The White House recently released its program for student-loan-debt relief, saying it will cancel up to $20,000 in debt per borrower to households earning as much as $250,000.
The action includes rules that will maintain the balances of debtors who currently have high incomes. Those who do qualify will need to navigate the balky federal loan servicing system and keep a close eye on their accounts and credit reports for any mistakes.
It also extends the pause on monthly student loan payments, which means that borrowers won’t have to resume payments until at least January, and provides details on a new proposal to create a more affordable income-driven repayment plan.
Goldman Sachs economists Joseph Briggs and Alec Phillips ran through the numbers to determine the negative side effects and gave a conclusion that it won’t amount to much, saying the headlines are bigger than the macroeconomic impact.
If all borrowers eligible for the program enroll, it will reduce student-loan balances by around $400 billion, or 1.6% of GDP. That’s not a given — the economists point out that previous programs to reduce loan payments didn’t reach full enrollment.
The Department of Education has tackled so much student debt already because Congress gave it a number of tools to do so. One of those tools is the Heroes Act, passed in the wake of 9/11. This law gives the secretary of education authority to “waive or modify” any provision of the law applicable to student aid programs “in connection with a war or other military operation or national emergency.” The secretary may exercise this power to “ensure” that borrowers “are not placed in a worse position financially” in relation to their loans because they were “affected” by the emergency. A “national emergency” is defined as any national emergency declared by the president. The ongoing COVID-19 pandemic surely qualifies, since Donald Trump declared it a national emergency and Biden has extended that declaration.
There are at least three “major questions” that the Supreme Court could identify here. First, the majority might say that the ability to “waive or modify” aspects of the law does not allow the secretary to cancel payments. Second, the majority could say that COVID is not the kind of “national emergency” envisioned by the law. Third, the majority could say that an “affected” group must be smaller and more targeted than every low or middle-income American who lived through the pandemic.