Should Taxpayers Subsidize College Dropouts?

Last week’s oral arguments before the Supreme Court concerning the Biden administration’s student-loan forgiveness plan predictably focused on arcane legal theories such as the “major questions doctrine.” Relatively little time was devoted to the profoundly inequitable structure of the program. Chief Justice John Roberts and Justice Neil Gorsuch did note that it would provide benefits to certain favored persons while ignoring the very real costs it would impose on others, but no one mentioned a fact that will gall most taxpayers — it would cancel student loans for college dropouts.

Remarkably, the Biden administration and most Democrats see this as a selling point for the plan. The White House fact sheet puts it as follows: “Nearly one-third of borrowers have debt but no degree, according to an analysis by the Department of Education of a recent cohort of undergraduates.” The Democrats justify canceling these loans because tuition costs have risen, ignoring evidence that the loans have driven that increase. Sen. Elizabeth Warren (D-Mass.) claims: “Up to 4 in 10 people with student loan debt weren’t able to graduate, many because of high costs.… Canceling student loan debt would change their lives.”

The problem is that the $400 billion program would also “change the lives” of millions of Americans for the worse. How? It will raise the stealth tax known as inflation. As former Clinton Treasury Secretary Lawrence H. Summers put it when Biden announced the scheme: “Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college.” It is also unfair to students who finished their degrees and paid off their loans. As Savannah Aleckson wrote in the American Spectator last September:

While I was skimping and saving to minimize debt, many of my peers were living large, making thoughtless choices about their field of study, and are now making minimum payments. As a result of their profligacy, they have large debt balances outstanding while we have paid off our minimal loans.

This should be the part of the story where they learn a life lesson. Imagine my surprise when I found out that the life lesson was for me: that I was eating cereal for dinner so I can now pay for my profligate peers’ burgers and beers through higher taxes and inflation.

This is a textbook case of perverse incentives. And it gets worse. Many who were conscientious enough to have continued paying installments on their student loans during the three-year COVID-19 payment pause that began in March of 2020 will be eligible for a refund up to the remaining amount of their “eligible debt relief.” If this seems … well … insane, our Beltway benefactors provide this illuminating explainer: “Let’s say you’re eligible for $10,000 in debt relief. If you currently owe $9,500, that amount of relief will be applied to your loan(s). If you paid $1,000 during the payment pause, you’ll be automatically refunded $500.”

This belies a claim that Biden’s solicitor general, Elizabeth Prelogar, made last week before the Supreme Court. During oral arguments, Justice Clarence Thomas suggested that the contemplated cancellation of student debt would, for all intents and purposes, amount to a grant: “[I]n effect, this is a grant of $400 billion, and it runs head long into Congress’s appropriations authority.” Prelogar disagreed: “[I]mplementing this program doesn’t require that any money be drawn from the Treasury.” This is obviously false if the government will send refunds to those who paid down loans after March of 2020.

Prelogar isn’t dumb enough to lie to the court. But her strategy has been to convince the justices that the entities challenging the program have no legal standing to sue, and someone on her staff may have missed this nuance of the program. Prelogar badly wants to avoid arguing these cases on the merits because of the major questions doctrine (MQD) noted above. This is the theory that put paid to Joe Biden’s CDC eviction moratorium and his OSHA vaccine mandate, and it’s likely that the Department of Education’s debt-relief plan also runs afoul of it. Roberts made specific reference to MQD during oral arguments:

We like to usually leave situations of that sort, when you’re talking about spending the government’s money, which is the taxpayers’ money, to the people in charge of the money, which is Congress.

Now why isn’t that a factor that should enter into our consideration under the Major Questions Doctrine again, where we look at things a little more strictly than we might otherwise when we’re talking about statutory grants of authority, to make sure that this is something that Congress would have contemplated?

Prelogar attempted to dodge Roberts’ MQD question because the doctrine requires that an executive branch agency like the Department of Education point to a “clear congressional authorization” when claiming authority from a statute and that claim involves “vast economic or political significance.” She insists that the HEROES Act of 2003 empowers the Department of Education to implement student-loan forgiveness and explains the absence of clear authorization by contending, “Congress can’t look ahead to the future and say, okay, in the year 2020, when an unprecedented global pandemic hits, we’ve decided that…”

That acerbic answer will not have won Prelogar any votes if her standing argument fails. Then she will have to argue the legal merits of using the HEROES Act to justify the Biden administration’s vast economic and politically significant plan to transfer at least $400 billion of taxpayer money to millions of debtors who borrowed money they failed to pay back in order to pursue degrees they didn’t complete. Solicitor General Elizabeth Prelogar is an intelligent woman with an encyclopedic knowledge of the law and impressive rhetorical gifts. But her superiors in the White House have clearly set her up to fail on this one.

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