Student Debt Relief: How “Plan B” Relies on This 1965 Law

In late June 2023, the Supreme Court struck down the Biden Administration’s student debt relief plan, holding that the program lacked authorization under the 2003 HEROES Act. Biden’s program would have wiped out $430 billion of debt by canceling at least $10,000 of federal student loans for qualified borrowers with incomes under $125,000 per year.

It didn’t take long for the President to unveil a new strategy at a White House press conference only hours after the ruling. There he said:

Today’s decision has closed one path. Now, we’re going to pursue another. I’m never going to stop fighting for you. We’ll use every tool at our disposal to get you the student debt relief you need to reach your dreams.

Then the President announced that he had asked Secretary of Education Miguel Cardona to launch an alternative administrative procedure intended to provide student debt relief. But instead of the HEROES Act as the authorizing legislation, this alternate route would rely on the historic Higher Education Act of 1965.

Congress enacted the Higher Education Act of 1965 within President Lyndon Johnson’s sweeping Great Society domestic agenda designed to eliminate all racial injustice and poverty across America. The HEA’s purpose was to ensure access to higher education for all Americans irrespective of income or background. This landmark legislation strengthened the educational resources of America’s colleges and universities while delivering financial support to higher education and postsecondary students.

Title IV of the Act established America’s first federal financial aid program that helped students pay for college and graduate education using grants and loans. Although the Biden Administration has not yet announced much in the way of specific details about their new strategy, two key provisions of Title IV—located at 20 U.S.C. § 1082—are available to the Biden Administration’s student debt relief efforts.

In September 2020, Harvard Law School’s Legal Services Center and the school’s Project on Predatory Student Lending prepared an analysis for Massachusetts Senator Elizabeth Warren of the Administration’s authority to cancel student debt. That legal memorandum analyzed the statutory and regulatory framework governing the Education Department’s federal student loan programs, including 20 U.S.C. § 1082’s two main provisions. “We conclude that such broad or categorical debt cancellation would be a lawful and permissible exercise of the Secretary’s authority under existing law,” write Harvard’s attorneys.

Loan Waiver and Release Authority

First, at 20 U.S.C. § 1082(a)(6), the HEA provides the Secretary of Education with the power to “compromise, waive, or release any title, claim, lien, or demand” related to federal student loans. Congress has provided the Secretary with this broad compromise authority continuously, ever since the Act’s original enactment in 1965.

Because the HEA doesn’t mandate specific requirements like the declaration of a state of emergency, this is a much broader grant of authority than the HEROES Act, which Congress enacted following the 9/11 attacks. Unlike the HEA, the HEROES Act only enables the Secretary to “waive or modify” loans for borrowers impacted by qualifying events like war, military operations, or a national emergency.

The Biden Administration had argued before the Supreme Court that the pandemic qualified as one such emergency. However, the Administration actually allowed the federal Covid-19 Public Health Emergency to expire on May 11, 2023, and this may have been one of the less-reported factors contributing to the Court’s adverse decision.

Loan Modification Authority

Second, the Higher Education Act also gives the Secretary the authority to modify loans under a distinct grant of statutory authority found at 20 U.S.C. § 1082(a)(4). As with the waiver and release provision, this also amounts to a relatively broad grant of power.

Specifically, the HEA gives the Secretary the authority to “consent to modification, with respect to rate of interest, time of payment of any installment of principal and interest or any portion thereof, or any other provision of any note or other instrument evidencing a loan which has been insured by the Secretary under this part.”

Both the Supreme Court’s majority opinion in the Biden case and a 2022 analysis by the Congressional Research Service point out that the HEROES Act has never been used to cancel existing student loan balances. However, in narrower cases, the Higher Education Act demonstrates a recent history of authorizing the cancellation of student debt—and has already withstood at least one Supreme Court challenge.

For example, consider Education Department student loan repayment programs like Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR). Both such programs forgive student debt after borrowers complete payments during a specified number of years, and they both rely on the HEA for their authorizations.

The PSLF program benefits borrowers who work for government or not-for-profit organizations. The Department of Education says it forgave about $42 billion in debt from about 615,000 PSLF borrowers between October 2021 and May 2023.

IDR programs are repayment plans that tie federal student loan payments to a borrower’s income, and about eight million Americans use these options. After making payments for a term that’s usually 20 years, a borrower’s remaining balance is forgiven.

A modified version of one of the IDR programs called the SAVE Plan was first proposed by the Department in January 2023. These modifications will slash some borrowers’ monthly payments by more than 50 percent.

Critics warn that these proposed IDR modifications could face legal challenges. That’s because, after 20 years of timely payments, the forgiveness provision essentially converts the remaining debt balance to a grant. Conservative legislators like Louisiana Senator Bill Cassidy argue that such grants are “deeply unfair” to the 87 percent of Americans who don’t directly benefit from student loans.

Nevertheless, the threat of litigation hasn’t stopped the Biden administration from wiping out student debt for about 10 percent of borrowers enrolled in IDR programs. On July 14, the Education Department canceled $39 billion worth of student loans for 800,000 of these borrowers through one-time credits, and millions more will receive relief in the form of loan adjustments through 2024. This relief plan remedies years of errors by loan servicing organizations that collect payments on behalf of the federal government.

Furthermore, in a third recent debt cancellation action, the Sweet v. Cardona class action settlement also relies on the Higher Education Act, according to University of Alabama law professor and student loan law expert Luke Herrine. We first reported on this borrower defense to repayment litigation during our June 2023 coverage of the University of Arkansas Board of Regents’ refusal to acquire the University of Phoenix.

In Sweet, about 300,000 borrowers won $6 billion in loan cancellations after proving in federal court that 151 mostly for-profit colleges—including Phoenix—defrauded them. The colleges then appealed to the Supreme Court, which in April 2023 refused to reverse the settlement.

Several news outlets are suggesting that any application of the Higher Education Act to create a “Plan B” student loan relief program could require a lengthy process that could take a year or longer. They say that’s because the Department of Education would need to change certain regulations through a protracted federal administrative law process known as negotiated rulemaking. Sometimes called “neg reg” on Capitol Hill, here’s how this process typically unfolds.

When the Education Department develops new rules or regulations, the agency first convenes meetings among representatives from the Department along with those from affected interest groups. During these meetings—which can drag on for weeks or even months—the representatives negotiate the terms of the proposed rules in an attempt to arrive at a consensus on which the parties agree.

The agency then publishes its negotiated regulation proposal in the Federal Register as what is called a Notice of Proposed Rulemaking, or NPRM. Next, the Department follows the typical administrative procedure where it solicits public comments for several weeks. Finally, the agency evaluates these comments for potential inclusion in its “fine-tuned” final rule.

Moreover, federal law specifically mandates that the Department must use negotiated rulemaking when developing rules and regulations under programs authorized by Title IV of the Higher Education Act. A narrow exemption is only available in cases where the Secretary determines that following this procedure would be unnecessary, impractical, or against the public’s interest.

However, advocates for student debt relief provided White House Chief of Staff Jeff Zients with a detailed analysis drafted by their counsel that proposes alternative legal strategies. A copy of this legal memorandum, first leaked to POLITICO and reviewed by OnlineEducation.com, suggests several of these alternatives could materialize in less than one year. That’s because some of these options bypass negotiated rulemaking processes altogether.

For example, about 40 percent of the student loan borrowers—about 16 million individuals—have already received personalized letters acknowledging their qualification for as much as $20,000 worth of cancellation. Those letters create a presumption of “significant legal doubt as to ED’s ability to collect on the loan without following through on cancellation,” according to the analysis.

A similar borrower defense to repayment situation at the end of the Obama Administration led to an appraisal from an Education Department undersecretary. That official’s statement concluded that “[t]he only supportable choice” was to sign off on the discharges. Any other action would “likely result in a lawsuit from. . .impacted borrowers that would be difficult to defend. . .”

The legal memo then points out that the correct vehicle for the action would not be through a rule but through an order. That’s because “orders are (typically) tailored to specific individuals or groups,” and because usually an order “retroactively applies law to past actions.”

In other words, the memo argues that among roughly 40 percent of borrowers, substantial justification already exists for loan cancellation under existing regulations through administrative orders, without any protracted negotiated rule-making processes. It then argues that other categories of borrowers may exist among the remaining 60 percent whose loans could be canceled similarly.

For several reasons, the analysis concludes that suspending or terminating collection for other cohorts within that larger group of 26 million borrowers may be preferable over returning their accounts for repayment. What the memorandum’s conclusion implies is that several borrower cohorts within that 60 percent could very well receive some sort of debt relief—even if they hadn’t received personalized letters acknowledging their qualification.

What’s more, some of these borrowers might also not need to wait until mid-2024 or later to receive such relief following the conclusion of the Department’s negotiated rulemaking efforts mandated by the Higher Education Act.