The Federal Government Has A Legal Obligation To Forgive Student Debt
When the Biden administration extended the pause on student loans through May 1, many borrowers were left wondering: “that’s all?” Biden ran on a campaign promise to forgive a “minimum” of $10,000 of federal student debt per person, a campaign promise that looks highly likely to remain unfulfilled by the end of the president’s tenure in office.
To be fair, there are good reasons for not forgiving a significant portion of student debt. I’m not an economist, but forgiving student debt would increase the deficit and potentially cost taxpayers billions or trillions of dollars, while possibly not having the beneficial impact on the economy that many people argue it would. After all, student debt is often repaid over tens of years so how much discretionary cash would this put in the pockets of borrowers?
It’s also important to teach the importance of personal responsibility and fulfilling one’s promise, even if that promise is made to the federal government. After all, keeping our promises is how our society functions, both economically and socially.
The government’s legal problem
While the aforementioned reasons are good ones for not forgiving student debt, I’m not a policymaker and there is a strong legal reason why the government should forgive student debt. When parties enter into a contract, there are often implied condition precedents. A condition precedent is something that has to be met before the contract is enforceable. When you enter into a contract with a construction firm to build a house for you, there is an implied condition precedent of an adequate quality standard. If the roof collapses one week into your living there, you don’t have to pay the construction firm for the work done even though there’s not an explicit clause in the contract that provided “the roof shall not collapse after the homeowner moves in.”
When students enter into a contract with the federal government to take out a loan, there is an implied condition precedent that, after graduation, the student will have the opportunity to obtain a job that will sufficiently pay so the student can pay the loan back. Both the government and the student know that this condition precedent exists. After all, no rational actor would take out a loan knowing full well that he or she will not be able to pay it back.
But for many students, the implied promise of an economy ripe enough to create enough opportunities for the necessary gainful employment never materialized. After graduating, many students are left under-employed taking jobs that they could have obtained without going to college. This leaves them without the ability to perform their promise to pay back the money the federal government loaned them.
To those who will say that the students assumed the risk, it’s a risk that the government does its best to hide. The zeitgeist of our society, created by government messaging, government schools, and a culture that the government helped to create, is that going to college is everyone’s ticket to socio-economic mobility. It’s an axiomatic American legal principle that a party cannot benefit from its own malfeasance.
The upshot is that, because an implied condition precedent of the contract that many students have with the government was never satisfied, those student borrowers are not legally obligated to perform their contractual promise of repaying the loan provided to them by the federal government.
It’s in the government’s interest to forgive student debt
Any national government has an immense interest in the education of its public. This is why the government promotes education so zealously in the first place. An educated public is the only way America can compete on the global economic stage.
If student debt is not forgiven and a significant portion of an entire generation is of the mind that they were left out to dry by the federal government with respect to college education, that will necessarily change the cultural impetus to become educated. If the promise of greater socio-economic mobility is not fulfilled and instead taking out a massive loan ended up as a net economic negative for many people, it is not hard to imagine a society in which obtaining advanced degrees is discouraged.
Not only will America’s global economic standing fall as a result of this, but the existence of America as an idea, as a leading liberal democracy in the world, could very well be in jeopardy. A constitutional republic requires an informed populace to sustain itself.
The federal government may have a legal obligation to forgive student debt, and it may have an even stronger economic and self-preservation incentive to do so.
