Joe Biden is calling on Congress to cancel $10,000 of student loans immediately.
Here’s what you need to know:
Biden is following through on a campaign proposal to cancel $10,000 of student loans. The president-elect wants Congress to cancel student loan debt immediately.
“Immediate $10,000 forgiveness of student loans,” Biden said. “They’re having to make choices between paying their student loan and paying the rent...It should be done immediately.”
Cancel Student Loans in Congress
Importantly, Biden is calling on Congress to act on student loan forgiveness. As a former U.S. senator from Delaware, Biden knows well that Congress has authority to decide federal spending, which includes student loans and student loan forgiveness. As such, Biden is deferring to Congress to pass relevant legislation on student loans, rather than act unilaterally as president.
Cancel Student Loans through Executive Order
Biden has not stated whether he would use an executive order to try to cancel student loans. A Biden spokesperson told Fox News that Biden specifically called upon Congress to forgive student loan debt. This is significant because it implies Biden is not focused on a proposal from Senate Democrats to cancel student loans through an executive order.
Senate Minority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) have proposed that the president should cancel up to $50,000 of student loans for every student loan borrower. Schumer and Warren want the president to bypass Congress and cancel student loans. They say that the Higher Education Act empowers the president to cancel student loans and doesn’t require further congressional approval. While the U.S. Secretary of Education (who is part of the executive branch) has power to forgive student loans (e.g., due to fraud, disability or school closure, for example), it’s unlikely that a president unilaterally can cancel $50,000 of student loans for all 45 million borrowers. It’s more reasonable to assume that Congress granted the Education Secretary power to cancel student loans in these circumstances, and less likely that Congress intended to grant the Education Secretary the unlimited power to forgive student loans of any amount for every student loan borrower. This may be why Biden is asking Congress to cancel student loan debt, rather than committing that he will enact student loan forgiveness through an executive order.
Cancel Student Loans: Biden Plan
Biden’s plan to cancel student loans is part of a broader strategy to make higher education more affordable and less financially burdensome. Biden’s plan includes, among other initiatives: tuition-free college, student loan forgiveness at public colleges and universities, student loan forgiveness and a revamped Public Service Loan Forgiveness program to help more borrowers get student loan forgiveness.
Why $10,000 of student loan forgiveness?
Biden adopted the plan contained in the Heroes Act, which is the $3 trillion stimulus plan that House Democrats proposed. Arguably, it’s smaller than other plans to cancel student loans, which have ranged from $30,000 of student loan forgiveness (House Democrats) to all $1.6 trillion of student loans (Sen. Bernie Sanders). Importantly, the language in the Heroes Act (which is a legislative proposal and not law) does not provide student loan forgiveness for every borrower. Rather, only borrowers who have been struggling financially due to the Covid-19 pandemic would be eligible to “cancel student loans.” It’s unclear what the financial litmus test for student loan forgiveness would be, or if Congress would broaden the definition to include all student loan borrowers. Another reason for $10,000 of student loan forgiveness is that borrowers with the lowest student loan balances are among those with the highest student loan default rates. Many borrowers with low student loan balances struggle the most, and student loan forgiveness for these borrowers could help lower student loan default rates. This begs the question whether every borrower would be eligible for student loan forgiveness, or if Congress could impose income limits. Currently, Democrats appear to want student loan forgiveness for all borrowers, although that could change. Ultimately, the composition of Congress—specifically whether Democrats or Republicans control the U.S. Senate—may dictate whether widespread, outright student loan forgiveness becomes law. Currently, Republicans control the U.S. Senate, and likely won’t support Biden’s plan to cancel student loans.
Watch the run-off elections in Georgia to determine the balance of power in the U.S. Senate. In the meantime, understand there are no guarantees that Biden or Congress will cancel student loans.
Original text by: Zack Friedman © Forbes