Abstract:
On April 1, 2021, the Biden Administration announced that Secretary of Education Michael Cardona will consider whether the President has legal authority to forgive up to $50,000 per debtor in student loan debt without further Congressional action. This paper collects the leading arguments for and against the position that the Biden Administration can forgive this student loan debt as an administrative action and without additional congressional authorization. The paper first surveys the history of federal student loan forgiveness programs in the United States. The paper then considers whether statutes on the books—in particular, the Higher Education Act of 1965 and the Federal Claims Collection Act of 1966—grant the executive branch the authority to effect widespread student loan forgiveness. The paper considers how the Department of Education might use administrative action to forgive loans and assesses the pros and cons of the Department proceeding without notice and comment rulemaking. Finally, the paper evaluates the Biden Administration’s prospects in court, including whether any parties would have standing to challenge administrative student loan forgiveness and which forms of administrative action are likeliest to survive judicial review.
Commentary:
This article provides strong arguments for both finding that USED has authority to forgive student loan debt and also that it is not permitted to do so. The obstacles to student loan discharge by executive order are significant, with real risk that such forgiveness could later be undone.
Unfortunately, the article does not also consider whether USED has authority to consent to the discharge of student loans in an Adversary Proceeding in a bankruptcy case. That USED and its servicers have occasionally, albeit rarely, consented to such in the past indicates that this is permitted and USED could, by extension, provide clear and more generous "safe harbors" to allow debtors to not only obtain discharges but better predict that prior to filing bankruptcy. Further, while this article argues that the Federal Claims Collection Act of 1966 (FCCA) does not allow executive action to compromise performing debts, the filing of bankruptcy is a reasonable indicator that the student loan is no longer performing, especially since payments during a Chapter 13 plan would be no greater than under an Income Driven Repayment (IDR) plan and likely less. This has, in fact, been argued for in the article A No-Contest Discharge for Uncollectible Student Loans and also by NACBA in the response to the USED Request for Information on Evaluating Undue Hardship Claims in Adversary Actions Seeking Student Loan Discharge in Bankruptcy Proceedings
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May the Executive Branch Forgive Student Loan Debt Without Further Congressional Action?
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