Drop the student loan lawsuit and help the Nebraska economy

December 15, 2022 3:00 am

President Joe Biden rolls out a program to provide student debt relief. (Getty Images)

If any of the rumors and misconceptions circulating about the Biden administration’s student loan cancellations were true, I’d be on the front lines opposing the cancellations.

Such as the claim that the cancellations are a regressive transfer of wealth from the working class to the professional class; or the idea that borrowers knew what they signed up for and should simply pay up; or the objection that it’s unfair to those who paid off their loans without help; or the suggestion that borrowers should serve in the military as a way to pay for college; or the claim that the cancellations are inflationary.

For the record, I’m totally against regressive transfers of wealth, skipping out on contracts, unfairness across generations and inflationary spending. Also for the record, my children had student loans and paid them off. My own college tuition was paid by the U.S. Navy, in exchange for seven subsequent tours in combat zones.

So why do I strongly support the cancellations and oppose the Nebraska attorney general’s lawsuit against them? Because the arguments against them do not hold up under scrutiny and the arguments for them support healthier economies and families. Let’s unpack them.

Taxpayer support of higher education promotes a public good for all, whether it comes through front-door subsidies for lower tuition, back-door subsidies for institutional tax-exemptions, or grant and loan programs for students. Hypothesizing anecdotes about, say, a truck driver who did not attend college paying for the loan cancellation of a professional person who did — a doctor or nurse, for example — misses not only the point of public good, but also the fact that the Biden proposal is targeted only to low- and middle-income borrowers, and even further targeted to the financially needy Pell Grant eligible population.

As for borrowers paying what they agreed to, every one of them I know would jump at the chance. What they did not sign up for, because they believed in the integrity of their schools, the U.S. government and the government’s loan servicers, was fraud, deception, bait-and-switch, debt traps and outright servicer incompetence. Rather than principal and interest, borrower accounts now contain billions of dollars of liability for well-documented abuses designed to keep borrowers in debt forever. Two major servicers have been sued so often by borrower advocates, consumer-oriented state attorneys general and even federal agencies that they have chosen to give up their federal contracts to avoid accountability. I have been a qui tam plaintiff as well. So just who is not abiding by the contracts they signed?

The idea that former borrowers have paid off their loans, so it is unfair for current borrowers to receive limited help offered by the Biden cancellations, neglects differences in circumstances. Current borrowers are justified in pointing out that tuition was not as high in the past, that the value of aid like Pell Grants has declined, that former borrowers may not have faced economic crises like the Great Recession and the COVID pandemic, and that only more recently have loan servicers perfected ways to perpetuate debt. Many past borrowers are truly grateful — or should be — that they were able to pay off their loans because of the advantages they enjoyed.

As for military or other public service as a means to pay for college, I can’t say enough good about the option. There are several variations available, from military commissions through participating universities, to GI Bill benefits, to the Public Service Loan Forgiveness program. The latter, unfortunately, was mishandled by a loan servicer that has quit, leaving others to try to clean up the mess.

Then there is the complaint that the cancellations are inflationary, which has been debunked by a majority of respected economists, so it is not necessary to get into what-about comparisons with other, much larger federal relief efforts for more well-heeled constituencies.   However, the widely cited cancellation number of $400 billion deserves closer examination, because it is not what it seems. The number is overstated because it does not recognize that borrowers have already overpaid $114 billion into the federal Treasury above loan program expenses before the pandemic; nor does it subtract out what should be considered rebates to borrowers for mitigation of servicer abuses; nor apparently does it include already budgeted write-offs. And it must be recognized that we are not talking here about federal spending outlays, but cancellation of significant debt dubiously put on Treasury’s books.

My question as a Nebraska taxpayer is why the Nebraska attorney general is the lead plaintiff in a lawsuit against the cancellations, Nebraska v. Biden. I can find no harm to Nebraska from the cancellations, nor could the federal district judge who ruled that Nebraska did not have standing to sue. The case is being appealed to the U.S. Supreme Court because of a desire in some political circles to give the high court another opportunity (after EPA v. West Virginia) to strike down an executive decision it may consider unconstitutional because it supposedly violates a newly advanced legal theory on “major questions.” The apparent position of the Nebraska attorney general is that two centuries of careful jurisprudence on standing should be sacrificed to deny debt relief to 200,000 Nebraska borrowers. How many Nebraskans agree with that, or even know about it?

This comes at a time when the Nebraska economy is heading into trouble and badly needs an estimated $2 billion to $3 billion of loan cancellations to help Nebraska borrowers stay in the state, building businesses and families. The housing industry is just one segment of the economy that sees the economic value of the cancellations, how they will improve credit scores and brighten families’ kitchen-table budgeting. Another way to look at the issue is to consider the social fabric. Thousands of Nebraskans and their families have been torn apart by the student loan debacle, through no fault of their own.

The reputation of Nebraskans in constitutional history is often associated positively with such cases as Meyer and Standing Bearfamous landmark decisions. Nebraska v. Biden will sully that reputation.

Drop the case, or settle it honorably.

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Jon Oberg
Jon Oberg

Jon H. Oberg, D.phil., of rural Lincoln, specializes in public budgeting. He is a former director of the Nebraska Department of Administrative Services, task force investigator for the U.S. Senate Budget Committee, congressional liaison for the U.S. Department of Education and a researcher and litigant against multiple student loan entities, 2007-2019.