Trump’s Quiet 10-Year Moratorium on Student Debt Cancellation
A small provision tucked inside a proposed court settlement could put an end to broad-based student debt relief until 2036
Last week, the Trump administration announced a proposed settlement with the state of Missouri that now awaits court approval. Should the settlement move forward, the Trump administration could bring a permanent end to the Saving on a Valuable Education (SAVE) Plan — the Biden-era student debt repayment plan that lowered monthly payments for millions and shortened the timeline for cancellation from 20 years down to 10.
This move would devastate our economy and force millions of Americans to come up with hundreds of dollars each month that they don’t have. And because they don’t have it, millions will default, resulting in exploding balances, capitalized interest, garnished wages and other financial consequences like difficulty purchasing a home. Ending the SAVE Plan would deliver a blow to our economy and borrowers’ timeline of eventual student debt relief.
But one provision in the settlement proposal might be even worse than ending the SAVE Plan. Tucked into the details of the settlement is a simple clause that could halt the chances of broad-based student debt cancellation until the year 2036.
“Any time that Defendants plan to or have reason to believe that they will cancel or forgive more than $10 billion in federal student loans within a one-month period, the Department of Education or its successors shall provide written notice to the Office of the Attorney General of Missouri at least 30 days before cancellation or forgiveness, identifying the basis for Defendants’ legal authority and how much they estimate will be forgiven or cancelled. If Defendants do not provide written notice under the previous sentence, but actually did forgive more than $10 billion in federal student loans within a one-month period, the Department of Education or its successors shall provide written notice to the Office of the Attorney General of Missouri within 30 days after the end of such month. The provision will expire ten years after the date of this Settlement Agreement.”
Essentially, this provision mandates that the Department of Education — should it ever seek to administer student debt relief, say, under a hypothetical Democratic president in 2029 — would have to notify the state of Missouri thirty days in advance. This might sound fine on its surface, but in actuality, it means the state of Missouri will have ample notice of any attempt to cancel student debt and will be able to file a lawsuit to put a stop to any looming cancellation plans before they can get off the ground. This agreement, along with eliminating SAVE, will essentially hand the Republican-led state of Missouri a form of legally-endowed veto power over future federal student debt cancellation policy.
MOHELA, Mo Problems
While the Trump administration is certainly to blame for ending the SAVE plan, the role of the courts and one specific student loan servicer — Higher Education Loan Authority of the State of Missouri (MOHELA) — should not be obscured. When the Biden administration first announced its plan for student debt relief, right-wing litigants threw a host of lawsuits against the wall to see what would stick. Ultimately, everyone’s lawsuit was dismissed for lack of standing — except one. The state of Missouri filed a suit on behalf of MOHELA, the private, non-profit student loan servicer chartered by the Missouri legislature. And by a gross degree of claims-stretching, Missouri Republican officials were able to convince conservative courts that it had a stake in anything related to student debt relief. How?
Here is their logic: If the Department of Education cancels student debt, that means there won’t be as many borrowers with a balance anymore. Well, MOHELA gets paid to service each student debt account —a few bucks per account. So, if there are fewer people with student debt balances as a result of getting cancellation, there will be fewer accounts in total for MOHELA to service, and thus, less revenue for them at some moment after cancellation. Now, if MOHELA were to receive less revenue, that means, perhaps, that there’s a chance they won’t be able to contribute to a loan fund that they owe to the state of Missouri (that they haven’t paid into in over a decade). Thus, Missouri could, in some trickle down way, lose a few bucks if student debt is canceled. And, for Missouri elected officials, this supposed financial “loss” should take precedence over tens of millions of Americans getting financial relief in the wake of a global pandemic and economic crisis.
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There are so many major flaws in this logic. My colleagues and I detailed every broken link in this chain of claims in a Roosevelt Institute report — including data that shows MOHELA’s revenue would actually increase, not decrease, after cancellation. Put more simply, as my report co-authors wrote for the New York Times, “if Amazon lays off my friend, and my friend owes me $20, can I sue Amazon for making it harder for me to get my money back?” The conservative justices in the case against student debt relief made a giant exception for a longheld piece of American jurisprudence — that third parties can’t claim to be injured.
Reckoning with our political reality means understanding that the Supreme Court would likely bend over backwards to halt a political agenda that it — or its billionaire backers — disagree with. At the same time, one would hope that the Supreme Court would have to at least pretend to follow the law as it skirts it. The reason this sham case passed muster under the eyes of a few justices is because no other student loan servicer could plausibly function as a “quasi” government entity. All of the other student loan servicers — such as Aidvantage, Nelnet or EdFinancial — are all private corporations with no ties to any state. Missouri, on the other hand, was able to use the fact that its legislature chartered MOHELA decades ago to insist that MOHELA was different from all other servicers, despite MOHELA’s legal and financial independence from the state itself. That means, put simply, that if MOHELA didn’t exist, student debt cancellation might have gone through — and there wouldn’t be an indefinite lever Republicans could pull to oppose anything related to student debt, like the SAVE plan.
What Biden Didn’t Do
This was all foreseeable. The Debt Collective begged the Biden administration to eliminate its contractual obligations with the servicer as soon as the MOHELA threat presented itself. After all, why should a president pay a servicer to poorly service student loans for them and also operate as the sole political pawn for Republicans’ agenda to stop its relief agenda? We released statements. Held signs outside of Congress. Wrote op-eds. We even confronted the MOHELA CEO in-person (which made his coworkers literally weep). Pressure grew. A host of advocacy organizations joined us in the call to fire MOHELA, pointing to their dangerous track record of breaking the law.
Then, more than 50 members of Congress — including more than a dozen Senators and President Biden’s Campaign Chair Committee Representative Jim Clyburn (D-SC) — called on the Biden administration to cut its contract with MOHELA, citing its track record of illegalities while servicing student loans.
Yet through its final days, the Biden administration refused to do the politically sensible thing and fire MOHELA. In a last private meeting with the White House, one official told Debt Collective organizers that the public may hear of the Biden administration’s firing of corrupt student loan servicer MOHELA and find it disapproving if it is spun by Republicans as a “political move.”
Of course, the Biden administration didn’t need to say it was firing MOHELA for political reasons. Rather, the servicer could have been fired solely on the basis that it failed to do the job the government paid it $100M to do. MOHELA had (still has) a reputation of being the worst current student loan servicer in the industry. They’ve made error after error after error. During the return to repayment after COVID-19, MOHELA accounted for nearly 90% of borrower complaints and had the longest average email wait times of any servicer — almost 40 business days. MOHELA miscalculated bills for hundreds of thousands of borrowers. And as the sole servicer for debtors seeking Public Service Loan Forgiveness (PSLF), MOHELA had a near one million person backlog on its own. Infamously, MOHELA became the first student loan servicer to be slapped with a $7M fine by the Department of Education for its egregious errors.
Would Republican litigants and conservative justices have bent themselves into an even more flexible pretzel to find another pathway to standing to prevent the Biden administration from canceling student debt or introducing a new repayment plan? Perhaps. We’ll never know. What we do know is that the Biden administration’s refusal to eliminate a contract with a student loan servicer with a proven history of padding its pockets at borrowers’ expense while functioning as Republicans’ student debt relief opposition get-out-of-jail-free-card will come at a cost more steep than anyone could imagine — a possible ten year moratorium on cancellation.
Looking Ahead
There is a caveat to the ten-year moratorium provision that Trump and the state of Missouri proposed. As written, the provision states that “If Defendants do not provide written notice” to the state of Missouri within 30 days of canceling student debt, “but actually [does cancel] more than $10 billion in federal student loans within a one-month period,” all the Department of Education has to do is “provide written notice to the Office of the Attorney General of Missouri within 30 days after the end of such month.”
Essentially, the text is not fully binding. The consequence for failing to comply with this bad-faith advanced notice provision is simply providing retroactive notice. In other words, a new administration’s efforts to cancel student debt — or Trump, should he see the light — does not have to play right-wing games on right-wing terms.
Perhaps, a 2029 Democratic President should cancel all student debt on the first day of its administration, and, thirty days later, host a rally in the Jefferson City, Missouri town square as it presents a ceremonial delivery of a written notice to the state in keeping with the law. This will not be the last effort of the Trump administration to raise the monthly bills of student debtors, nor will it be the last effort to prevent student debt cancellation from happening in the future. What we need is a real response from an opposition party that is more committed to improving the lives of working people by being savvy with every tool at its disposal.
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