By Phil Kerpen
Can the president spend an estimated $500 billion to $1 trillion without approval from Congress, the branch of government that holds the power of the purse under the US Constitution? My Constitution says no. But if the Biden student loan bailout is illegal, who can stop it? And will they? Those are the key questions and it may fall to two uniquely positioned states: Missouri and Oklahoma.
Under the Supreme Court’s recently codified Major Questions Doctrine, a program of that scope requires a crystal-clear directive from Congress, which is why most legal analysts doubt President Biden’s sweeping student loan discharge order based on a twisted reading of the post-September 11, 2001 Heroes Act combined with an allegedly ongoing COVID emergency can withstand legal scrutiny.
Biden’s gambit depends on the matter not being litigated, and that in turn depends on no party willing to challenge the order having standing to sue. The arguments for state, taxpayer, and legislator standing are tenuous. The arguments for loan servicers, on the other hand are strong.
A comprehensive analysis by Colin Mark in the Journal of the National Association of Administrative Law Judiciary concluded: “In sum, student loan servicers could sue to prevent the Department of Education from forgiving student loans. Servicers could demonstrate an injury in fact, fairly traceable to the Department’s forgiveness of student loans, and redressable by equitable relief under § 702 of the APA.”
Publicly traded loan servicer Nelnet is clear in its most recent SEC filing that a program like Biden’s would materially injure the company: “Legislative and executive action risk exists… If the federal government and the Department initiate additional loan forgiveness or cancellation, other repayment options or plans, consolidation loan programs, or further extend the suspension of borrower payments under the CARES Act, such initiatives could further increase prepayments and reduce interest income and could also reduce servicing fees.”
Curiously, the company has made no public statement on Biden’s announcement indicating that it might sue. In fact, the administration may be counting on servicers being unwilling to risk losing future contracts by challenging the order. That may be why the Department of Education has set all current servicing contracts to expire at the end of 2023, making servicers more inclined to absorb the loss of business from mass discharge without complaint to stay in the good graces of the Biden administration future contracts.
Two servicers, however, are state agencies of conservative states, and should be willing to stand up for taxpayers and prevent an unprecedented, unlawful transfer of wealth from people who played by the rules and paid their own way – or didn’t go to college at all – to generally higher-income college graduates.
Both the Higher Education Loan Authority of the State of Missouri (MOHELA) and the Oklahoma Student Loan Authority (OSLA) are instrumentalities of their respective states, governed by boards appointed by their governors and subject to for-cause removal. That puts governors Mike Parson of Missouri and Kevin Stitt of Oklahoma in the unique position of being able to lead a successful legal fight to stop Biden’s student loan bailout.
These governors and the lending agencies they oversee must sue.
At stake is not only the future of higher education – if the Biden bailout stands it will cause tuitions to skyrocket even further in anticipation of a new tradition of dumping the costs onto taxpayers – but the fundamental principle that the president cannot usurp Congress’s power of the purse.
By Phil Kerpen