever” loan forgiveness from the final SAVE rule. Borrowers still get the other benefits from SAVE, just no forgiveness at the end. But what on earth does this mean? What happens when someone hits the limit on number of payments? Do they still have a debt, just one that the U.S. government cannot collect? Is interest accruing on that debt? Does it affect credit history? What about borrowers in the Public Service Loan Forgiveness program and other income-driven repayment plans that interact with SAVE? Can their loans be forgiven? And what about the hundreds of thousands of borrowers who have already received loan forgiveness from SAVE? Will that be clawed back? The judge had basically nothing to say on any of this.
Both of these injunctions are preliminary; the cases go on until there’s a final ruling. It’s possible that the judges will ultimately strike down SAVE as exceeding the authority of the Education Department. But wouldn’t that just mean that everything reverts back to the previous version of income-driven repayment? And doesn’t that also include loan forgiveness of any balances after the repayment period? Wouldn’t that be a problem for Judge Ross?
What many advocates are calling for is for Biden to place all borrowers on SAVE in administrative forbearance until the cases are decided. It’s simply impossible for borrowers to know what they owe and for servicers to implement it under this current patchwork of rules and injunctions. “Secretary Cardona must look past this partisan lawfare and protect borrowers—that means shutting the student loan [repayment] system down until borrowers have access to the rights they were promised under the law,” Pierce said in a statement.
A better option would be to end this foolishness whereby conservative legal doctrine enables judges to pick through statutes and make arbitrary decisions in conflicting ways. No government can function well with these kinds of obstacles placed on implementation. Judges simultaneously act like policymakers, choosing what to keep and discard from a law, and yet disclaim or ignore the implications of tampering with statutes in ways that hobble government action. It’s infuriating, but it’s a by-product of the tremendous, unearned power we’ve afforded judges in this country.
