More than 30 years ago, a congressional staffer added a note to the congressional record clarifying the purpose of income-based repayment on student loans. This small detail might play a big role now that 11 states are suing President Biden’s administration to block his student loan program — with perhaps a trillion dollars at stake.
After his initial attempt to forgive student loans was struck down by the Supreme Court last June, Biden immediately sought multiple alternatives to forgive as many loans as possible. The most recent, and by far the most significant, of these attempts comes in his rewriting of the rules on how all outstanding and future loans are repaid under what he is calling the “SAVE” program.
The repayment terms of this new program are so generous, it can easily be considered the most extensive proposed forgiveness program yet. Current estimates put costs at over half a trillion dollars, and even this may prove low. Much of this impact is because payments will be entirely waived for borrowers making below 225 percent of the poverty line (equivalent to a household income of $70,200 for a family of four today). Many other parties will pay very little. And in all cases, the burden of unpaid balances will be borne exclusively by taxpayers.
Biden says he has the authority to create the SAVE program, but that will now be decided in court. While the case may become tied up in broader limits the Supreme Court could place on executive authority, it will more likely come down to one simple question: When Congress first gave the Department of Education authority to create a loan repayment program tied to income, did it also allow for a mass loan forgiveness?
No way, says Joe Flader. He worked for Rep. Tom Petri (R-Wis.) in the 1990s and helped write the provisions allowing for income-based student loan repayment, which were ultimately included in the Omnibus Budget Reconciliation Act of 1993. His recollection is clear: “It was definitely the intent that most people would pay off their loans under the program. … The original intent was not to turn this provision into a massive subsidy.”
He believes that the first income-based repayment program, implemented through Department of Education regulations a couple of years later, was in line with what Congress intended. However, regarding Biden’s SAVE program, he says, “it’s completely illegal, and he does not have the authority. Biden now claims the lack of specific repayment terms in the 1993 law gives him license to alter the terms however he pleases.”
Flader may have seen this coming, so he tried to put much greater specificity into law, even suggesting the inclusion of explicit repayment terms. But “the Democrats’ staff said, ‘No, no, we can’t do anything that complicated in the bill.’ So I said, ‘Well, can we put criteria for the repayment terms in the statement of managers on the bill?’ And they said yes.”
Those terms can be found on page 18,909 of the 1993 Congressional Record. Along with encouraging policymakers to explore the possibility of the IRS managing student loans through payroll taxes (something that is still discussed today in light of the massive mismanagement of the loan program by Biden’s Department of Education), a number of guiding principles for the program were explicitly outlined.
Among these were specifications stating “that in the case of income dependent loans … payments should generally be directly proportional to the amount borrowed (to discourage over borrowing),” and “borrowers should be excused from further payments when they have repaid their loans at some effective interest rate.” The language of these provisions make it clear that any loans taken under the program were intended to not only be repaid in full, but in fact with some interest.
Perhaps most interestingly, these principles also set forth specific criteria for determining which borrowers qualify for zero-dollar payments, specifying that “no payments should be required of borrowers whose incomes fall below the income tax filing threshold.” Today, that looks like a household income of $27,700 for a married couple under 65 filing jointly. The Biden plan ignores this and completely waives payments for families making multiple times this amount.
Flader notes, “Although [the principles] are presented in the context of IRS collection of loans, it’s pretty clear that they also apply to income contingent loans without IRS collection, partly because the latest version of the Petri bill is specifically referenced.” But the importance of the historical record is critical. He continues, “If it’s in the statement of managers, that’s the documentation. That’s the intent of Congress.”
With challenges to the SAVE program underway and the Biden team scrambling to enroll as many people as possible before the courts can weigh in, expect these questions about the department’s authority to loom large in coming months.
Michael Brickman is an adjunct fellow at the American Enterprise Institute, focusing on higher education and education reform. Previously, he served as a senior adviser to the U.S. undersecretary of Education and as national policy director of the Thomas B. Fordham Institute.
Emily Hudson 
Tyler Mitchell
Considering the potential financial impact and legal uncertainties surrounding Biden’s ‘SAVE’ program, it seems that taxpayers could bear a heavy burden if this initiative moves forward. It will be interesting to see how the courts ultimately rule on the authority of the President to implement such extensive forgiveness measures.
As a taxpayer, I’m concerned about the potential burden the “SAVE” program could place on our already strained economy. It seems like a noble initiative to help borrowers, but the costs are staggering. I hope the courts carefully consider all aspects before making a decision.