Blog
Monday, March 20, 2023
Why Challenging Student Loan Forgiveness is Challenging
Background
President Biden's Student Loan Forgiveness Case (Department of Education v. Brown) serves as a wonderful illustration of the myriad issues swirling around in a Supreme Court case. The media tend to simplify these cases to the point that the real questions are distorted, so it's beneficial to go over them from time to time.
With any Supreme Court case, there are several questions that can be answered:
- Is the policy in question a good one, one which the government should enforce?
- Is the policy in question legal? Is the President doing something that Congress did not empower him to do? Did Congress pass a law that the Constitution forbids?
Typically, most media outlets will focus on the first question, because it's the simpler to understand and fight over (and also is more likely to implicate the outcome the media prefers). However, the first question is never the question that the Supreme Court should be deciding, and at least officially, it never does. Instead, it is meant to consider the second question.
The cynical would argue that the Supreme Court is really just deciding based on how they feel about the first question. To the extent that's true, it's very difficult to prove, but what is unquestionably true is that even if that's the case, they try to couch their decisions in terms of whether Congress or the President has the ability to do something, not whether they should or not.1
In the context of the student loan forgiveness case, the questions become "Is it good policy to forgive student loans?" and "Does President Biden have the authority to forgive student loans?"
On the first question, there are many dimensions that come into play: how much should be forgiven, who should be forgiven, is it unfair for the people who paid off their debts or worked to avoid debt. These are all questions for legislators to hash out in determining a policy that satisfies many competing interests. These are not questions that the should enter the minds of the Justices.
Their only consideration should be the legality. Did Congress or the President have the authority to act in the way that they acted? In this case, few people would argue that Congress could not legislate some kind of loan forgiveness, and no one here is arguing that Congress did not have authority because the loan forgiveness was initiated by the Biden administration. The case, therefore, is about whether Biden (and his Department of Education) were empowered to enact such a sweeping forgiveness program.
On that point, there is widespread skepticism of Biden's move including from Nancy Pelosi and the Washington Post editorial board. I will leave the debate on the merits and the legality to others.
Standing
There is, however, a third question that arises in Supreme Court cases, and that is standing. Simply put, to be able to challenge an act of Congress or the President (or anyone) in court, you have to have been harmed by the act. In most cases, this is not a large hurdle to overcome. Go through the worst cases, and most of them have an obviously harmed party--The EPA's regulation would have cost power plants money, Korematsu was a Japanese citizen forced to relocate to an internment camp, Hobby Lobby was being forced to pay for reproductive services for its employees.
In Dept of Ed v Brown, it's not as clear if anyone is harmed because the effect of the act is to reduce debt, so no one is supposed to be made worse off, only better off. In fact, the Biden administration modified its plan after its original trial-ballooning to narrow its scope in order to exclude parties that could claim some harm and be able to challenge it.
The issue of standing has been more significant than most people realize because most coverage of court issues defaults to the goodness or badness of the policy in question, and reporters either don't understand the legal arguments or they think their audiences don't want to read them. For example, a substantial number of the lawsuits brought by the Trump campaign in the aftermath of the 2020 election were dismissed due to lack of standing.
In 2021, before the Dobbs decision overturned Roe v. Wade and states wanting to outlaw abortions had to figure out ways to get around the Court-granted right, Texas devised a sue-your-neighbor-for-abortion policy specifically to avoid challenges. Since any clinics that might be sued were not being harmed by the state, no government officials or representatives could be sued. By designing it this way, Texas relied on standing to prevent any lawsuits, at least in the short-term, and the Supreme Court agreed.
Standing is a major issue with the Student Loan Forgiveness case. Because Biden designed (and modified it) so that it would not bring harm to anyone. The recipients of the forgiveness are obviously better off because the debt they are obliged to repay has been reduced or eliminated. Presumably, the lender would be the losing party as they lose out on the interest that students would pay while servicing their loan. However, only 7% of student loan debt is held by private lenders, who would have standing. The other 93% is held by the federal government (who does have standing but since they're the ones pursuing this, they won't sue themselves!).
Further, the forgiveness does not apply to the 7% of loans that are held by private institutions, so they are unharmed and cannot challenge.
In one interesting challenge, an individual who was eligible for the loan forgiveness claimed that he would be harmed because the state he lived in would consider the debt cancellation as income and would tax it. In addition, he receives no offsetting benefit for the forgiveness, which would negate his claim since he would receive more than he would need to pay, because he was participating in the federal Public Service Loan Forgiveness program already. That program would already forgive his loan without subjecting him to additional state taxation.
While this challenge would provide standing to the challenger under the policy as announced on the Department of Education's website, which claimed that the debt cancellation would be automatic, if the plaintiff was allowed to opt-out of the policy, then any harm that the policy caused would be self-inflicted because he would have to actively pursue it himself. The administration realized this between the time the case was filed and before the policy was formalized, and changed its website's description of the forgiveness and replaced the mention of automatic relief with the opt-out "clarification." The litigation is still active, and it's unclear whether he has standing.
More info here
The MOHELA Case
Even the case that was argued at the Supreme Court features insightful complications. MOHELA, the Missouri Higher Education Loan Authority, is a government-created and run servicer of loans in Missouri. Because MOHELA receives revenues from servicing the loans in question, they would be financially harmed if the loans were forgiven. To my knowledge, no one questions whether MOHELA itself has standing, but MOHELA itself (and its administrators) chose not to sue the Department of Education. The state of Missouri, then, sued on its behalf, so the debate over standing has become a debate over whether MOHELA is independent of the state, and to what degree, if the state of Missouri can sue on their behalf.
Wherefore Not Taxpayers
You may ask yourself, all of these debates over standing seem to be debates over the interest, the incidental taxes, or other indirect components of the debt, but if debt is being cancelled, surely someone is paying for that. If a bank cancels your debt, then the bank has taken a loss on the principal and the interest. In this case, who is paying for the principal and why can they not sue. The answer to that, dear taxpayer, is you. As the holder of debt, the U.S. government is owed vast sums of money. If the government erases it, future revenues that would pay for myriad government programs will not be available and those programs will need to be funded through taxes and debt (ultimately paid for through taxes).
If taxpayers are on the hook, why can't they sue. In another of the enormously significant Supreme Court Cases, Massachusetts v. Mellon determined that taxpayers do not have standing to challenge based on the notion that they would pay for any programs. This created a substantial blind spot in our legal system where Congress or the President can act unilaterally as long as their actions exclusively benefit people and harm no one. They are free, then, expend any amount of money for any cause, at taxpayer expense, and whether or not they have the authority to do so, there are extremely limited paths to rein them in.
Footnotes
1Of course, this isn't always the case. Sotomayor brought up the effects on students who are the beneficiaries of this program which has nothing to do with its legality.
Sunday, January 8, 2023
The Technocrats' Utopia
Main Takeaways
- Government projections for new policies consistently underestimate costs and overestimate benefits
- Details here for three such misses
- The media and the electorate should both exercise much more skepticism and scrutiny of these numbers when considering proposals from administrations and agencies.
On January 5th, the FTC announced that it will implement and enforce a rule that will prohibit non-compete clauses in labor contracts, nation-wide, retroactively, and proactively. To support their new regulation, the FTC claims that nationwide, earnings will increase by up to $300B. Informed citizens should be well to remember that, while the FTC is basing their estimates on what they consider the best possible evidence, it is often the case that the government projections turn out to be faulty, either because the research was too thin to properly predict the effects, because the research was just flat incorrect due to the bias of researchers, or because unforeseen circumstances undermined the basis upon which the research was conducted. A good example of the last possibility is projections on Medicaid enrollment for the ACA. I do not fault analysts for underestimating how politicized the ACA would be and that right-leaning states would eschew Medicaid expansion, the Obama administration would threaten to take away all of their current Medicaid funding, or how the Supreme Court would fall. Consequently, I don't fault them for over-estimating the number of people insured through Medicaid.
Another possibility is that once a policy is enacted, particularly those that redistribute benefits to groups, it often is expanded either in the number of people eligible or the amounts provided. This has been the case with the ACA and also student loan forgiveness. In this case, the analyst's job is not to predict how the policies will change, but to predict the effect of the proposed policy directly. It should be left to think tanks and pundits to extrapolate potential effects the political world may have.
Still it is worthwhile to consider some of the policies enacted, the effects they were supposed to have, and the effects they actually had.
Electronic Logging Devices for Truckers
In late 2015, the Department of Transportation's Federal Motor Carrier Safety Administration proposed a rule that would require truckers to use electronic logging devices to track their hours driving. The idea behind it was that truckers were driving more than they were able to, and becoming tired and more dangerous. Electronic logging would force them to limit their driving and thereby increase the safety of them and other drivers. In its original regulation, the Federal Motor Carrier Safety Administration claimed that EDS would save 26 lives and prevent 1,844 crashes per year, but in the two years after implementation, and before Covid, both fatalities and the number of crashes increased. The explanation is that when truckers are time-constrained, it causes them to drive faster to make up for the time they won't be on road, undoing any benefits of the reduced time. The Department of Transportation also didn't account for the price increases it caused.
Coverage of the 2017 protest to block
Nationalization of the Student Loan Industry
In 2010, President Obama signed a law that effectively nationalized the student loan industry, preventing any guaranteed loans from being offered by private banks, only from the government. The government estimates it will save $61 billion over 10 years. In fact, by 2022, the government had cost the government and taxpayers nearly $200 billion. Plus the costs of the debt forgiveness package Axios estimated to be $300 billion. GAO report on the student loan program in 2022"A Government Accountability Office (GAO) report released in July found the Department of Education predicted that student loans would generate $114 billion for the federal government; they instead lost $197 billion — a $311 billion error, mostly due to incorrect analysis." --Foundation for Economic Education
There are certainly benefits to subsidizing student loans, as a well-educated workforce will enhance the economy for everyone, but taxpayers deserve to have an accurate expectation of those costs and benefits to decide. And if time shows that that analysis was off, they should have the chance to reconsider.
ACA
In 2019, the average monthly premium per enrollee in the individual market was $515, up from $217 in 2011.
The three examples above illustrate that the analysis the government conducts and propogates through the media to support its regulations is all too often incorrect and underestimates costs and overestimates benefits. The media and the electorate should both exercise much more skepticism and scrutiny of these numbers when considering new proposals such as the ban on non-competes or environmental regulations.