- President Biden’s administration has submitted a plan that will forgive up to $20,000 in student loan debt for eligible borrowers.
- However, legal challenges have already caused changes to the plan that will roll back forgiveness for millions of borrowers.
- Biden’s legal authority to forgive student debt is questionable, leaving a path to further legal battles and changes to the forgiveness plan.
With the rising cost of a college education leaving students in crippling debt, the idea that the government could magically erase any amount of some student loans gained momentum in recent years. And that momentum became a reality on Aug. 24, 2022, when President Biden announced his plan for forgiveness.
Biden announced $10,000 in student loan forgiveness, with borrowers who received a Federal Pell Grant eligible for up to $20,000 in student loan forgiveness. Forgiveness will be limited to borrowers with adjusted gross income under $125,000 (twice that for married borrowers). According to the original plan, eligible loans include all federal education loans held by the U.S. Department of Education, namely the loans that were eligible for the payment pause and interest waiver, that were disbursed by June 30, 2022.
Everything that the Biden Administration had done prior to this move involved student loan forgiveness and discharge options that were previously authorized by Congress. President Biden has already forgiven more student loan debt than any previous President, a total of more than $32 billion, through improvements to Public Service Loan Forgiveness, income-driven repayment (IDR) plans, the Borrower Defense to Repayment, the Total and Permanent Disability Discharge and the Closed School Discharge.
What’s next for student loan forgiveness? Here’s a look at some possibilities.
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Does President Biden have the legal authority to cancel student loans?
Legal experts disagree over whether the President has the legal authority to forgive student loan debt unilaterally.
The Legal Services Center of Harvard Law School points to the waiver authority in the Higher Education Act of 1965, which allows the U.S. Secretary of Education to “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.”
But this waiver authority is taken out of context. This waiver authority is limited by the preamble to “the performance of, and with respect to, the functions, powers, and duties, vested in him by this part.” In other words, the legal authority to forgive student loans is limited to the loan forgiveness programs authorized by Congress.
Moreover, “this part” refers to Part B of the Higher Education Act, which concerns the Federal Family Education Loan Program, which ended in 2010, and does not apply to the William D. Ford Federal Direct Loan Program (which now disburses the majority of loans nationwide). In addition, waiver authority is not a term and condition of Direct loans.
Another argument refers to the Heroes Act of 2003, which provides the U.S. Secretary of Education with specific waiver authority in response to a war, military operation or national emergency. President Trump declared the Covid-19 pandemic as a national emergency, under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This is the legal authority under which the payment pause and interest waiver, which was enacted by the CARES Act, has been repeatedly extended.
The U.S. Department of Education is asserting that the Heroes Act of 2003 gives them the legal authority to implement broad student loan forgiveness. But the legal authority is limited at 20 USC 1098bb(a)(2)(A) to "recipients of student financial assistance under title IV of the Act who are affected individuals are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals." They also cite the language "deems necessary" as supporting whatever the Secretary of Education decides.
But the Heroes Act of 2003 limits the waiver authority to ensuring that affected individuals are “not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals.” Not in a worse position does not mean in a better position. The student loan mortarium put federal student loans in hibernation, so that the loan balance will be the same when repayment restarts as it was before the pandemic. To forgive student loans would put borrowers in a better position, going beyond the statutory limitation.
Thus, the president does not actually have the legal authority to forgive student loan debt through executive action. Only Congress has the power of the purse. In a July press conference, Speaker of the House Nancy Pelosi (D-CA) agreed that Biden does not have the power to forgive student debt, though the date his plan was unveiled, she released a supportive statement.[2,3]
It seems likely that there will be more legal challenges and that this proposal may be blocked by the courts. The cost of forgiveness is estimated to cost $400 billion, which is enough for some of the Republicans who oppose loan forgiveness to bring a lawsuit to block it. That will set up a sharp contrast between Democrats and Republicans ahead of the midterm elections, which is perhaps the intention.
Obstacles in Congress
There are several other challenges that may prevent Congress from passing legislation to implement a new broader student loan forgiveness program.
Democrats generally support student loan forgiveness while Republicans do not. Since Democrats do not have a 60-vote supermajority in the Senate, they would need to bypass a filibuster by using a budget reconciliation bill. A budget reconciliation bill must cut the budget deficit by cutting spending elsewhere or increasing revenue. After all, the money that’s lost due to any student loan forgiveness has to be made up somehow because there’s a limit to how much money President Biden can spend on his agenda.
However, several Democrats may balk at the high cost of broad student loan forgiveness. Forgiving $50,000 per borrower would cost more than $1 trillion. Even forgiving $10,000 per borrower would cost $377 billion. With Democrats controlling Congress through the slimmest of margins, every Democrat has a veto.
One previous attempt at broad student loan forgiveness was the Heroes Act of 2020, which passed the House but not the Senate. It proposed $10,000 in federal and private student loan forgiveness to economically distressed borrowers.
The legislation defined an economically distressed borrower as a borrower who, as of March 12, 2020, would have been eligible for a zero monthly payment under an income-contingent or income-based repayment plan (i.e., adjusted gross income less than 150% of the poverty line); was seriously delinquent or in default on the student loan; or was in deferment or forbearance. The bill would need to be reintroduced in order for it to be considered again, but it still lacks support.
Other options for forgiveness
The Biden administration limited their student loan forgiveness plan in both amount and eligibility to reduce the cost. However, they could have gone farther: Limiting student loan forgiveness to borrowers who owe $10,000 or less would have cut the cost of forgiveness to $75 billion, while still fully erasing the federal student loan debt of a third of borrowers.
Limiting the amount of loan forgiveness may have been preferable over more direct means-testing (i.e., limiting eligibility based on income, such as restricting it to borrowers with income less than 150% of the poverty line) because it can be implemented automatically. For instance, the U.S. Department of Education could implement student loan forgiveness of government-held federal student loans without requiring an application form.
Since the forgiveness has income limits, implementing the application could take as long as a year, as happened with the deferment for active cancer treatment. If student loan forgiveness had not required any information from the borrowers or private lenders, it could have been implemented much more quickly, in weeks to months.
Another option would have been forgiving the federal student loans of borrowers with a zero or reduced payment under an IDR plan. These are non-performing loans that will be forgiven anyway, after 20 or 25 years of payments, so the cost of accelerating the loan forgiveness would be low. The regulatory authority for one of the IDR plans, income-contingent repayment, is so broad that it could be used to forgive remaining student loan debt after as little as five years of payments.
The Biden plan does also include major revisions to IDR policies, cutting payment amounts and limiting the amount of income that can be considered discretionary, among other changes.
In response to legal challenges, the Biden administration’s plan has already been scaled back. In September, Politico reported that the U.S. Department of Education now says that borrowers whose federal student loans are owned by private entities no longer qualify for forgiveness. This move cuts out millions of borrowers who were expecting relief.
It’s possible Biden’s plan could continue to evolve if more legal pushback arises. Check back for more on student loan forgiveness as we follow what the Biden administration does next.