The Most Illegal Student Loan Forgiveness Plan Yet

Since the new plan hasn’t been finalized yet, no one knows what’s in it. And yet, last month, the department sent an email to borrowers giving them one month to opt out.

What were they opting out of?

No one knows since there wasn’t anything to opt out of yet. This was unusual and raised all sorts of red flags. The opt-out option was presumably an effort to ensure no borrowers had standing to sue over the plan. But why force borrowers to decide whether to opt out before telling them what they were opting out of?

The most likely explanation is that the administration was trying to ensure it could forgive debts immediately after finalizing the regulations, which is illegal. New regulations must be publicly proposed, open to public comment, revised based on those comments, and finalized.

The Congressional Review Act also requires that major changes wait 60 days from finalization before being implemented, up from 30 days for other regulations. Higher education regulations from the Department of Education face an even longer waiting period, generally needing to be finalized by November 1 to become effective eight months later on July 1. Thus, forgiving loans immediately upon the plan’s finalization would be illegal, to say nothing of forgiving loans under the plan before it is even finalized, which the administration also appeared to be trying to do.

A new lawsuit from seven state attorney general’s alleges that the administration directed student loan servicers to be ready to cancel debt before the plan is even finalized, as soon as September 3. As Preston Cooper writes,

Fortunately, a federal court in Georgia has issued a temporary restraining order that will prevent the administration from forgiving any loans for the next several weeks. More briefings to the court are scheduled for later this month.

This is a remarkable turn of events in two respects.

First, it very unusual for a court to leash an executive agency like this prior to having a finalized regulation. Second, it is very unusual for a court to move so quickly, with the restraining order coming just two days after the lawsuit was filed. Both indicate that the administration was likely preparing to break the law. If that’s the case, upgrading this restraining order to an injunction shouldn’t take much once the regulations are finalized.

This is just more evidence that we need to fundamentally rethink our approach to student loans.

The short-term goal is for the courts to continue preventing any more loans from being forgiven under possibly illegal plans. The second plan is subject to an injunction that achieves this, and if the restraining order becomes an injunction for this plan, too, the immediate threat will have been neutralized. The medium-term goal is for the courts to weigh the legality of the various plans, which are all likely illegal because they violate the major questions doctrine, which requires clear congressional authorization for regulations with major political or economic effects. The long-term goal is to get the government out of the student loan business altogether.