UNITED STATES – JULY 23: Sen. Elizabeth Warren, D-Mass., and House Majority Whip Jim Clyburn, … [+]
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More and more democrats are calling on President-Elect Joe Biden to use an executive order to cancel student loans. If he follows this advice, he could forgive student debt on the first day of his administration. It would also invite years of legal challenges and add hundreds of billions of dollars, if not more, to our national debt.
Here’s what you need to know.
Some Democrats Call for Student Loan Forgiveness by Executive Order
Just a few months ago democrats decried President Trump’s use of executive action to extend stimulus relief to millions of Americans. With Biden set to take office in January, however, the tables have turned. Now some are urging Biden to forgive billions if not more than a trillion dollars of student loans with the stroke of a pen.
Senator Chuck Schumer (D-NY) wants Biden to forgive up to $50,000 in student loans per borrower. Schumer has called for not only canceling this debt, but also eliminating the tax liability that results from loan forgiveness. He believes Biden has the authority to cancel student loans with an executive order under the Higher Education Act.
Senator Elizabeth Warren (D-MA) is also calling on Biden to forgive up to $50,000 in student loans. Before the election, she introduced a resolution along with Sen. Schumer calling on the next president to forgive up to $50,000 in student loan debt. She claims that forgiving student loans would be the “single biggest stimulus we could add to the economy.”
Rep. Alexandria Ocasio-Cortez (D-N.Y) has also joined the calls to cancel student loans. She has said that Congress is not needed to forgive student loans, and that all that’s required is to “push” Biden to do it.
Can Biden Legally Cancel Student Loans with an Executive Order
If Biden follows this advice, student loan borrowers could wake up on January 21, 2021 with most if not all of their student loans forgiven. The question remains, however, whether such an executive order is legal.
At first glance this seems like an easy question to answer. Certainly our government of checks and balances doesn’t vest in one person the authority to spend a trillion dollars of taxpayer’s money. Even Alexander Hamilton would bristle at such an idea. Of course, he never met Senators Schumer or Warren.
They claim that the Higher Education Act of 1965 vests in the President the authority to do pretty much as he (or she) pleases when it comes to federal student loans. Citing a Harvard Law School study, they believe the President does indeed have the authority to cancel student debt:
“Congress has already granted the Secretary of Education the legal authority to broadly cancel student debt under section 432(a) of the Higher Education Act of 1965 (20 U.S.C. 1082(a)), which grants the Secretary the authority to modify, ‘… compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.’ The Department of Education has reportedly used this authority to implement modest relief for federal student loan borrowers during the COVID-19 pandemic.”
Others disagree. They argue that while the Higher Education Act does vest in the agency the power to modify debts in specific circumstances, it doesn’t give the President the blanket authority to wipe out student loans. What both sides do agree on, however, is that if Biden were to forgive student loans with an executive order, it would invite years of litigation.
Who Benefits from Student Loan Forgiveness
As noted above, Sen. Warren claims that forgiving student loans would be the “single biggest stimulus we could add to the economy.” Recent analysis, however, calls such pollyanna claims into question. Recent analysis by the Committee for a Responsible Federal Budget suggests the stimulus benefits would be minimal and aimed at those who least need the help.
First, unlike stimulus checks or unemployment benefits, forgiving student loans doesn’t put money in the pockets of borrowers. Second, most of the benefits of student debt forgiveness would go to those earning higher incomes. According to the CRFB, “student debt cancellation is poorly targeted to those most likely to spend, given that nearly three-quarters of repayments would come from the top 40 percent of earners.”
Finally, student loan forgiveness offers no help to those who have not attended college. A recent study by the Pew Research Center found that the economic fallout from the pandemic has hit lower-income Americans the hardest. Unemployment, for example, has hit those with no college education much harder than even those with some college education.
How Much Would Forgiving Student Loans Cost
The cost of cancelling student loans depends on a number of factors. The key factors include how much debt is forgiven per borrower and the income limits on qualifying for debt forgiveness.
The original version of the Heroes Act included $10,000 in student loan forgiveness. The Congressional Budget Office estimated that the provision would cost between $250 and $300 billion. Increasing the loan forgiveness amount to $50,000 would of course increase this cost, although not by a factor of five. The average student loan balance upon graduation is about $32,000, according to the National Conference of State Legislatures.
Nevertheless, the cost would be substantial. Some put the cost at about $1 trillion.
Will Biden Cancel Student Loans
Whether Biden will take executive action to cancel student loans and what that executive action would look like are still unknown. Under Schumer’s plan to forgive up to $50,000 in student loans, 75% of borrowers would enjoy complete loan forgiveness, according to Schumer. Ninety-five percent of borrowers would receive some relief.
Yet Biden’s plan doesn’t go that far. To date he has called for loan forgiveness of up to $10,000. Even with his plan, he has not committed to implementing it with an executive order. We’ll have to wait and see whether he changes his mind in the first 100 days of his administration.