After President Biden announced that the federal government would forgive the student loans of millions of Americans, either in whole or in part, borrowers rejoiced.

Yet the celebrations may have begun too soon. All told, the estimated amount of debt eligible for forgiveness totals between $300 million and $519 million, depending on whom one asks.

The forgiveness plan includes all loans held by the federal government, including undergraduate and graduate direct loans, Parent PLUS and Grad PLUS loans, consolidation loans, loans obtained through the Federal Family Education Loan (FFEL) program, Perkins loans, and select types of loans in default.

The burning question is whether the administration has the authority to forgive these loans without congressional appropriations to fund the expenditure.

Does Authority to Forgive Exist?

The Biden administration claims that its authority to forgive the student loans derives from section 1098bb(a)(1) of the Higher Education Relief Opportunities for Students (HEROES) Act.

Passed in 2003 in the aftermath of the 9/11 terrorist attacks and the subsequent invasion of Afghanistan, the HEROES act gave Congress wished to grant the executive the power to give students serving in the military financial assistance with their student loan obligations in the event their studies were disrupted because of deployment or national emergency, and to do so quickly, with minimal administrative requirements. The statute provides, in pertinent part:

“Notwithstanding any other provision of law, unless enacted with specific reference to this section, the Secretary of Education may waive or modify any statutory or regulatory provision applicable to the student financial assistance programs . . . as the Secretary deems necessary in connection with a war or other military operation or national emergency.”

Section 1098bb(a)(2) further provides that any waiver or modification must not act to worsen a student’s financial position under the loan. Thus, during the period of suspension, no interest will accrue on outstanding loans so that borrowers are in the same position as they were before the suspension period began.

Section 1098bb(b)(3) provides for blanket waivers or modifications to the statute or regulations — that is, such waivers or modifications do not need to be reviewed and granted case by case.

The Trump and Biden administrations relied on these provisions to suspend student loan payments during the national emergency related to the pandemic, from March 2020 until January 2023. The crucial point is that 1098bb(a)(2) prohibits a waiver or modification from worsening a student’s financial position.

The Biden administration’s forgiveness plan will better a student’s financial position, a condition not provided for in that section.

Although the HEROES Act appears to grant the education secretary the power to forgive student loans, that is not necessarily the case. It permits waiver or modification to statutory or regulative provisions, but it is not at all clear that those terms include debt forgiveness.

The statute itself does not state that the education secretary may forgive student debt, and concomitantly, there are no provisions regarding the forgiveness of student debt in the regulations. The legislative history of HEROES is sparse — no committee reports, etc. — but the act’s sponsor, Rep. John P. Kline Jr., said in his introductory remarks that the intent of the bill is to allow the secretary “to maintain his commitment to our men and women in uniform by providing assistance and flexibility as they transfer in and out of postsecondary education during a time of national emergency.”

Considering Kline’s statement, it is apparent that he, and Congress, did not contemplate the act’s grant of authority to include the power to forgive student loans.

Alternatively, the Biden administration might point to section 20 U.S.C. 1082(a)(6) of the 1965 Higher Education Act for forgiveness authority, which states that the secretary can “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or right of redemption.”

However, if the administration attempts to rely on subsection (a)(6), it still stands on shaky ground because to do so takes the subsection out of context.

The preamble to section 1082(a) enumerates the actions the secretary may take in performing “the functions, powers, and duties, vested in him by this part” — that is, section 1082(a)(1) through (6). The key words are “this part.”

Section 1082 in its entirety is found in Title IV, Part B, and applies exclusively to the FFEL program. Similar language appears in 20 U.S.C. section 1087hh applicable to Perkins loans. Sections 1087e(a)(1) and 1087a(b)(2), which govern other federal direct loans, specifically the Ford, PLUS, and Stafford loans, do not contain waiver authority.

Thus, the only student debt forgiveness authorized under sections 1082(a)(6) and 1087hh of the Higher Education Act is FFEL and Perkins loans.

In the end, however, the above analyses of the HEROES and Higher Education acts are unnecessary. Under Article I, section 9 of the Constitution, only Congress may withdraw money from the treasury through appropriations.

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Forgiveness of loans under the FFEL, Perkins, and other forgiveness programs is authorized by Congress, and the moneys necessary to fund these programs have been appropriated.

This is not so regarding the Biden administration’s student debt forgiveness for all other federal loans. The administration’s action, then, is clearly unconstitutional.

Litigation Is Likely

The Biden administration’s forgiveness of student loans under the HEROES Act is certainly ripe for a court challenge.

The administration acted in accordance with a legal opinion penned by the education secretary, which gave sections 1098bb(a)(1) and (2) an expansive interpretation — that is, that these sections give the Education Department the authority to put into effect a categorical program to cancel federal student debt regardless of the law or regulation under which the loan was issued.

Under recent U.S. Supreme Court decisions, however, the education secretary may not have such broad authority. In Alabama Association of Realtors, the Court ruled that the Centers for Disease Control and Prevention did not have the authority to impose a nationwide moratorium on the evictions of tenants who resided in a county that experienced a substantial or high level of COVID-19 transmissions if the tenant made a declaration of financial need.

Instead, the agency relied on section 361(a) of the 1944 Public Health Service Act, which gives the surgeon general the authority to prevent the introduction, transmission, or spread of any communicable disease from a foreign country to the states, as well as from state to state.

The section further authorizes the surgeon general to enforce the section through the “inspection, fumigation, disinfection, sanitation, pest extermination, destruction of animals or articles found to be so infected or contaminated as to be sources of dangerous infection to human beings.”

By its terms, the section, the Court said, simply does not authorize the CDC to impose its moratorium. The only way the agency could impose the moratorium, the Court continued, is if Congress granted it the authority to do so.

The Court further pointed out that Congress was perfectly capable of speaking clearly when authorizing an agency to exercise powers that have great political and economic significance. Because Congress had not so acted, the Court concluded, the moratorium was void.

Certainly, student debt forgiveness for 43 million debtors would have a vast economic impact. Thus, given the Alabama Association of Realtors decision, it seems unlikely that a court would determine that the education secretary possesses the authority to grant blanket forgiveness applicable to all federal student loans under the administration’s plan.

Who Can Sue?

Regarding a court challenge, an important question that must be addressed is standing. Who would be eligible to file suit?

In Lujan, the Court held that standing requires (1) an injury in fact — that is, actual, concrete, and particularized; (2) a causal connection between the conduct and the conduct complained of; and (3) a likelihood that exercise of judicial power will redress the injury.

In this case, a potential litigant could be a debtor whose income exceeds the $125,000/$250,000 maximum by as little as $1, and who lives in an area where the income is considered middle class, such as San Francisco or New York City.

Another potential litigant could be a debtor who has a commercially held, rather than federal, FFEL loan, should it be determined that such loans do not qualify for forgiveness. It is hard to imagine that the education secretary could produce a principled reason for denying forgiveness for this type of loan.

A third potential litigant is a bank or holder of student loan asset-backed securities, which funded the loan and are collecting interest during repayment.

While it is true that the government will pay the amount forgiven, including interest, to the bank, if the repayment agreement contains a prepayment penalty, this could qualify as an injury sufficient to confer standing.

Of the three potential litigants, it appears that the debtor whose income is just over the maximum threshold, and a debtor who has a commercially held FFEL loan that the education secretary deemed ineligible for forgiveness, have the best chances of meeting the standing requirement.

Conclusion

There is no question that borrowers deeply appreciate the Biden administration’s student loan forgiveness plan, but it faces a rocky road. There are several reasons why the plan might fail.

It is highly questionable that the Education Department has the authority to forgive student debt under the HEROES Act, the Higher Education Act, and Article I, section 9 of the Constitution. Moreover, it is doubtful that the Education Department’s expansive interpretation of HEROES regarding its authority to give blanket forgiveness to all types of federal student loans would stand up in court, except for FFEL and Perkins loans.

Finally, a borrower whose income exceeds the maximum for forgiveness by a small amount — depending on where the borrower resides — would appear to have standing to file a lawsuit, as would a borrower who has a commercially held FFEL loan, or a bank that has an agreement with the federal government that contains a prepayment penalty.

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