November, 2022
Lincoln — As a Nebraskan, I want to make a case for Nebraska to withdraw as a plaintiff in the current student loan cancellation lawsuit, Nebraska v. Biden, which is headed to the U.S. Supreme Court. Instead, our state attorney general should follow his statutory duty to protect student loan borrowers under Nebraska consumer protection law.
First, Nebraska does not have standing as a plaintiff, according to a recent federal district court decision in the Eastern District of Missouri, where the case was filed. The Eighth Circuit, on appeal, did not take issue with this ruling; instead, it found that another plaintiff may have standing and therefore proceeded with the case on that basis, not on Nebraska's standing.
The district court judge ruled that standing must involve irreparable harm to the plaintiff, beyond speculation. The Nebraska attorney general, Doug Peterson, unconvincingly claimed that state government pensioners in Nebraska would be hurt by loan cancellations because the Nebraska Investment Council (NIC) would lose money on student loan investments known as SLABS. He cited a Bloomberg news service article as authority, but clearly the article only suggests investors are likely to shift their investments, not suffer losses. An obviously better authority is Fitch Ratings, an established Wall Street ratings firm, which explains that the Biden loan cancellations are likely to be helpful to SLABS investors, as they reduce maturity risks.
Did the attorney general actually discuss his views with the NIC, and did the NIC concur? That would be good to know.
Other harms that might befall Nebraska, Peterson argued in vain, were associated with the amount of the cancellations not being taxable, diminishing Nebraska's potential state tax revenues. Presumably Nebraska could tax them as income if it wanted, but has chosen not to, and for good reason. Does Nebraska want to tax loan cancellations of the lowest earners, the disabled, the defrauded, the deceased? Surely not. This harm argument is not only speculative, it comes at a time when Nebraska's tax coffers are in record surplus, due primarily to federal tax stimulus programs associated with the pandemic.
Second, consider what the Nebraska attorney general is trying to stop with his lawsuit: student loan relief well-targeted to an estimated 232,100 or more Nebraska borrowers, amounting up to $2.72 billion for Pell grant recipients, at $20,000 per borrower, and up to an additional $96.1 million for other lower and middle income borrowers, at $10,000 apiece.
These cancellations would help Nebraskans who invested in themselves through education, who have experienced difficulty paying for college because of tuition levels never faced by previous generations, which enjoyed greater tax subsidies keeping tuition moderate. The cancellations would be good for the Nebraska economy, as low and middle income borrowers begin to get out from under their student loan debts to start families, buy homes, establish businesses, and put away funds for their own children's education.
Any apocryphal cases of blue-collar taxpayers paying, through loan cancellation, for the education of high-income, white-collar professionals, are de minimus because of the targeting, especially to the Pell population. Do those who make such arguments against cancellation also object to college tuition charges without means tests? Again, surely not. (Where do their children go to college?)
Let's also take a closer look at the debt borrowers have accrued, to understand more of the real issues behind the need for loan cancellations. A significant part of the debt is not what borrowers took on to pay for tuition, but debt that has been added to their accounts for higher than necessary interest, interest capitalization when borrowers needed temporary relief from monthly payments, negative amortizations when borrowers entered into income-based repayment programs, and excessively high fees associated with loan administration. The number of borrowers who have paid off more than their original principal, but still owe more than they originally borrowed, illustrates the problem.
It is not well-known or properly appreciated that until the pandemic repayment pause, borrowers had actually paid $114 billion into the federal treasury above the cost of the loan programs. That borrowers could now get some of this back in cancellation should be considered a rebate for overcharges. The overall effect of the Biden cancellations on the federal budget, if a rebate is factored in, is only 10% to 20% of the cost of the 2017 Tax Cut, the benefits of which were targeted to those in the upper incomes.
Nor is it well-known, although thoroughly documented by government auditors, that many borrowers have been misinformed, deceived, and defrauded by their loan servicers. I have reviewed the paperwork of borrowers who fall into this category; they have tried conscientiously to resolve their issues, but have been stonewalled at every turn. I have also personally* tried to solve problems on their behalf, without success, so I know how impossible it can be to get out of student loan hell when no one will act to make things right.
Too many of us think that borrowers took on their loans willingly to pay tuition, with full confidence and knowledge of the terms of the loan programs, so they should simply pay them back — end of story. But even those who take this view, like Nebraska congressman Mike Flood, allow that relief may be owed to borrowers who have been "gouged," as he put it.
That would be a good place for Nebraska attorney general-elect Mike Hilgers to start his term of office. He should drop Nebraska from the lawsuit against cancellations and, instead, follow the lead of other state attorneys general who have used their consumer protection laws to help borrowers out of messes that have been created through no fault of their own. Such lawsuits have helped to drive corrupt and abusive servicers like Navient and PHEAA from business as federal contractors.
That is my request as a Nebraska taxpayer. There is no good reason why Nebraska taxpayers should be paying the salary of an attorney general to block justified loan relief for hundreds of thousands of Nebraska borrowers, let alone millions of borrowers across the nation. Keeping people in debt with the mistaken idea that it makes money for state government is not the attorney general's job. He should instead be Nebraska borrowers' advocate against a loan system run amok.
Finally, it does not reflect well on Nebraskans that there is every appearance that Nebraska v. Biden is driven by politics, not policy. The case has turned into a political sideshow, as if the current and future financial viability of many thousands of Nebraska individuals and households can be ignored. The right thing for Mike Hilgers to do is to demonstrate that he will be an attorney general for all Nebraskans, not a political puppet driven by a national dark-money agenda, and withdraw Nebraska from the lawsuit accordingly. The case should go forward with other plaintiffs, if they can establish** standing, and eventually be sorted out without misuse of Nebraska taxpayer dollars.
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*Borrowers as a last resort have occasionally asked me for help, as they are aware of my years of litigation working against fraud and abuse in student loan programs. See blogposts here and here, and Dan E. Moldea, Money, Politics, and Corruption in U.S. Higher Education, 2020.
**The Eighth Circuit enjoined the Biden loan cancellations this month because a three judge panel concluded that Missouri might have standing as a plaintiff out of its relationship with the loan servicer MOHELA. However, MOHELA is not an arm of the state of Missouri under a Fourth Circuit precedent that provides a four part test for determination. See U.S. ex rel. Oberg v. PHEAA, 2015. The Supreme Court carefully reviewed the case, asking the U.S. Solicitor General for guidance, then denied cert to PHEAA in January, 2017.
