The Student Loan Scam

Currently there is somewhere around $1.6 trillion outstanding in unpaid student loans. That is approximately twice the amount of all credit card debt. And many thousands of college graduates and dropouts find themselves unable or unwilling to repay their student loans.

How did we get into this mess? It goes back to the Higher Education Act of 1965, but, as with so many government programs, the senators and representatives who voted for it never imagined how it would transform higher education, in part by driving costs relentlessly higher. Now the Biden administration is trying to buy votes in the midterm elections by promising to cancel the entire $1.6 trillion outstanding debt.

The Wall Street Journal comments:

Remember how Democrats sold their student loan takeover as a money-saver? Now millions of borrowers can’t or don’t want to repay their loans, so President Biden says he may cancel their debt. The taxpayers who repaid their loans or didn’t go to college will pay instead.
Federal student loans were established as part of the Great Society to help low-income students. Yet step by step, Democrats have turned student loans into an entitlement for academia and the affluent. …

As the loan limit increased over time—now $57,500 a year for independent undergrads and $31,000 for those dependent on their parents—colleges raised their prices to sop up more federal largesse. It doesn’t matter to the schools if their philosophy grads work as baristas.

As a philosophy major, I object to that last comment. There is more at the link on the corrupt history of the federal student loan takeover. But I want to focus on a question that has perplexed me: how can the president possibly have the legal authority to cancel $1.6 trillion in debt obligations?

Progressives claim that the Higher Education Act of 1965 grants the President sweeping authority to “compromise”—i.e., modify—student loans. Since Congress granted the Education Department the power to create student debt, they argue, the Biden Administration also has the power to cancel it.

This strikes me as a terrible legal argument. The reference apparently is to Sec. 432, Subdivisions (a)(5) and (6). That section describes the legal powers of the Commissioner. It gives him the power to sue and be sued. Subdivisions 5 and 6 empower the Commissioner to:

(5) enforce, pay, or compromise, any claim on, or arising because of, any such insurance; and

(6) enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right or redemption.

Here, “compromise” is obviously used to mean settle, as a lawsuit. So the Commissioner can sue to recover unpaid loans, he can enforce liens, and–of course–he can compromise or settle such claims and lawsuits. The idea that this entitles the Commissioner (or the president) to simply cancel all outstanding loan obligations is ridiculous.

Maybe there is some other provision Biden could rely on, but I seriously doubt that anywhere in the federal statutes is a provision that allows him to totally negate repayment obligations under the student loan program. The Journal’s cynicism is justified:

In December 2020, Mr. Biden said it was “pretty questionable” whether he had the authority to cancel debt across the board. But now he may figure that the courts are unlikely to stop him, at least before the November election. Taxpayers and those who repaid their loans won’t have legal standing to sue. Congress might, but Democrats won’t sue.

In short, Biden threatens (or promises) to take patently illegal action in order to buy votes, in the expectation that his wrongdoing won’t be checked until after November–and perhaps not at all. We live under a scofflaw government.

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