By: The Editorial Board – wsj.com – July 14, 2023

President Biden is determined to make student loans for college a new entitlement even after the Supreme Court struck down his $430 billion cancellation. The Education Department on Friday wrote off another $39 billion in debt. And this is only a down-payment on the President’s bigger plan to sweeten Obama-era repayment plans. Call it debt cancellation on the installment plan.

Obama-era repayment plans cap borrower monthly payments at 10% of discretionary income and let borrowers discharge unpaid debt after 10 to 25 years. Yet the Education Department said Friday that borrowers will receive credit for payments even during months when they weren’t making them. This adds up to $39 billion in new loan forgiveness.

The Administration also boasted that it has approved $116.6 billion in loan forgiveness to date, including $45 billion through “improvements” to public-service loan plans. That’s $68,828 of writeoffs on average for each qualifying government and nonprofit worker. Now the Administration plans to “improve” repayment plans for all borrowers.

The Education Department plans to slash payments to 5% of discretionary income, which would be redefined to exclude more earnings. Borrowers earning less than $32,800 wouldn’t pay a cent. Even years in which they don’t make payments, as during the pandemic, would be counted toward their required payments.

The Administration estimates that a typical graduate of a four-year public university would save nearly $2,000 a year, or about $40,000 over 20 years. That’s several thousand dollars more than the already generous Obama writeoffs, and loan balances wouldn’t grow from unpaid interest as they do now.

A grad earning $50,000 with $50,000 in debt would have to pay only $860 a year compared to some $6,200 under a standard payment plan. Borrowers would have an incentive to take out more debt, and colleges would raise tuition. The Biden plan includes no reforms that would mitigate this debt ratchet.

The Education Department didn’t account for these perverse incentives and low-balled the cost of its changes at $138 billion over 10 years. When the Congressional Budget Office in March attempted to account for the behavioral effects, it estimated the cost at $276 billion if the President’s loan cancellation were struck down. Even that may be low.

CBO estimates that the share of direct loans enrolled in income-based repayment plans will increase to 66% from about 50%. But the Penn Wharton Budget Model projects a take-up rate of 91% if borrowers seek to minimize total payments, which would cost $471 billion over a decade and more beyond that.

These estimates are on top of the half a trillion or so dollars that an independent analysis for the Trump Administration predicted would be written off largely owing to the Obama repayment plans. ObamaCare sweetened payment plans for new borrowers in 2014, which the Obama Administration later extended to older borrowers.

Now the Biden Administration is claiming unilateral authority to make the plans even more generous, citing the Higher Education Act (HEA) and other laws. But there’s no limiting principle to this authority, as even his progressive allies concede.

“On its face, there is no reason why Biden could not use this authority under the HEA to create a new program that states, for example, that students will be eligible for debt forgiveness after they have paid 1 percent of their income beyond 100 percent of the poverty line for 1 year,” the People’s Policy Project noted last month. “This kind of change would forgive far more student debt” than what the Supreme Court struck down.

Mr. Biden’s student loan Plan B ignores the High Court’s major questions doctrine, which holds that executive actions with major consequences require approval from Congress. It also flouts Congress’s power of the purse.

All of this adds up to a new entitlement scheme by executive diktat. He’s buying votes of young people and the support of the university class without a vote or even a debate in Congress. Let’s hope there’s another legal challenge.

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