March 11, 2023

The legality of President Biden’s student loan forgiveness proposal (Proposal) is much debated.  The legal dispute revolves, in significant part, around the language of the HEROES Act.  Biden’s lawyers claim that the HEROES Act authorizes the proposed student loan forgiveness.  Others claim that it does not.  Let’s explore why so many others claim that the Proposal does not comply with the specific legal requirements established by Congress.

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The HEROES Act states that the secretary of education (the “Secretary’) may waive or modify certain statutes and regulations as may be necessary to ensure that recipients of student financial assistance are not placed in a worse position financially because of the pandemic.  In order for the Secretary, or anyone else, to determine whether a person’s financial position has worsened, one must examine that person’s financial statements (balance sheets, income statements, and tax returns) of the beginning and end and during the period in question.  Then, and only if a comparison of the financial statements reveals that the borrower’s financial position has worsened, a further review must be made of such financial statements to determine the extent, if any, to which change in financial position was actually caused by the pandemic.  These reviews must be made as to each borrower in order to determine the  relief and forgiveness to which such a borrower is entitled.  (The option granted to the Secretary under the HEROES Act to determine qualifications and benefits of all those claiming benefits in one case rather than in case-by-case proceedings does not, as argued by the administration, delete or remove the qualification requirements and calculation of the maximum permitted benefit for each borrower.  Indeed, Biden’s Proposal itself adopts a scheme that will grant differing amounts of relief to various borrowers at differing income levels.)

It appears that the Secretary has not obtained or reviewed the requisite financial statements for any or all student loan borrowers who may claim benefits under the Proposal, nor sought the necessary information to determine causation of any worsened financial positions.  Therefore the Secretary is not authorized by the HEROES Act, on its face, to commence any implementation of the Proposal that does not and cannot qualify. 

In developing the Proposal, Biden is willfully disregarding the requirements and conditions of the HEROES Act and is also ignoring and failing to disclose to the courts the persuasive evidence that a strong majority of student loan–borrowers have not been placed in a worse financial position at all, whether because of the pandemic or otherwise.  A large survey asked Americans, “Would you say you’re financially better or worse off than before the COVID-19 pandemic?”  Sixty-seven percent (67%) of those responding in December 2022 indicated they were either the same or better off financially.  Other information provides further evidence that the financial positions of Americans have improved.  We are all well aware that the value of our homes and vehicles have dramatically increased.  Even Federal Reserve Board staff confirmed in late 2022 that financial positions across the income distributions have significantly benefited during the pandemic:

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Over the pandemic, historic levels of government transfers boosted household income while household spending was severely curtailed by social distancing. This led the personal saving rate to soar (Figure 1), and we estimate that U.S. households accumulated about $2.3 trillion in savings in 2020 and through the summer of 2021, above and beyond what they would have saved if income and spending components had grown at recent, pre-pandemic trends. (Emphasis added.)

We estimate that households in the lower half of the income distribution were still holding about $350 billion in excess savings as of mid-2022—mostly stemming from the boost to income induced by fiscal stimulus in 2020 and 2021. It is important to note that many of these households have used some of their excess savings to pay down debts, or possibly to invest in equity and other financial assets or as a down payment for buying a home, instead of keeping them as liquid assets, thus shifting where the savings appear on their balance sheets. Regardless of their allocation, excess savings resulted in higher net wealth and stronger balance sheets for these households, which have continued to support spending and credit performance. (Emphasis added.)

The Secretary, however, has rejected and ignored the specific mandates of the HEROES Act that require that relief amounts must be based both upon the extent relief is necessary to correct a worsened financial position and upon the condition that the financial position is caused by the pandemic.  In direct violation of those clear and concise pre-requisites for relief under the HEROES Act, the Biden administration has chosen to pursue a plan that is not conditioned upon a changed financial position caused by the pandemic, but instead is conditioned solely upon the income level of the borrower.  That action confirms that the Biden Proposal is not authorized by the HEROES Act.

What would cause the Biden administration to adopt a program that not only fails to comply with the law, but is also inequitable, a gross unfairness, and a slap in the face to those Americans who have paid for their educations themselves, worked during college to pay education costs, borrowed from other sources, or have paid off their loans without relief?  Biden’s program would also encourage non-payment by borrowers who will be anticipating further unwarranted relief.

Even NBC tells us what was really going on: “in reality, the student debt relief plan was in part a political move, a proposal aimed at firing up younger voters and getting them out to vote.”

Said another way, Biden’s Proposal is a carefully timed and unconscionable political stunt to incentivize votes in 2022 and beyond, with pending uncertainty whether a court would likely find it unlawful.  As a result, millions of borrowers and voters have been duped, and elections have been and will be unjustly and wrongfully corrupted.