Public discussion of student loan forgiveness has waned since the Supreme Court struck down the Biden administration’s $430 billion mass student loan debt cancellation policy. That’s to President Biden’s benefit.
In Biden v. Nebraska, the Court not only rejected the President’s policy but also declared that the powers to enact “a mass debt cancellation program ‘are ones that Congress would likely have intended for itself.’” Despite this admonishment, just hours after the Court's ruling in June, Biden directed his Department of Education to find other ways to cancel student debt. One such way is the administration’s cheekily named Saving on a Valuable Education (or “SAVE”) program. This boondoggle saves nothing for taxpayers, as it is estimated to cost them up to $559 billion over 10 years, meaning that it will surpass the size of the mass loan cancellation program nixed by the Supreme Court earlier this year. Here’s how it works:
Similar to several longstanding federal student loan repayment programs, SAVE ties loan payments to a student’s earnings; however, rather than requiring a payment of 10 percent of income above 150 percent of the federal poverty level (as the most generous repayment plan currently does), SAVE requires 5 percent of income above 225 percent of the federal poverty level. That means that many middle-class borrowers who can afford to pay off their student loans will pay little to nothing to pay off their loans. Taxpayers will be responsible.
SAVE’s negative incentives to higher education and broader society are far-reaching. Because the program affects any loan still in repayment and any future loan, this new policy will encourage schools to raise tuition further. And because SAVE forgives loans regardless of the amount borrowed, the forgiveness triggered by low earnings will provide the greatest reward to the academic programs with the very worst outcomes, highest prices, and least alignment with workforce needs. Students borrow to cover living expenses, not just tuition and fees, which means that SAVE will also create a new road to de facto welfare assistance.
The program’s destructive effects do not stop there. One of the few ways colleges are held accountable is if too many graduates default on loans, but SAVE’s overly generous repayment terms program makes defaults all but impossible. This means schools and programs with the very worst outcomes will now get a pass. Or take community colleges, many of which reject student loans to avoid the federal accountability requirements built around these default rates. When terms of loans become more generous, with near-zero risk to schools, community colleges will certainly take advantage of SAVE’s taxpayer-subsidized borrowing.
Unlike Biden’s one-time loan forgiveness plan nixed by the Court last June, SAVE is not a “one-off” for current debtors but an ongoing program that will enroll borrowers and cancel loans until someone says stop. Facing an effective date of July 1, 2024, the Department is racing to enroll as many borrowers as possible to maximize SAVE’s impact.
Although Congress attempted to block Biden’s mass loan cancellation plan on a bipartisan basis, a similar vote to stop the SAVE plan recently failed in the Senate. That leaves litigation as the only way to stop SAVE before it takes full effect next year. As was the case in Biden v. Nebraska, an aggrieved party will need to convince a court that SAVE has caused it direct harm to allow a suit to go forward. Injury to taxpayers is not enough.
Missouri provided a public service for the nation when it successfully sued to stop Biden’s first attempt at mass student loan cancellation. It remains a potential plaintiff with standing to challenge SAVE. But state attorney general offices are often understaffed and overworked. In addition to their many other responsibilities, they face other Biden regulations that deserve challenge, such as a soon-to-be-published radical rewrite of Title IX.
We are mere months away from seeing student loan forgiveness on a scale never contemplated by Congress that will forever worsen and then cement the very worst problems in higher education. To stop Biden’s sleeper rule—which might be the worst student loan policy ever created by any administration—states must act now. Governors, state legislators, and attorneys general need to deploy or fund new resources to stand up to this damaging and costly overreach by the Biden administration.
This piece was written for RealClearPolicy by Cicero Action Senior Fellow and AEI Adjunct Fellow Michael Brickman and Defense of Freedom Institute for Policy Studies President and co-founder Robert Eitel.
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