The HEROES Act and Student Loan Forgiveness: A Comprehensive Analysis

The Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) has become a focal point in the debate over federal student loan forgiveness, particularly in the wake of the COVID-19 pandemic. This article delves into the complexities surrounding the HEROES Act, its historical usage, the Biden administration's cancellation policy, and the legal challenges it faces.

Understanding the HEROES Act

Congress initially passed the HEROES Act in 2001 following the September 11 attacks. The original intent was to grant the Secretary of Education the authority to "waive or modify any statutory or regulatory provision" applicable to Title IV student aid programs for individuals affected by the attacks. In 2003, Congress broadened the scope of the Act, allowing the Secretary to provide relief to borrowers affected by war, military operations, or national emergencies.

The HEROES Act of 2003 otherwise resembled the 2001 law in many respects. It does not appear that ED has ever invoked the HEROES Act to afford relief as broad as the cancellation policy announced by Secretary Cardona in 2022. For instance, past Secretaries invoked the HEROES Act to expand available forbearance relief for certain Federal Perkins Loan borrowers "who reside or are employed in a disaster area." In doing so, however, the Secretaries did not forgive or cancel any outstanding loan balances and also did not modify the rule that interest ordinarily accrues during forbearance. Past Secretaries likewise invoked the HEROES Act to suspend the collection of defaulted loans from borrowers "who reside or are employed in a disaster area," but these did not expressly contemplate forgiveness or cancellation of such defaulted loan balances.

Federal Student Loan Programs: FFELP and FDLP

Understanding the context of the HEROES Act requires a brief overview of the federal student loan programs involved.

Federal Family Education Loan Program (FFELP)

Until its authority terminated in June 2010, the Federal Family Education Loan Program (FFELP) facilitated loans to students and parents through nonfederal lenders, guaranteed by guaranty agencies (GAs) and reinsured by the Department of Education (ED). Lenders have used the revenue-generating potential of FFELP loans to access credit markets through asset-backed securities known as Student Loan Asset-Backed Securities (SLABS). An asset-backed security is a bond or note whose cash flow derives from an asset such as a third party's debt. SLABS, in particular, are backed by a pool of pledged student loans, including FFELP loans.

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William D. Ford Direct Loan Program (FDLP)

Nearly all borrowers who today obtain federal student loans do so under the William D. Ford Direct Loan Program (FDLP), authorized by Congress in 1993. The designation of this federal credit program as a "direct loan" program means that, when making an FDLP loan, the federal government disburses funds to a nonfederal borrower under a contract with the borrower that requires repayment. Unlike some other HEA student loan programs, such as the FFELP, the borrower enters a contractual relationship with the federal government directly upon borrowing the loan. The federal government is the loan holder, receiving payments of principal, interest, and other fees on account of the FDLP loan. The federal government makes several type of loans under the FDLP. Eligible undergraduate borrowers may receive need-based Direct Subsidized Loans. Undergraduate and graduate students may obtain Direct Unsubsidized Loans as well. Borrowers may also "consolidate education loans made under certain Federal programs," including loans made under the FFELP, by borrowing a Direct Consolidation Loan. Unlike other FDLP loans, Direct Consolidation Loan proceeds are not used to directly pay tuition, fees, and similar costs. Instead, ED pays consolidation-loan proceeds to the holder of an existing education loan to discharge that loan. Thus, if a borrower consolidates an existing FFELP loan held by a lender, ED pays the consolidation proceeds to the FFELP lender to pay the existing loan's balance in full. Going forward, the borrower makes payments to ED on account of the new Direct Consolidation Loan.

The Biden Administration's Cancellation Policy

The Biden Administration expressly describes its announced cancellation policy as a response to the COVID-19 pandemic. In his initial directives about the cancellation policy, the Secretary settled on three related criteria to identify borrowers eligible to receive cancellation and the amount of cancellation benefits they would receive. The Secretary's first two eligibility criteria would work in tandem to identify borrowers and loans eligible to receive cancellation. First, ED would use income thresholds to identify borrowers with eligible loan types who could receive cancellation. Thresholds differ based on a borrower's taxpayer status and would use adjusted gross income (AGI) in tax years 2020 or 2021. Those who file individually (whether single or married) would be eligible if their AGI was less than $125,000 in either tax year. Those who file jointly, as head of household, or as a qualifying widow or widower would be eligible if their AGI was less than $250,000 in either tax year. Second, ED would apply cancellation benefits to only certain federal student loans. Cancellation would be available for FDLP loans and FFELP loans held by a GA or by ED that had been disbursed as of June 30, 2022. Direct Consolidation Loans would also be eligible for cancellation, provided the loan's proceeds were used to consolidate education loans outstanding as of the June 30, 2022, cutoff. But FFELP loans held by a lender would not be eligible for cancellation. The Secretary's income threshold and loan type criteria identify the borrowers eligible to receive cancellation benefits. A third criterion identifies the amount of benefits eligible borrowers would receive.

Under this policy, the Secretary identified the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) as statutory authority for the cancellation policy. The Act allows the Secretary to "waive or modify any statutory or regulatory provision applicable to the" Title IV programs "in connection with a . . .

The Secretary's decision could have far-reaching effects if implemented. According to ED, over 40 million borrowers (about 88%) are eligible for some amount of cancellation under the policy. Full participation in the policy by eligible borrowers would leave 20 million borrowers (about 44%) with no remaining federal student loan debt. ED expects, though, that not all eligible borrowers would claim the benefit.

One facet of the lawsuits challenging the cancellation policy is the magnitude of the economic impact of this exercise of the HEROES Act. According to the plaintiffs, the dimensions of the policy show that ED proposes to use the HEROES Act to address a question of major economic as well as political significance. Thus, plaintiffs urge the Supreme Court to apply the "major-questions doctrine" to assess whether the statute authorizes the policy. The federal petitioners respond, in part, by focusing on the financial effects of the payment pause, portions of which ED implemented using HEROES Act authority. While the economic impact of the payment pause and the cancellation policy could perhaps be framed in more than one way, the parties have quantified the economic impacts of ED's actions by citing their estimated budgetary costs.

Legal Challenges and the Supreme Court

The Secretary's decision drew debate over whether Congress had delegated authority to the Secretary to discharge student loan balances on this scale, which ED has not previously attempted to do under the HEROES Act or any other authority. Within weeks of the Secretary's decision, individuals, groups, and states filed lawsuits challenging the policy.

The Supreme Court has accepted jurisdiction over two cases challenging the cancellation policy, Nebraska v. Biden and Brown v. Department of Education.

Biden v. Nebraska: Six states allege impending financial harm or tax-revenue injury on account of the policy.
Department of Education v. Brown: Two borrowers claim procedural injury from not having been able to participate in the policy's development.

Both suits include arguments that the cancellation policy exceeds the Secretary's HEROES Act authority. The Court's decision on these and other important questions of standing and statutory authority will likely determine whether the Secretary can implement the cancellation policy.

The Brown and Nebraska plaintiffs advance different standing theories, which fall into three general categories. First, certain Nebraska plaintiffs allege that the cancellation policy causes them financial harm based on its effects on loan servicers and lender-held FFELP loans. Second, certain Nebraska plaintiffs assert harm in the form of lost.

Plaintiffs in Nebraska and Brown press claims that implicate two HEA loan programs: the Federal Family Education Loan Program and the William D.

Key Legal Arguments

The legal challenges revolve around questions of standing, statutory authority, and procedural validity.

Standing: The plaintiffs must demonstrate that they have suffered or will suffer a concrete and particularized injury as a result of the cancellation policy.
Statutory Authority: The central question is whether the HEROES Act grants the Secretary of Education the authority to implement such a broad student loan cancellation program. The plaintiffs argue that the Act was intended for more limited relief related to specific national emergencies, not a blanket cancellation of student debt.
Procedural Validity: The Brown case raises concerns about whether the Secretary followed proper procedures in adopting the cancellation policy, particularly regarding public notice and comment.

The legality of using the Higher Education Relief Opportunities for Students Act of 2003 to forgive up to $20,000 of federal student loans for eligible Americans in response to the COVID-19 pandemic has already been the subject of numerous court filings and amicus briefs. Clarityâone way or the otherâis expected when the Supreme Court weighs in on two cases challenging the Biden administrationâs debt relief. The plaintiffs in the lawsuits are six largely Republican-led states, which allege that the plan will harm state revenues and agencies that hold student loans, and two Texas residents with federal student loan debt who challenged the debt-relief plan because they wouldnât benefit from all the provisions and didnât have the chance to comment on the proposal. âThe act requires a real connection to a national emergency,â the statesâ brief says. âBut the departmentâs reliance on the COVID-19 pandemic is a pretext to mask the presidentâs true goal of fulfilling his campaign promise to erase student-loan debt. âRespondentsâ various attempts to reconcile their contrary position with the actâs unambiguous text fall short,â the Biden administration wrote in a brief to the Supreme Court filed Jan. 4.

The Education Departmentâs Office of General Counsel during the Trump administration concluded that the education secretary didnât have the authority under the HEROES Act to forgive or cancel federal student loans. Former California representative George Miller, who co-sponsored the HEROES Act of 2003, agreed with that reasoning in an amicus brief. âThe act confers significant authority on the secretary to ease the burdens on borrowers who have been affected by unexpected national emergencies,â Millerâs brief states.

JimÃ©nez was part of a group of law professors who recently filed an amicus brief in support of the administration. âRespondentsâ insistence that any relief be limited to those who suffered direct hardship as a result of the COVID-19 national emergency would transform Congressâs âorâ into an âand,ââ the law professors wrote in the brief.

Alternative Approaches and Congressional Action

Using the HEROES Act to cancel student loans was not the recommendation of DaliÃ© JimÃ©nez, a law professor at the University of California, Irvine, and director of the Student Loan Law Initiative. She and other legal experts urged the Biden administration to use the Higher Education Act of 1965 as the legal justification for the debt-relief plan.

However, Congress has considered legislation to provide broad-based student loan cancellation since at least as early as 2019.

Democrats in the House of Representatives recently released the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, a fourth-phase federal response to the COVID-19 pandemic. The HEROES Act contains multiple provisions for the federal government to cancel student debt and provide additional funding for education systems. Under the HEROES Act, students, including those with private loans, would see their loan repayments suspended, interest free, until September 30th, 2021. Economically distressed student borrowers would also be eligible for up to $10,000 in loan forgiveness. HEROES defines economically distressed students as those who are 30 or more days delinquent on their student loans, or in deferment/forbearance prior to March 12, 2020. The bill originally extended forgiveness to all holders of federal and private loans, which could have cost up to $440 billion, but this provision was scaled back due to cost concerns.

Under HEROES, the Department of Education would provide up to $90 billion through September 2022 for states to use on their early childhood, elementary, secondary, and post-secondary education systems. A third of this total must go toward higher education institutions.

The HEROES Act has two key implications for education. It provides relief for economically distressed student debt holders by cancelling their balances by up to $10,000; this provision would ultimately cost the federal government up to $31.4 billion. House has proposed a $3 trillion bill in response to the COVID-19 crisis that will include debt relief for student loan borrowers.

The HEROES Act bill student loans promises broader loan debt relief for college students than what the CARES Act offered. #1. The new Act gives federal loan borrowers credit for time spend paying the loan. #2. This applies to âeconomically distressedâ borrowers with federal or Perkins loans, or a Federal Family Education Loan (FFEL) that is privately held and not actually serviced by the federal government. Borrowers who are already paying 0% on their loans will also be able to get up to $10,000 of their debt forgiven. #3. Students behind on their loan payments would be protected against Social Security offsets, wage garnishment or tax refund offsets. With the new Act, borrowers didnât have to resume loan payments until Sept. 30, 2021. This is a one-year extension from the earlier deadline of Sept. The most significant feature of the HEROES Act is the plan to forgive up to $10,000 student loan deb. The exact formalities for HEROES Act student loan forgiveness vary depending on the type of loan you have. If you meet any one of the above requirements, make sure to speak to your lender and get the details from them. On May 15, 2020 the House passed the Health and Economic Recovery Omnibus Emergency Solutions Act or HEROES Act, to further the federal response to the COVID-19 emergency through provisions to support the economy, public health, state and local governments, individuals, and businesses. It was proposed legislation acting as a $3 trillion stimulus package in response to the pandemic, intended to supplement the earlier Coronavirus Aid, Relief, and Economic Security Act (CARES Act) stimulus package enacted on March 27, 2020. The HEROES Act would expand on the temporary federal student loan benefits made available under the CARES Act. The HEROES Act would also authorize new loan benefits to borrowers.

Private Loans and the HEROES Act

Private student loans donât qualify for HEROES Act forgiveness. There is no $10,000 forgiveness for private loans. If you have private loans, youâre on your own.

Are Private Student Loans Eligible for Forgiveness Under the HEROES Act?No. The HEROES Act only applies to federal student loans, meaning loans owned or backed by the ED. When President Biden announced the 2022 debt relief plan, it explicitly applied only to federal loans. If you have private loans, youâre still responsible for repaying them as agreed. Federal vs. Federal student loans (Direct Loans, FFEL loans, Perkins loans) are issued or guaranteed by the government. Private student loans are funded by private lenders and have no federal protections. The government cannot modify or cancel these loans unless Congress passes a specific law.

Is There a $10,000 Forgiveness Program for Private Loans?No. There is no active program that forgives private student loans. This plan never included private loansâonly federally held debt. If this bill had passed, private loan borrowers could have had payments covered through September 2021, followed by up to $10,000 in loan cancellation.

Who Qualifies for Private Loan Relief Under the HEROES Act?No one. Private student loan borrowers do not qualify for any forgiveness or relief under the HEROES Act. If you have private student loans, there is no federal forgiveness program for you. The HEROES Act has never covered private loans, and no current law or executive action provides cancellation.

If your private loans are overwhelming you, there are ways to reduce the burden, such as refinancing, loan negotiation, or exploring hardship programs.

Implications and the Future of Student Loan Forgiveness

The Court's decision on these and other important questions of standing and statutory authority will likely determine whether the Secretary can implement the cancellation policy. The Secretary's decision could have far-reaching effects if implemented. According to ED, over 40 million borrowers (about 88%) are eligible for some amount of cancellation under the policy. Full participation in the policy by eligible borrowers would leave 20 million borrowers (about 44%) with no remaining federal student loan debt. ED expects, though, that not all eligible borrowers would claim the benefit.

The Supreme Court ruled that Biden couldnât use the Act to provide such widespread cancellation during a national disaster. âSix States sued, arguing that the HEROES Act does not authorize the loan cancellation plan. Moving forward, similar broad forgiveness plans would need to be approved by Congress. The Biden-Harris Administration in July announced a new debt relief effort under the existing Higher Education Act. This plan was making its way through the negotiated rulemaking path, with final guidelines expected this fall. But in September, seven Republican-led states headed by Missouri filed a lawsuit attempting to halt the plan. To date, the Biden-Harris administration has been able to approve $168 billion in federal loan cancelation for roughly 4.7 million borrowers. Federal student loan borrowers need to stay in-the-know about federal student loan relief policies, regardless if they think they qualify or not. Itâs important that federal student loan borrowers hold off on refinancing with a private student loan at least until the 2024 election, if possible. With Biden making so many changes, itâs possible that you could be eligible for debt relief in the near future.

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