Debt of honour

For more than two years, tens of millions of Americans have not had to pay a cent on their federal student loans. The pause began under Betsy DeVos, Donald Trump’s education secretary, using a post-2001 law called the HEROES Act.^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023} On 30 June the Supreme Court ruled that the same law could not also wipe out up to $20,000 of debt for each of 43 million borrowers.^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023,2SCOTUSblogBiden's student-loan forgiveness plan gets cold reception from conservative justices28 Feb 2023} The vote was 6-3. The sum at stake was about $400bn, which Justice Clarence Thomas called, in February, “a grant of $400 billion”.^{2SCOTUSblogBiden's student-loan forgiveness plan gets cold reception from conservative justices28 Feb 2023}

We think the Court got the law right, and the policy question it did not need to answer half right. The administration’s lawyers asked a statute that lets the education secretary “waive or modify” loan terms in an emergency to do the work of an appropriations bill. Chief Justice John Roberts, writing for the majority, said the plan “created a novel and fundamentally different loan forgiveness program.”^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023} A president who can spend $400bn on his own signature has found a way round the legislature. The next one may use the trick for something less congenial to today’s cheering sections.

The oral arguments in February had already shown where the justices were heading. Justice Brett Kavanaugh conceded that “waive” is “an extremely broad word”, but thought “modify” did not stretch to cancellation.^{2SCOTUSblogBiden's student-loan forgiveness plan gets cold reception from conservative justices28 Feb 2023} Justice Samuel Alito wondered whether the government believed a trillion dollars “doesn’t really make that much difference to Congress.”^{2SCOTUSblogBiden's student-loan forgiveness plan gets cold reception from conservative justices28 Feb 2023} The administration’s reading turned a modest emergency power into a licence to forgive debt at will.

The dissent deserves a hearing. Justice Elena Kagan argued that the Act “provides the Secretary with broad authority to give emergency relief to student-loan borrowers”, and that the majority’s reading “makes the Act inconsequential.”^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023} She also warned that when the Court steps in it “becomes the arbiter, indeed the maker, of national policy.”^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023} There is something in this. The standing route the majority took was thin: Missouri sued because the plan would cost MOHELA, a state-created loan servicer, up to $44m a year.^{1SCOTUSblogSupreme Court strikes down Biden student loan forgiveness program30 Jun 2023} A Court less keen on the outcome might have shown more patience with the plaintiffs’ lack of one.

Mr Biden’s defenders make a second argument, on fairness. The Penn Wharton Budget Model reckoned the plan would have cost as much as $519bn over ten years, but that about two-thirds of the benefit would have gone to households earning less than $88,000 a year.^{3CBS NewsPPP loans cost nearly double what Biden's student debt forgiveness would have30 Jun 2023} That is not the profile of a plutocrats’ subsidy. Nor is the price exotic: the Small Business Administration has already forgiven $757bn of pandemic loans to firms, with rather less hand-wringing.^{3CBS NewsPPP loans cost nearly double what Biden's student debt forgiveness would have30 Jun 2023} Yet the bill would have fallen on every taxpayer, including the plumber who skipped college and the nurse who paid her loans off. And cancellation does nothing for the next cohort. A borrower who starts in autumn faces the same sticker prices, the same lender and the same lack of curiosity from colleges about whether a degree pays off.

That is the real scandal. Washington lends nearly without limit, at rates that ignore the course or the college, to teenagers who cannot judge the odds. Universities keep the tuition and carry none of the risk. Any market designed this way would produce a bubble, and this one has. Forgiveness treats the symptom and reinfects the patient.

Congress, which now holds the pen, has better options than a one-off cheque. It could make colleges share in the losses when graduates cannot repay, cap lending on courses with poor earnings records, and target relief at borrowers who are genuinely struggling, through income-based repayment that ends in forgiveness after a fixed term. Each is a decision for elected representatives, who must also explain it to voters. That is the point of having them.

The Court has not ended the debate over student debt. It has sent it back to the one building that could settle it, and which has so far preferred not to.