Student Debt Crisis: What Next?

Rebuked By SCOTUS, The White House Readies A New Approach

Friday’s ruling in Biden v Nebraska¹ stopped completely the White House debt forgiveness plan for student loan debt.

In a highly anticipated decision, the Supreme Court on Friday struck down President Biden's groundbreaking plan to forgive some or all federal student loan debt for tens of millions of Americans.

By a 6-to-3 vote on ideological lines, the high court ruled that federal law does not authorize the Department of Education to cancel such student loan debt.

Specifically, the Supreme Court ruled that the legislation under-girding the Department of Education’s debt relief programs, the HEROES Act², did not grant such broad authority with respect to student loans.

The Secretary asserts that the HEROES Act grants him the authority to cancel $430 billion of student loan principal. It does not. We hold today that the Act allows the Secretary to “waive or modify” existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, not to rewrite that statute from the ground up.

While the corporate media is dutifully making much hue and cry about this ruling, its core is a very mundane principle: the Executive Branch of the federal government may only use those authorities properly delegated to it by the Legislative Branch (i.e., Congress). What Congress has not authorized the White House may not do.

Ironically, in his majority opinion Chief Justice John Roberts quoted none other than former Speaker of the House Nancy Pelosi to reiterate this core principle:

“People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.” Press Conference, Office of the Speaker of the House (July 28, 2021).

However, we should take care to note what the Supreme Court did not rule: They did not rule that student loan debts could not be forgiven, or that the terms of many/most student loans could not be subjected to radical modifications of both interest and principal.

The ruling of the Court was simply that the laws cited by the Department of Education in establishing the debt forgiveness plans did not authorize such plans. If Congress wishes to pass legislation to grant the Department of Education that authority the Congress remains at liberty to do so.

At present, it is unlikely that Congress will be asked to pass such legislation. The White House and most of Washington had anticipated the Court’s ruling, and so no sooner had the Court announced its ruling than the White House announced that a new debt forgiveness initiative was in the works, grounded in a different piece of legislation and presumably free of the defects that led to the initial program being overturned.

President Joe Biden vowed Friday to push ahead with a new plan providing student loan relief for millions of borrowers, while blaming Republican “hypocrisy” for triggering the day’s Supreme Court decision that wiped out his original effort.

Biden said his administration had already begun the process of working under the authority of the Higher Education Act of 1965, which he called “the best path that remains to provide as many borrowers as possible with debt relief.”

In the meantime, since student loan-payment requirements are to resume in the fall, the White House is creating an “on ramp” to repayment and implementing ways to ease borrowers’ threat of default if they fall behind over the next year.

As of this writing, it is unclear which portions of the Higher Education Act³ the White House plans to reference as the statutory authority for its anticipated “plan B” on debt forgiveness. That reference is being made to the original legislation and not subsequent amending legislation suggests they are planning on grounding this next effort in the debt modification authorities present from the original legislation. Absent specific details, it is reasonable to presume that the revised initiative will hew close to the one just shot down by the Court.

Exactly how the White House plans to discover within the original legislation the debt relief authority that was not found within the amending legislation that specifically addressed debt relief is a mystery. Even without the details and the particular statutory authority, one feature of the Court’s ruling is unequivocal: The Department of Education does not have blanket authority to rewrite and restructure the student loan programs themselves.

Moreover, the plain reasoning of the Court also suggests that there is likely not such blanket authority within the original Higher Education Act language.

The HEROES Act authorizes the Secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs under title IV of the [Education Act] as the Secretary deems necessary in connection with a war or other military operation or national emergency.” 20 U. S. C. §1098bb(a)(1). That power has limits. To begin with, statutory permission to “modify” does not authorize “basic and fundamental changes in the scheme” designed by Congress. MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U.S. 218, 225 (1994). Instead, that term carries “a connotation of increment or limitation,” and must be read to mean “to change moderately or in minor fashion.” Ibid. That is how the word is ordinarily used. See, e.g., Webster’s Third New International Dictionary 1952 (2002) (defining “modify” as “to make more temperate and less extreme,” “to limit or restrict the meaning of,” or “to make minor changes in the form or structure of [or] alter without transforming”). The legal definition is no different. Black’s Law Dictionary 1203 (11th ed. 2019) (giving the first definition of “modify” as “[t]o make somewhat different; to make small changes to,” and the second as “[t]o make more moderate or less sweeping”). The authority to “modify” statutes and regulations allows the Secretary to make modest adjustments and additions to existing provisions, not transform them.

Why would Congress pass legislation giving the Department of Education limited debt modification authority when it already possessed sweeping debt forgiveness authority?

That the Court does not see the Department of Education as possessing such sweeping authority at all is all but stated outright in Roberts’ Opinion:

The Secretary’s plan has “modified” the cited provisions only in the same sense that “the French Revolution ‘modified’ the status of the French nobility”—it has abolished them and supplanted them with a new regime entirely. MCI, 512 U. S., at 228. Congress opted to make debt forgiveness available only in a few particular exigent circumstances; the power to modify does not permit the Secretary to “convert that approach into its opposite” by creating a new program affecting 43 million Americans and $430 billion in federal debt. Descamps v. United States, 570 U.S. 254, 274 (2013). Labeling the Secretary’s plan a mere “modification” does not lessen its effect, which is in essence to allow the Secretary unfettered discretion to cancel student loans. It is “highly unlikely that Congress” authorized such a sweeping loan cancellation program “through such a subtle device as permission to ‘modify.’ ” MCI, 512 U. S., at 231.

As it is the reasoning of the Court that Congress made debt forgiveness available only in narrowly drawn circumstances, it will be quite the legal theory indeed to persuade the Court otherwise.

Thus whatever debt forgiveness plans the White House unveils next, anything but the most narrowly drawn of initiatives is not only likely to invite a new challenge by the states, but seems certain to be rejected by the Court for substantially the same reasons as now.

Before there can be a debt forgiveness program of national scope and dimension, Congress will have to pass legislation authorizing such a program. The Court’s ruling has very clearly left that door open, and has made it clear that going through that door is the only viable means for blanket forgiveness of student loan debt.

Whether or not Congress has the appetite for passing such legislation is obviously problematic. Yet with or without such legislation, the core question remains: what is to be done about rising defaults on student loan debt? While blanket debt forgiveness might not be within the authority granted to the Department of Education, even the Court acknowledged the issue was a real one.

The sharp debates generated by the Secretary’s extraordinary program stand in stark contrast to the unanimity with which Congress passed the HEROES Act. The dissent asks us to “[i]magine asking the enacting Congress: Can the Secretary use his powers to give borrowers more relief when an emergency has inflicted greater harm?” Post, at 27–28. The dissent “can’t believe” the answer would be no. Post, at 28. But imagine instead asking the enacting Congress a more pertinent question: “Can the Secretary use his powers to abolish $430 billion in student loans, completely canceling loan balances for 20 million borrowers, as a pandemic winds down to its end?” We can’t believe the answer would be yes. Congress did not unanimously pass the HEROES Act with such power in mind. “A decision of such magnitude and consequence” on a matter of “ ‘earnest and profound debate across the country’ ” must “res[t] with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.” West Virginia, 597 U. S., at ___, ___ (slip op., at 28, 31) (quoting Gonzales v. Oregon, 546 U.S. 243, 267–268 (2006)).

Nor is it an issue that is simply going to go away. Regardless of why the various student loans were made, the reality is that they were made, and the reality is also that most of them are either heading to default or are already there.

Over the past decade (but prior to the COVID-19 pandemic), the share of borrowers in each of these categories was relatively stable—around 37 percent of borrowers had declining balances, around 47 percent of borrowers had either flat or increasing balances, and around 15 percent of borrowers were in delinquency or default. However, average balances have not been similar across these categories. In 2019, the average balance of those with a declining balance was smaller ($22,342) than those with an increasing balance ($44,993).

The government responses to the COVID madness has not helped the situation.

The federal response to the pandemic for federal student loan borrowers upended these proportions. The share of borrowers with flat or growing balances increased from 48 percent at the end of 2019 to 66 percent at the end of 2021. Meanwhile, the share of borrowers with a delinquent or defaulted loan was halved from 15 percent to 7.5 percent as federal borrowers were not required to make payments and most delinquent borrowers were automatically marked current.

With the total amount of student loan debt in this country at $1.77 Trillion and counting, this is not a small number of delinquent borrowers or borrowers in arrears.

Of that $1.77 Trillion, 92.7% is owed directly to the federal government by approximately 44.5 million borrowers⁴.

On the numbers alone, student loan debt is a problem this country simply cannot ignore.

Nor is it simply a question of borrowers being unwilling to meet their incurred obligations. While two thirds of bachelor’s degree programs in this country enable graduates to earn enough that they can recover the costs of their education within 5-10 years (and, presumably, pay off the debt), that still leaves one third of those programs where graduates do not realize sufficient earnings to pay off their debts in that time.

For other degree programs, particularly two-year (associate’s degree) programs and certificate programs, the resulting return on investment (ROI) is generally worse.

Bachelor’s degree programs, which typically take four years, are generally more expensive but are most likely to show at least some return on investment — meaning graduates earn enough to pay off their college costs reasonably quickly — for those who complete a degree, compared with two-year associate degrees or shorter certificate programs.

With 55% of students at public colleges and universities, as well as 57% of students at private institutions⁵, the ROI of degree programs is a significant factor in understanding the dynamics of student loan debt—that one third of degree programs are without a positive ROI means that between 18% and 19% of college students are in programs where there is not a good chance their future earnings will be large enough to allow them to service the student loan debt.

Compounding the problem are the unrealistic salary expectations of new college graduates, who on average tend to overestimate their immediate earnings potential by as much as 30%.

The minimum salary students say they’d accept at their first job is $72,580 — 30% higher than the actual average salary of $55,911. 

The discussion over starting pay presumes that new college graduates can find a job—something which is more problematic than many want to admit. Even though most employers are anticipating hiring more college graduates this year than last, the extent of that hiring has shrunk since last fall.

Projections in the Job Outlook 2023 Spring Update show that employers are planning to hire 3.9% more graduates from the Class of 2023 than they did from the Class of 2022.

The projection is positive, but is down from earlier projections: In the fall, employers projected a 14.7% increase.

Thus even within degree programs that notionally should enable graduates to service their educational debts, recent graduates may have misplaced expectations both about their future incomes as well as their ability to find a job.

None of this points to an easy or automatic resolution to student loan debts in the foreseeable future.

The seeming intractability of student loan debt forces us to consider a darker aspect of student loans—students may be getting fleeced in the process. Paula Adams, a subscriber to this Substack, has done her own exploration of the student loan issue, and presents substantive arguments that much student lending is predatory in nature.

The reality is that in many cases these loans are PREDATORY LENDING. The schools that have the highest default rate are for-profit schools, not public colleges. These schools promise that you will graduate with a skill that will enable you to be more competitive in the job market. Unfortunately, what actually happened is that many of these jobs have very low starting pay and with the constantly increasing cost of living, many borrowers do not make enough money to pay bills and their student loan payments. That is IF they find a job at all.

The predatory aspect of student loans increases if one accepts the argument that education—the traditional college degree in particular—does not necessarily equate to higher earnings.

As recently as 2021, 39% of American college graduates did not believe their education was worth the money they paid for it. At least 40% of those are not using their degree in their current job.

Other commentators claim that as few as 15% of college students realize any benefit from attending college.

Many education experts conclude that college is a MUST for every child. But mounting evidence makes that advice hard to say with a straight face. By my analysis, at most, only 15% of students benefit from attending college.

For a shorthand economic explanation, some companies that don’t require a college degree offer starting salaries as high as $31,020. The average family spends $72,196 for a child’s college education (average cost of $26,226/year minus merit aid times four years). Meanwhile, the median entry-level salary for a college graduate has stayed steady at around $48,000. So families and graduates spend $192k ($72k for college, $120k in forfeited earnings) for a $17k bump in salary. Further, more and more college graduates are stuck in low-wage jobs, when they can find a job at all.

Certainly skepticism about the utility of college education is on the rise, and already more than half of all Americans doubt that a four-year degree is worth the cost.

The survey, conducted with NORC at the University of Chicago, a nonpartisan research organization, found that 56% of Americans think earning a four-year degree is a bad bet compared with 42% who retain faith in the credential. 

Skepticism is strongest among people ages 18-34, and people with college degrees are among those whose opinions have soured the most, portending a profound shift for higher education in the years ahead. 

If, as appears to be case given a growing consensus within the American public, the education being financed by student loans is of dubious value at best, and does not provide a realistic opportunity to service the debt. Immediately this calls into question the propriety of students taking out these loans in the first place, and begs the question of how many borrowers incurred their debt on the basis of erroneous and potentially dishonest representations about the economic utility of the education being financed with student loans.

None of these statistics demonstrably prove that there has been any broad malfeasance or fraudulent representation on the part of schools and student loan servicers to encourage college students to take on debts with little or no realistic means of repayment. However, this data does raise the question of possible malfeasance, and to the extent that unserviceable student loan debt is the result of malfeasance it is hardly an iniquity for the borrower to seek relief.

Beyond the justice question is the practical consideration of how should the federal government deal with the reality that more than half of the monies owed to it in the form of student loan debt are in serious jeopardy of never being repaid. There is little use in simply insisting that the loans be repaid when the borrowers are either unable or unwilling to do so. If the reality is that the loans will not be repaid, the government must decide what is the proper response and then execute that response.

If borrowers are simply choosing to prioritize other spending choices over servicing their student loans, but otherwise have the means to pay back those loans, the government must decide how to proceed against those delinquent borrowers.

If borrowers are, for whatever reason, not earning enough to service their loans, the government must decide how much of those loans should be canceled, and what consequences should attach to the borrower for having their loans canceled.

The White House and the Department of Education have attempted to implement the response of simply cancelling a large portion of the outstanding student loan debt. The Supreme Court has ruled that in so doing the Department of Education greatly exceeded the authority delegated to it by the Congress. The likely next effort by the White House to circumvent the Court’s ruling is not likely to survive legal challenge, as the Court’s finding that the Department of Education lacks the requisite authority encompasses the totality of legislation related to the Higher Education Act of 1965.

Thus we are left with the frustrating and unanswered question: What next? What can the government do to address delinquent student loan debt—and why isn’t the government doing it?

1. Biden v. Nebraska, 600 U.S. ___ (2023)

2. United States, Congress. Public Law 108-76, Higher Education Relief Opportunities for Students Act of 2003. govinfo.gov, 2003. U.S. Government Printing Office, https://www.govinfo.gov/app/details/PLAW-108publ76/.

3. United States, Congress. Public Law 89-329, Higher Education Act of 1965, 79 Stat. 1219. govinfo.gov, 1965. U.S. Government Printing Office, https://www.govinfo.gov/content/pkg/STATUTE-79/pdf/STATUTE-79-Pg1219.pdf.

4. Chamber of Commerce Team. Student Loan Statistics. 6 Dec. 2022, https://www.chamberofcommerce.org/student-loan-statistics/.

5. Ibid.