President Joe Biden is determined not to give the Supreme Court the last word on student debt relief. Shortly after the court struck down his plan to forgive $430 billion in student debt, Biden announced that he will pursue an alternate legal pathway to large-scale cancellation. Although the details remain hazy, it’s clear that the administration will attempt to use its powers under the Higher Education Act—a route that many progressives favored in the first place. The trillion-dollar question, then, is whether SCOTUS will look any more favorably upon this fallback plan. There may be some modest reason for optimism. But as ever with this court, any hope must be tempered with doubt and distrust.
The ink had hardly begun to dry on the Supreme Court’s decision when Secretary of Education Miguel Cardona declared that he had a new plan to fight for student borrowers. Cardona revealed several tweaks to soften the impact when student loan repayments recommence in October; these changes will slash monthly payments for lower-income borrowers, suspend penalties for missed payments, and put community college graduates on a path to full relief within 10 years. The centerpiece of Cardona’s plan, however, was a “rulemaking process” designed to open “an alternative path to debt relief” under the Higher Education Act of 1965, or HEA.
In truth, the HEA has always been the best fit for Biden’s plan under current law. The statute gives the secretary of education power to “compromise, waive, or release” any “claim” against student borrowers. His exercise of this power “shall be final and conclusive upon all accounting and other officers of the government.” There is only one limitation: The secretary “may not enter into any settlement of any claim” that exceeds $1 million without requesting and receiving review from the attorney general. By its plain terms, then, the HEA gives the secretary of education a potent tool to combat the student debt crisis. He may enter into a “settlement” with “any” borrower by “compromising” some amount of their debt—perhaps all of it. There is no textual limitation on this authority, no obvious reason why he can’t relieve debt for an entire class of borrowers.
This power, called “settlement and compromise,” was identified in 2016 by Robyn Smith and Deanne Loonin of the National Consumer Law Center. It was later expanded upon by professor Luke Herrine in a post, a white paper, and a law review article. Loonin—along with her colleagues Eileen Connor and Toby Merrill at Harvard Law School’s Project on Predatory Student Lending—fleshed out the theory in two letters to Sen. Elizabeth Warren. (Notably, Merrill has since joined Biden’s Department of Education.) All these scholars reached the same conclusion: Under the HEA, the secretary of education can relinquish all claims against the vast majority of student borrowers right now. The result would be mass cancellation of their debt.
One enticing aspect of this theory is the possibility that it insulates debt relief from judicial review. As Herrine explained, the “settlement and compromise” power embodies the executive branch’s broad “prosecutorial discretion” to enforce the laws that Congress enacts. The Supreme Court affirmed this basic principle just last month, reiterating the chief executive’s constitutional authority “to decide how to prioritize and how aggressively to pursue legal actions” against those in breach of the law. Moreover, the Supreme Court has long maintained that judges cannot review decisions that are “committed to agency discretion.” And an agency’s decision “not to enforce a right against a private party,” Herrine wrote, is a quintessential “exercise of prosecutorial discretion that is presumptively unreviewable.” That’s especially true when the agency decides to enter into a legal settlement with the private party—precisely what the HEA allows.
What, in practice, would large-scale “settlement and compromise” debt relief under the HEA look like? The Education Department recently deployed this power to wipe out $5.8 billion in debt held by 560,000 students of Corinthian Colleges, a for-profit scam that collapsed in 2015. Typically, though, debt is canceled on a case-by-case basis. The borrower files a petition with the Department of Education, which either grants or denies the request. Current regulations limit relief to a few narrow circumstances, including death, total disability, school closure, and fraud. But the department is free to revise and expand the circumstances that justify the discharge of debt. Some scholars have already pushed for this solution, urging the department to include poverty, partial disability, retirement, caregiver status, and similar conditions that justify relief.
That is almost certainly what Cardona will do now. The secretary has announced a public hearing on July 18 to kick off new rulemaking under the HEA. At a press conference after the Supreme Court ruling, Cardona repeatedly stated that he planned to use his “settlement and compromise” authority to cancel as much debt as legally possible. In the coming months, the department will likely propose a rule that broadens the categories of borrowers who qualify for relief through this process.
Given the looming threat of another SCOTUS smackdown, is this venture doomed from the start? Not necessarily. There are several reasons why Cardona’s Plan B might succeed where his Plan A failed.
First, the new plan is on sounder textual footing. Biden’s initial debt relief program relied on the Heroes Act, which gave the secretary power to “waive or modify” any legal provision that applies to student loan programs during a national emergency. The Supreme Court read the phrase “waive or modify” narrowly, holding that it does not encompass the power to cancel debt. But the HEA’s language is more expansive, allowing the secretary to “compromise” and “release” debt. It is possible that SCOTUS would interpret these words to give the secretary more latitude in forgiving loans.
Second, the new plan benefits from its lack of any connection to the pandemic. The Heroes Act applies only during emergencies, and the Supreme Court implied that Biden used the COVID emergency as a mere pretext to smuggle through mass loan relief. (Chief Justice John Roberts’ majority opinion noted that the program was announced “a few weeks before President Biden stated that ‘the pandemic is over.’ ”) Indeed, the conservative majority has consistently questioned Biden’s efforts to use the pandemic as a justification for new policies. The HEA is not limited to emergencies and thus does not carry this baggage.
Third, relief under the HEA may avoid the “major questions” trap that doomed the previous program. The Supreme Court said that Biden’s first stab at loan relief presented a “major question” of “economic and political significance” because it wiped out so much debt at once. The court held that the executive branch cannot enact such a “major” policy without explicit permission from Congress, which the Heroes Act lacked. Under the HEA, though, the Department of Education can target relief more narrowly. It could, for instance, issue a rule identifying which borrowers can apply for relief—like those whose dire financial situations render them incapable of making further payments. The department could then settle their claims on a case-by-case basis. This kind of granular agency adjudication falls into the heartland of the executive’s discretion, potentially shielding each individual act of debt cancellation—even if ultimately done on a mass scale—from judicial review.
All of which raises the question: If the HEA is such an obvious vehicle for debt relief, why didn’t the Biden administration pursue this pathway in the first place? The answer is simple. Debt relief under the HEROES Act would’ve been exempt from “notice-and-comment” rulemaking, the lengthy process through which regulations are typically enacted. It could have happened almost instantly—$430 billion wiped off the books at once. Debt relief under the HEA, by contrast, must first go through “negotiated rulemaking,” a uniquely labor-intensive process. Negotiated rulemaking requires the Department of Education to develop a rule with ongoing input from representatives of affected parties (the “negotiators”). The department and the negotiators must come to a consensus over a series of monthly meetings. Once consensus is reached, the department publishes the proposed rule. At that point, the rest of the public may provide comment. The department must consider and respond to these comments. Only then can it publish the final rule. Once that happens, the legal challenges begin.
Then there’s the final wrinkle: Congress anticipated large-scale debt discharge in the 2021 American Rescue Plan, which exempts student debt forgiveness from taxable income through 2025. To spare borrowers a potentially crushing tax burden, Biden will have to wrap up his new program within the next two and a half years. The clock is ticking.
The road ahead is long and convoluted. But the path is there, laid out in existing law, and the administration has given every possible sign that it’ll go as far as it can. Yes, far-right judges in the lower courts will try to block Biden at every turn. Yes, the Supreme Court could veto Plan B at any time. But the president has decided to throw everything at the wall. And if anything sticks, it’ll be the HEA.