Potential Plan B for Biden Student Loan Relief Messy, Untested

Welcome back to Opening Argument, a reported column where I dig into interesting legal controversies and questions dividing appellate courts. Today: a look at a plan B for President Biden’s student loan relief.

It’s not a big deal if the US Supreme Court strikes down President Biden’s student loan forgiveness program because he’s got a backup plan.

That’s what the attorney for student loan borrowers challenging the relief seemed to suggest during arguments last week.

If the court rules the education secretary doesn’t have the power to forgive debts for 40 million Americans under the Higher Education Relief Opportunities for Students, or HEROES Act, Michael Connelly said the Biden administration will just try again using authority provided by the Higher Education Act and this time go through the proper notice and comment rulemaking process.

The chance to weigh in is all the borrowers say they wanted to begin with. But legal scholars aren’t sure if the education act is a valid Plan B. There are still lots of unanswered questions even if it is.

What would happen to student debts in the interim? Would it survive another legal challenge? And would it be worth the effort with a presidential election less than a year away? By June—when a Supreme Court decision is due—that time will be shortened to mere months.

Adam Minsky, a Boston-based attorney who’s focused on helping student loan borrowers, said there’s a provision in the education law that grants the education secretary fairly broad authority to “compromise, waive, or release’’ federal student loan obligations.

The Education Department recently invoked the HEA in agreeing to discharge some federal loans as part of a class action settlement. Student loan borrowers, who alleged for-profit colleges lied to them about job prospects after graduation, sued the agency when it stopped acting on their requests for debt cancellation as a result of the schools’ misconduct.

Minsky said the law has never been used for a widespread cancellation plan before.

“The reality is, if the justices are parsing words like ‘modify’ or ‘waive’ in the HEROES act, they’re going to, in my view, very likely have similar skepticism about words like ‘compromise’ and ‘waive’ in the HEA,” he said.

It’s also unclear if the government could bypass typical notice and comment rulemaking requirements. That process can take several months to a year.

If it can’t, the rule could get stuck in the drafting stage long after the election, said Dalié Jiménez, a professor and director of the Student Loan Law Initiative at the University of California, Irvine School of Law.

And if Democrats lose the White House, a final rule may never see the light of day.

In the meantime, Jiménez said it’s going to be very difficult for the government to continue its pause on student loan payments.

The Education Department is already facing a lawsuit brought by an online lender that wants people to start paying again. SoFi Bank and SoFi Lending Corp., which offer federal student loan borrowers private funding to refinance their loans, allege it was unlawful for Biden to extend the freeze on payments while its forgiveness plan is being litigated. The companies say the moratorium has hurt their bottom line.

Tara Grove, a federal courts and constitutional law professor at the University of Texas at Austin School of Law, said political campaign managers are going to have to figure out what will be most appealing to voters.

“Historically, politicians often get a lot of credit for trying programs even if those programs are ultimately rejected by the federal courts,” she said. “The ‘is it worth it’ question is a policy question that the Biden will have to weigh.”

The administration may decide it has no other choice but to try again.

“What’s the alternative? We give up? That’s a terrible story headed into an election,” Jiménez said.

Reinstating payments while working on a rule, though, may be worse.

Luke Herrine, an assistant professor and expert in student loan law at the University of Alabama School of Law, said the Education Department should just start canceling debts with its HEA authority.

“Don’t announce it 30 days in advance and wait to be sued, and have an injunction,” he said. “Cancel the debt and make the court reimpose it if they want to rule against you.”

In other words, play hardball.

Herrine said that will get the administration further with voters.

“It would be enormously stupid politically to have an upcoming election where you’re saying ‘We’re restarting payments, we ended the emergency, all this emergency relief is fading out. Sorry we can’t get anything through Congress and sorry we have to respect all these court rulings,’” he said. “I don’t think that’s a winning political message or an effective one in the long term.”

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