Last month, the U.S. Department of Education (ED) published a proposed rule that, if implemented, would forgive an estimated $147 billion in student loans for around 28 million borrowers. The new rule is basically a successor policy to the Biden administration's one-time student loan cancellation plan, which the Supreme Court scuppered last year. ED aims to enact the new cancellation plan through the formal regulatory process, which officials hope will place the scheme on sounder legal footing.

That formal regulatory process requires a notice-and-comment period, during which members of the public may submit comments on the proposed rule. ED must then review and consider these comments before issuing a final regulation. I submitted a comment, which is available here.

The new regulation would cancel debts in full for borrowers who entered repayment on their loans more than 20 or 25 years ago, borrowers who attended low-quality institutions, and borrowers who are eligible for an existing loan cancellation program but haven’t applied. The regulation would also cancel accrued interest for borrowers who owe more on their loans today than they did upon entering repayment.

My comment raises three main concerns: legal problems with the proposal, policy issues with its content, and concerns regarding the accuracy of the budget estimate:

  • Legal issues: ED claims the Higher Education Act (HEA), which empowers the Secretary of Education to “waive” federal student loans, gives the secretary near-unlimited power to cancel debts. But ED ignores that the HEA limits this power to circumstances where the secretary is performing duties Congress authorized him to undertake. The Supreme Court's loan-cancellation decision agreed with this interpretation; the majority opinion stated that the HEA “authorizes the secretary to cancel or reduce loans, but only in certain limited circumstances and to a particular extent.” These circumstances only include loan-cancellation programs Congress has authorized, such as Public Service Loan Forgiveness (PSLF).
  • Policy issues: Though the regulation appears targeted to borrowers in certain circumstances, it casts a far wider net that it appears at first glance. For instance, many borrowers with advanced degrees in law or medicine repay their loans on a 30-year repayment plan; these borrowers will receive relief because the rule will forgive debts for borrowers in repayment for more than 25 years. The 25-year period is also based on the first loan than entered repayment, so borrowers with both undergraduate and graduate loans may see early forgiveness on the latter. The Penn Wharton Budget Model has estimated that borrowers receiving cancellation under this provision earn an average income of $313,000.
  • Budget issues: ED figures that the rule will cost taxpayers $147 billion. That's a significant number—roughly six times what the government spends on financial aid for low-income students—but it's still likely to understate the true cost. For instance, the provision of the rule which cancels debt for borrowers who are eligible for an existing loan-cancellation plan assumes zero forgiveness for future borrowers. ED reasons these costs are already accounted for in other regulations. But those regulations assume limited take-up of other loan cancellation opportunities, which lowers the regulations’ estimated costs. The result: plenty of borrowers will receive loan cancellation that no budget estimate anywhere accounts for.

Once the comment period closes on May 17, ED will have an opportunity to revise the proposed regulation and cost estimate. Hopefully it will take these points under consideration.