Lawsuit filed to stop student loan cancellation
A month after President Joe Biden announced plans to cancel a substantial portion of student loan debt, a lawsuit has been filed by the Pacific Legal Foundation to block the move.
“Congress did not authorize the executive branch to unilaterally cancel student debt,” said Caleb Kruckenberg, an attorney at Pacific Legal Foundation. “It’s flagrantly illegal for the executive branch to create a $500 billion program by press release, and without statutory authority or even the basic notice and comment procedure for new regulations.”
The plan, announced three months before midterm elections, would cancel up to $20,000 in student loan debt for more than 40 million Americans.
A lawsuit on the unilateral move by the president was a given. Whatever the end result is, it will not solve the larger problems. Forgiving a portion of student loans is putting a band-aid on an infection without treating the underlying infection.
The federal government has produced a system that creates perverse incentives, is deceptive to impressionable students, and creates false demand that only drives up the cost of higher education:
- With access to an endless supply of student loan dollars, colleges and universities are not required to be focused on delivering efficient, highest value education to students. Instead, they can expand their mission and scope—making college more about entertainment and experience—in an effort to attract students and their “free” money.
- Students are led to believe that incurring debt will increase their marketability regardless of their field of study. Why else would someone underwrite something so expensive?
- Cheap money also increases demand for college services. In a world in which demand outstrips supply, prices rise quickly. This requires more cheap money to keep funding the system, which in turn creates more demand.
- The end result is a death spiral that has seen the cost of attending college rise at a rate 5x national inflation over the last 50 years. College has become more and more expensive, and less and less valuable, relative to that expense.
So what’s the solution?
First, it seems important to recognize that the idea that everyone should go to college is simply a lie, sometimes perpetuated by well-meaning people and sometimes perpetuated by a complex that benefits financially from the current system.
Second, and of equal importance, the system should be designed for shared accountability. Yes, students who take out loans should pay them back, but colleges should stop treating students like marks. Injecting some economic thinking into the process could help by ensuring that student loans are authorized on a cost-benefit basis that is tailored to individual majors. No more $200,000 in debt for a job path that fetches $30,000 a year.
The American college system is the best in the world. But everyone needs to remember the purpose of getting that degree is prepare students for life.
The case is Garrison v. U.S. Department of Education, filed in U.S. District Court for the Southern District of Indiana. PLF has filed a temporary restraining order to prevent the loan cancellation from going into effect.