Education Secretary Can’t Forgive All Federal Student Loans

Reed D. Rubinstein, Senior Assistant General Counsel for the US Department of Education, released an 8-page report legal opinion on January 12, 2021 which concludes that “the Secretary has no legal authority to provide a general or mass cancellation, compromise, discharge or remission of student loan principal balances, and/or to materially alter the amounts of refund or the terms thereof, whether due to the COVID-19 pandemic or for any other reason.

The legal opinion begins with the fact that only Congress has the power of the stock exchange. He cites Article I, Section 7, Clause 7 of the US Constitution, which states: “No money shall be taken out of the treasury, but in consequence of appropriations made by law.”

The legal notice refers to the wording of 31 U.S.C. 1301, which requires that credits “apply only to the purposes for which the credits were granted, except as otherwise required by law” and must be expressly stated, not inferred or implied.

Federal agencies are also required to “aggressively collect all debts” under 31 CFR 901.1(a).

The bases for compromise are specified in 31 CFR 902.2. For example, a debt may be compromised because the borrower is unable to repay the full amount within a reasonable time, because the cost of collection exceeds the potential collection for the federal government, or because there is doubt important to the government’s ability to win a case against the borrower. There is no reason to compromise the debt of a borrower who is able to repay the debt.

According to the United States Supreme Court’s decision in Whitman v. American Trucking Assns., Inc., 531 US 457 (2001), any binding authority by Congress “must be clear”. The principle established by this decision is that Congress does not “hide elephants in mouseholes”.

The legal notice states that the waiver authority in 20 U.S.C. 1082(a)(6) is “a limited authority for the Secretary to provide rescission, compromise, release, or pardon only on a case-by-case basis and only in under those circumstances specified by Congress.

The legal opinion notes that the parallel terms clause at 20 U.S.C. 1087e(a)(1), which applies the same “terms, conditions, and benefits” to Direct Lending Program loans as FFEL Program loans, does not extend not the waiver authority of the Direct Lending Program because “the Secretary’s general authority to compromise or waive claims under the FFEL Program is not a term or condition or benefit of FFEL Program Loans” .

The legal opinion also concludes that the COVID-19 national emergency does not give the U.S. Secretary of Education the authority to rescind or cancel federal student loans. The HEROES Act of 2003, at 20 USC 1098bb, provides overriding authority for national emergencies. But this authority is narrowly limited to ensuring that “the data subjects are not placed in a more unfavorable financial situation in relation to this financial assistance because of their status as data subjects”. In other words, the legal opinion states that borrowers must be in the “same financial position with respect to their Title IV loans as if the national emergency had not occurred.”

The legal opinion concludes that even if the Higher Education Act of 1965 could properly be interpreted as giving the United States Secretary of Education the power to provide a general or mass cancellation, compromise, discharge or pardon , such executive action is a statutory rule under the Administrative Procedure Act (APA), subject to “all requirements of the notice and comment rulemaking”.