Editor’s Note: “Assessing the REAL Reforms Act” is a new Minding the Campus symposium that will closely analyze the Responsible Education Assistance through Loan (REAL) Reforms Act, a bill recently introduced by Representatives Virginia Foxx (R-NC), Elise Stefanik, (R-NY), and Jim Banks (R-IN). The bill “offers commonsense and fiscally responsible reforms to benefit students and borrowers in our country’s federal student loan system.”
Each article in the symposium will explore different sections of the REAL Reforms Act and will feature analysis by respected higher education experts. This first piece is devoted to Section 101, a summary of which we print below, followed by analyses by economist Richard Vedder and researcher Neetu Arnold. You may read the rest of the symposium here.
Title I—Limits on Secretarial Authority
Sec. 101. Limitation on authority of Secretary to Propose or Issue Regulations and Executive Actions.
Requirements for New Regulations. Requires the Secretary to confirm that any new regulations or executive actions issued related to the student loan program would not increase costs to the federal government. Prohibits any regulations from being issued that cannot meet that threshold. This determination is in addition to other cost analyses required under law. As such, this section also effectively prohibits the Secretary from issuing illegal waivers for loan forgiveness programs, or extending the pause on federal student loan payments, similar to ideas captured in H.R. 7058, the Federal Student Loan Integrity Act (Reps. Bob Good and Jim Banks).
Richard Vedder, Distinguished Professor of Economics Emeritus, Ohio University
A half century ago, this important provision would not have been considered. There was no Department of Education, and rules concerning government agency authority were largely covered by the Administrative Procedure Act of 1946, a relatively nonpartisan attempt to codify the relationship between government agencies and the broader public. After this, two major events necessitated Title I of the REAL Reforms Act.
First, in the late 1970s, the Department of Education was created through the Department of Education Organization Act. This bill, signed into law by President Carter, was passed by narrow majorities and went against the advice of many respected voices of progressive thought, including Senator Daniel Patrick Moynihan and the New York Times. Second, in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984) the U.S. Supreme Court, operating with only six justices, opened the door for government agencies to impose administrative rules with the force of law, forbidding courts from overturning reasonable or permissible rules of regulatory agencies.
In the past few years, the federal government, acting under presidential authority and working with its Department of Education, has imposed costs on the American people measured in the hundreds of billions of dollars. Beginning in March 2020, the Trump administration, and later the Biden administration, imposed a moratorium on the payment of interest on federal student loans. President Joe Biden recently extended this moratorium to the end of 2022. This has caused a loss of federal revenue of, conservatively, $200 billion.
The administration has also forgiven the loans of many, particularly those borrowing from for-profit colleges, culminating in the recent Biden edict forgiving $10,000—or $20,000 for Pell grant recipients—of student loan indebtedness for all borrowers making less than $125,000 per year ($250,000 for couples). This will cost taxpayers, conservatively, $400 billion or more. All told, these administrative edicts have cost the government, conservatively, $600 billion in lost income—nearly $2,000 for every resident of the United States.
Moreover, that estimate ignores the lost income from limiting loan repayment to five percent of the so-called “disposable” income of student loan debtors, where “disposable” is defined by federal bureaucrats. For loan recipients with low incomes, that effectively amounts to de facto forgiveness, while productive graduates serving as, say, engineers or accountants remain legally obliged to make repayments. Is that equitable or sensible? More fundamentally, where is our Constitution and the separation of powers? Who gave the President the authority to act like King Louis XIV, effectively declaring laws without any consideration of the constitutional process? In effect, the proposed Title I would stop, or at least reduce, further episodes of fiscal irresponsibility and constitutional desecration.
Why is this happening at all? Universities are wards of the state, utterly dependent on governments for sustenance. They are also valuable allies of progressive politicians, providing them with ideas, staffing political appointments, and contributing financially to their campaigns. That, however, is not a legitimate basis for rational public policy.
Neetu Arnold, Senior Research Associate, National Association of Scholars
Section 101 of the REAL Reforms Act would prevent future debt forgiveness by executive authority. The Education Department [ED] would be prohibited from enacting new regulations to the federal student loan program that would significantly increase costs to the government.
In light of the unprecedented decision by the Biden administration to forgive between $10,000 and $20,000 of student loans for many borrowers, Section 101 is a good start to prevent future debt jubilees.
The Biden administration justified canceling student loans through the 2003 HEROES Act, a 9/11-era bill that gave the secretary of education authority to waive rules related to student financial aid during wars or national emergencies. The national emergency in this case was the coronavirus pandemic. The Biden administration used executive action to enact loan forgiveness, something that likely would not have passed through Congress.
There are grave consequences for the Biden administration’s loan forgiveness. It will encourage universities to increase their prices, understanding that students can simply turn to federal student loans. Loan forgiveness will encourage more borrowing, as students will expect future jubilees. Loan forgiveness is also unfair to those who didn’t attend college, those who made prudent decisions to avoid loans, and those who repaid their loans.
The Biden administration claims this was a one-time move. But there is reason to believe that such cancellations could happen again. When asked if there “will be more [loan forgiveness],” Education Secretary Miguel Cardona responded: “Keep tabs on what we are doing. This announcement today wasn’t the first one. We’ve forgiven over $32 billion in loans from day one since this president took office. That’s more than any other administration combined …”
Since that statement, the Education Department has already decided to discharge an additional $1.5 billion in student loans for those who attended Westwood College, ostensibly as part of the borrower defense program. However, in this case, ED will forgive the loans regardless of whether the student filed a borrower defense claim.
The legacy of debt forgiveness will extend beyond the Biden administration. Extreme politicians will be emboldened to forgive even more student debt in the future. That is, unless action is taken soon to prevent such exercise of executive power. Section 101 is a good first step in that direction.
Image: Lane Erickson, Adobe Stock