Joe Biden's Student Loan Forgiveness Loses in Court – Opinion: Potomac Watch – WSJ Podcasts – The Wall Street Journal

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A federal judge in Texas vacates President Biden’s plan to forgive student debt, calling it an “unconstitutional exercise.” But will this ruling hold up on appeal, or should the President’s critics keep an eye on a similar case in the Eighth Circuit? Plus, the latest inflation report shows prices up 7.7% year over year, which is down slightly but still way too high for comfort.
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Speaker 1: From the opinion pages of The Wall Street Journal, this is Potomac Watch.
Kyle Peterson: A federal judge in Texas vacates President Biden's student loan forgiveness plan. But will that hold up on appeal? Plus the latest inflation report shows prices up 7.7% year over year. Welcome, I'm Kyle Peterson with The Wall Street Journal. We are joined today by my colleagues, columnist Allysia Finley, and editorial board member Mene Ukueberuwa. Welcome, and happy exciting end of the week Friday to you both. The order yesterday on Thursday from Judge Mark Pittman of the District Court in Northern Texas puts President Biden's student loan forgiveness plan on hold for now. The bottom line conclusion is that the 2003 HEROES Act does not give President Biden authority to unilaterally cancel hundreds of billions of dollars in student debt. I'll read a couple lines from the ruling. "No one can plausibly deny that it is either one of the largest delegations of legislative power to the executive branch or one of the largest exercises of legislative power without congressional authority in the history of the United States. In this country we are not ruled by an all powerful executive with a pen and a phone. Instead, we are ruled by a constitution that provides for three distinct and independent branches of government." Again, it was Judge Mark Pittman. But Allysia, these are really unusual rulings in that we already know the conclusion at the end. All of the interesting parts in these student loan cases are about the standing. Usually that's the kind of thing that if you're reading a federal court ruling you can kind of skim over. You're assuming that the people who have brought the case, gotten it to a ruling by a judge, have standing, have the ability to sue, they have an injury that the court thinks is addressable through a ruling. Here it's the billion-dollar question in these student loan cases. Allysia, I'm not sure that the judge is going to convince his colleagues on the appellate court there.
Allysia Finley: So on one point I just want to say that yes, we all kind of realize that this is unconstitutional or that this violates the separation of powers, and we kind of take that for a granted that this is going to be the outcome of the case. And Judge Pittman does a very good job analyzing this. But you also have to recall, we all thought and believed that the Biden Administration's vaccine mandate and CDC eviction moratorium were similarly unconstitutional for the same kind of separation of powers reasons. But yet it nonetheless got positive rulings in some of the lower courts. So I wouldn't take it necessarily as granted. I mean it depends which judge. They got lucky in this case. But in terms of actually landing a conservative Trump appointee who did a very nice job analyzing the structural and separation of powers issues. And as you said, the president does not have the authority under the 2003 HEROES Act. That was a post-911 law that allowed the administration or the education secretary to modify or waive any statutory or regulatory provision in a financial aid program. And the Biden Administration argued that, "Well no, the law does," that it's capacious enough to allow the administration to waive the requirement to repay any loans across the board. Now the judge here in Pittman cast doubt on one, whether there's actual national emergencies in effect, and two, and said, "Regardless, you don't have clear congressional authorization." Now, let's backtrack to your second question about the legal standing issue. Under longstanding jurisprudence, plaintiffs must demonstrate that they have suffered a concrete and particular injury that is fairly traceable to a defendant's conduct. In this case, the plaintiffs argue … There were two plaintiffs in the cases, one was ineligible for debt forgiveness because her loans are commercially held by some kind of investor. The other was ineligible for the full $20,000 in relief because he didn't receive a Pell Grant. They argue that because the administration didn't go through notice and comment under the Administration Procedures Act, basically was arbitrary and capricious, it violated the law. And therefore, because they weren't allowed to express their disagreement with that administration's plan, the plaintiffs' injury they claim is that they did not receive loan forgiveness and therefore were denied a procedural right to comment on the program's eligibility requirements. Now, the judge ruled, agreed with them, and said that they only had to prove the existence of a associated concrete interest and not a guarantee of a concrete harm due to the procedural violation. The judge goes on to cite some Fifth Circuit cases here. Now, I think this is very debatable. They haven't suffered a concrete injury, but courts in the past they have applied standing principles somewhat flexibly. The Supreme Court has as well. I wouldn't say it's guaranteed that the Fifth Circuit will overrule or will stay this judge's decision. They may be inclined to letting it proceed all the way up to the Supreme Court because there are very serious issues at stake and separation of powers issues at stake. The reason why I think the judge ruled the way he did is because he wanted to give the plaintiffs the benefit of the doubt because the constitutional issues are so grave and important. So I think he wants to kind of kick this up to the Supreme Court.
Kyle Peterson: And maybe that's right. Two points that I would make, jumping off of what Allysia said. On the point about standing, a lot of the claims here have to do with the Administrative Procedure Act, which is the law about how a administration, a White House, bureaucratic agencies, go about making new rules and regulations. So the standing claim here is that these people who were ineligible for student loan relief, or for the maximum amount of student loan relief, could have made arguments that the student loan program should have been broader if the administration had gone through the normal rule making notice and comment that they generally do when they're passing some kind of rule or regulation. So the judge finds on that basis that they have standing to sue. But then it's fascinating because then he gets into the merits and he says this, "Because the program was issued under the HEROES Act, which exempts notice and comment, the program did not violate APA's procedural requirements. Then he goes on, Mene, to talk about the substantive problems with the HEROES Act. But if the lack of notice and comment is the basis for the standing, then I don't see how it isn't a problem if the HEROES Act is exempt from the notice and comment rules. Then secondly, on the point that Allysia made about the capaciousness of the administration's legal argument here, I also found this line that jumped out to me. The judge says, "Indeed, the COVID-19 pandemic falls within the HEROES Act's definition of an emergency but is unclear whether the program is necessary in connection with that national emergency. The COVID-19 pandemic was declared a national emergency almost three years ago and declared weeks before the program by the president as over." And then he also adds that, "The government contends that in 10 years they could still use the HEROES Act to forgive student loan debt because of COVID-19 pandemic if the secretary deems it necessary." Mene, again, putting the standing issues aside which are the legal barrier to some of these claims, it is not hard for me to see the real substantive separation of powers problems here in the Supreme Court and some other cases that's called the Major Questions Doctrine. Did Congress delegate to the president, whoever the president may be, the power to just wave a magic wand and make student loan debt go away?
Mene Ukueberuwa: Right. I think we can all agree that Judge Pittman does establish standing in his ruling, but he's much more cogent when he's addressing the substantive problems with the student loan forgiveness plan that the Biden administration has implemented. And he specifically cites the recent string of cases that have reevaluated Chevron deference, the ability of these executive agencies to define vast powers into any ambiguity in the mandate that they've been given by Congress and the laws that established them. And specifically he sets the more recent one, West Virginia versus EPA, which curtailed the powers of EPA to pass certain regulations on emissions and such. So essentially what he's saying is, yes, the HEROES Act does grant some hypothetical leeway to the Education Department to modify or waive certain aid provisions, but that the Major Questions Doctrine says that there's a limit to how much they're able to define how much leeway they do have. And because student loan forgiveness concerns the elimination of billions of dollars worth of debt, there's a pretty strong precedent that suggests they need to have explicit authority before making policy determination that would grant them powers over that massive size of the American economy. It doesn't fall into what Congress intended them to be able to do when it passed the HEROES Act in 2003. So the standing issues are going to continue to be contested. That's probably what the administration is going to be focusing on in its appeal. But on the merits, once the plaintiffs are able to establish, yes, we do have a right to bring a complaint here, and there are several avenues that they can use to do that, it's very, very clear that you're going to have a final decision possibly from the Supreme Court which says that the Education Department went far beyond its HEROES Act powers in forgiving this massive amount of student debt.
Kyle Peterson: And there are also other cases circulating. I think that's important to keep in mind. I mean some of the headlines today are pointing out that if you go to studentaid.gov now after this judge's ruling it says, "Student loan debt relief is blocked. Courts have issued orders blocking our student debt relief program. As a result, at this time we are not accepting applications. We are seeking to overturn those orders. If you've already applied, we'll hold your application." So that is a change, but Allysia, there was also an injunction issued by the Eighth Circuit late in October that was also blocking the administration from actually moving forward on the student debt forgiveness program. So that was already kind of stopping things, putting the Biden plan at a standstill, and it may be that Eighth Circuit case that is really the one that will end this once and for all.
Allysia Finley: I think the Eighth Circuit case was one that was brought by states, Missouri in particular led that. It was also joined by Nebraska, Arkansas, South Carolina, and Iowa. In that case, Missouri I think has a very strong argument that it has standing because it actually is a federal student loan servicer. So its argument is that it'll be denied revenue and also will experience administrative burdens as a result of this loan forgiveness. Nebraska and Arkansas also make some similar arguments in that they also hold what were considered FFELP loans that were privately originated and are still mostly held off the federal balance sheet by investors. Nebraska and Arkansas both hold those loans. The argument there was that the administration's loan forgiveness would've encouraged borrowers to consolidate those loans into direct loans which were eligible for forgiveness and thereby denied them revenue from the FFELP loans. It's a kind of complicated argument, but I think it's actually in some ways much more straightforward in that there is a concrete injury. The problem there was that the administration tried to moot the case by saying that going forward, borrowers who tried to consolidate their FFELP loans into direct loans will no longer be eligible. I think courts generally have, including the Supreme Court, have not looked fondly when government defendants try to moot cases by using kind of strategic gambits like that. And so even beyond, besides that, I think Missouri still has a strong case because it continues to service the loans, so that's apart from the FFELP loans, that it has suffered a concrete injury. Now, the Eighth Circuit is right now considering the case. It has just blocked basically the student loan forgiveness to give it time to consider the case. I would expect a ruling on that within the next couple of weeks, and then I would also expect that to be appealed to the Supreme Court.
Kyle Peterson: Hang tight. We'll be right back. You're listening to Potomac Watch from The Wall Street Journal.
Speaker 1: From the opinion pages of The Wall Street Journal, this is Potomac Watch.
Kyle Peterson: Welcome back. One last thought on this student loan question, Mene. If the Supreme Court does end up blocking President Biden's plan, then I think that throws this question back into the political debate. I've been kind of watching the polls on this as we go, but the latest is the exit poll, the election exit poll. And opinion of the Biden student debt relief plan, 50% of voters say they approve, 47% say they disapprove. Understandably, of those that approve, 82% voted for Democratic candidates. Of those who disapprove, 85% voted for Republican candidates. Mene, I wonder what you make of these poll numbers. I mean they seem to vary depending on how the question is asked. But the political dynamics may be shifting because there are now millions of people who have applied for the forgiveness and yet none of the money has gone out the door yet. There's nothing that's actually happening that would rile up the people who are opposed.
Mene Ukueberuwa: Right. I do think that when President Biden first announced student loan forgiveness, there was a pretty big backlash, in part because of the size of the program. He was originally going to forgive a significantly larger amount of debt per debt holder, and so people saw the eye-popping numbers and the sense that people who took out these massive and in some occasions completely worthless loans to pay for master's degree programs and totally excessive things, were going to have their debt completely forgiven, and that that benefit was going to accrue disproportionately to higher-income people because they're the ones who have that massive amount of debt. So that's when the sort of public outcry was largest. I do think it probably has made a difference that the administration has reduced the number in terms of the amount of debt that it's willing to forgive. I think that people probably also did kind of price the policy in. As you're implying, there now are kind of definite interests of people who have a stake in the policy going forward. But I don't know. I think that there's probably a lot to be read into what you said about how the question is phrased. Obviously people understand that there are people who are in a bad position because they have quite a lot of debt and they feel some sympathy for them. But I think broadly, Americans still think that the policy is deeply unfair and that if it is able to move forward, the Biden Administration will take some hit for that. Obviously it's one of those policies where you have a narrow interest group that really wants you to pursue the policy and benefits from it, but then you have a much broader public that isn't as deeply affected by the policy, but generally opposes it. So I would bet that it still is going to be a net negative for the Biden Administration. They probably understand the balance of what it can do for them politically and have decided to push forward on it. But I think it's a mistake on their end.
Kyle Peterson: Finally, the inflation report has been a little bit swamped by the political news and the election news. But the Labor Department said Thursday that the consumer price index is up 7.7% over the past year. That is down a little bit from the peak of 9.1% in June, but still very elevated. And core inflation, excluding food and energy, was 6.3% year over year. Allysia, as you look at these inflation figures in this report, what is it that you would pick out?
Allysia Finley: Well, I think one thing that's worth noting is that even while inflation is falling, the price level isn't actually falling overall. Prices are continuing to rise, just albeit at a slower rate. I think one other thing that jumped out at me is how the shelter index, which has continued to increase now, that is often a lagging indicator in that often the numbers that it measures are based on previous rent increases or housing price increases. So we'll likely see those in the coming months decline as we have been hearing about as the rent increases are starting to stall out. And housing prices in most areas of the country are actually plateauing, or in some areas like California's Bay Area are actually starting to fall off. But I think if you look at the food prices, the energy prices, the things that actually hit people really hard, people really aren't getting much relief here. Prices, for instance, food away from home increased by .9 percentage points, which is it's been increasing basically since the spring at this very rapid rate. Some of that's due to increasing wage and increasing labor costs that are now starting to get passed on to consumers. And potentially as the labor market starts to slacken a little bit, maybe the wage increases will actually fall and so you'll start to see again disinflation, so prices won't increase as much as they have been. But I think most people are just getting sticker shock wherever they go, grocery store, or a restaurant, gas station, the places where people frequent the most, they're really getting hammered. So it's not really much consolation to the extent that, "Well, oh used car trucks and prices are starting to fall." Well, most people aren't going to go out and buy used car, and most people aren't buying used cars and trucks every year. That may help people whose cars break down and then they're in the market for a new car. But the things that everyone spends on, and especially the lower, middle-income Americans do the most, those are still hitting people pretty hard.
Kyle Peterson: The two points on that I would make is, even if you assume that we are past peak inflation, the question still seems to be outstanding, Mene, about how sticky it will end up being. And I would point to the core inflation figures, just the monthly rise. Remember back in July when President Biden was celebrating that the overall monthly figure was 0% Consumer Price Index rise, but the core inflation figure was 0.3, and that was still a drop. Then in August we had 0.6. In September, we had 0.6. Now in October we have 0.3 again. It is not hard to imagine that next month it might be 0.6 again. It seems like this inflation has gotten a little bit embedded in the economy. It will be fascinating to see how fast that falls off or whether the Fed has a real fight on its hands. The other point I would just make is related to wages. Inflation adjusted weekly earnings are now down 3.7% in the last year, Mene, and that would take a while to make up to even get back to the baseline before the inflation kicked in. And if you start thinking about the 2024 presidential election, the classic question for an incumbent seeking reelection is, "Are you better off now than you were four years ago?" Again, it's not hard to imagine that if we don't get any makeup growth in those wage figures, that a lot of people in 2024 will answer that question and say, "No, I'm not better off." And I think there's a risk of President Biden misreading the results of these midterms and keeping straight on with his agenda without really addressing the pain that voters are feeling.
Mene Ukueberuwa: Right. To your first question about how sticky is inflation going to prove, I do think that's exactly the one that investors have been asking themselves. And they seem a little bit optimistic in the sense that yes, we still are seeing prices increase month over month, but that pace of increase has started to slow basically in keeping with what the best reasonable hopes would have been. So I do think that a lot of people underestimated how high inflation would go and probably were a little optimistic for a few months about what the Fed would have to do in order to start bringing it down. But for the past few months at least, I think that if you had asked people to guess how soon are we going to start to see pretty quick declines in year-over-year inflation, the results that we've actually seen would be in line with what they would've guessed or maybe even with what the most optimistic guesses would've been. Which is why investors are starting to feel good about the possibility that the Fed might slow the pace of its interest rate increases, which Chairman Powell has already indicated. And maybe they're even starting to think that the top rate of the federal funds rate is going to be a little bit lower than people might have thought it would have to go a few months ago. So that's kind of the state of play in terms of how people are reading the CPI numbers as far as I see it. But I think that yeah, there's a lot more concern on the question of wages and when are consumers going to start actually feeling relief. To your point, you do still have these kind of real wage declines and people really are experiencing that. That played out at the ballot box to a certain degree, and that's not a concern that's going to go away anytime soon. But I do think that the underlying problem here is that the Fed's interest rate increases, which are curbing demand, they're not being matched by any kind of productivity enhancing policies. We can all look back to 40 years ago, the last time we struggled with an inflation problem of this scale, and we know that not only did you have the Federal Reserve raising interest rates very high, but you also had the Reagan Administration cutting taxes, and basically encouraging policies that would drive productivity growth, and help wages to grow, and sort of keep up with the rising prices. So far, all we have is interest rates, and from the looks of the Biden Administration, that's not going to change anytime soon. So it may prove that even as inflation starts to slow, we're not seeing the wage gains that are going to make consumers feel like we've actually gotten out of the trap.
Kyle Peterson: Thank you, Mene and Allysia. Thank you all for listening. You can email us at pwpodcast@wsj.com. If you like the show, please hit that Subscribe button. And we will be back next week with another edition of Potomac Watch.
Paul Gigot is the editorial page editor and vice president of The Wall Street Journal, a position he has held since 2001. He is responsible for the newspaper’s editorials, op-ed articles and Leisure & Arts criticism and directs the editorial pages of the Journal’s Asian and European editions and the OpinionJournal.com Web site. He is also the host of the weekly half-hour news program, the Journal Editorial Report, on the Fox News Channel.
Mr. Gigot joined the Journal in 1980 as a reporter in Chicago, and in 1982 he became the Journal’s Asia correspondent, based in Hong Kong. He won an Overseas Press Club award for his reporting on the Philippines. In 1984, he was named the first editorial page editor of The Asian Wall Street Journal, based in Hong Kong. In 1987, he was assigned to Washington, where he contributed editorials and a weekly column on politics, "Potomac Watch," which won the 2000 Pulitzer Prize for commentary.
Mr. Gigot is a summa cum laude graduate of Dartmouth College, where he was chairman of the daily student newspaper.

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