- Broad student loan forgiveness—where borrowers get a certain amount erased from their balance—has been hotly debated in Congress.
- Many of these changes amount to an expansion of existing loan forgiveness and discharge programs.
- President Biden has asked the U.S. Department of Education and the U.S. Department of Justice to report on the limits of the executive branch’s authority to forgive student loans through executive action.
- Limiting who gets broad student loan forgiveness or how much is forgiven may help push it through; we highlight some possible scenarios.
With the rising cost of a college education leaving students in crippling debt, the idea that the government might magically erase any amount of some student loans has been gaining momentum.
However, everything that the Biden Administration has done to date has 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 $18 billion, through improvements to Public Service Loan Forgiveness, income-driven repayment (IDR) plans, the Borrower Defense to Repayment and the Total and Permanent Disability Discharge.
Some in Congress are pushing for more. Senator Elizabeth Warren (D-MA) and Senator Chuck Schumer (D-NY) continue to urge President Biden to use executive action to forgive $50,000 per borrower with “the stroke of a pen.” This would be a new student loan forgiveness program, one that is not currently authorized by Congress.
What’s likely to happen now with broad student loan forgiveness? Here’s a look at some possibilities.
Inside this article
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.
If the president can waive the interest on federal student loans, Senators Schumer and Warren argue, why can’t he waive the principal?
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. Speaker of the House Nancy Pelosi (D-CA) concurs.
The President previously asked the U.S. Department of Education and the U.S. Department of Justice to report on the limits of the executive branch’s authority to forgive student loans through executive action. This report has not yet been released, although a heavily redacted draft of a report from the U.S. Department of Education was released in response to a Freedom of Information Act request.
The President has also reaffirmed his proposal to forgive up to $10,000 in student loan debt per borrower.
Broad student loan forgiveness is more likely to happen now, ahead of the midterm elections, than previously. In late April 2022, President Biden said, “I am in the process of considering whether there will be additional debt forgiveness, and I’ll have an answer on that in the next couple of weeks.”
Obstacles in Congress
There are several other challenges that may prevent Congress from passing legislation to implement a new broad 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 will cost more than $1 trillion. Even forgiving $10,000 per borrower will 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.
Limiting the forgiveness amount
Thus, it seems likely that broad student loan forgiveness will have to be limited in amount and eligibility to reduce the cost. For example, limiting student loan forgiveness to borrowers who owe $10,000 or less will cut the cost to $75 billion, while still fully erasing the federal student loan debt of a third of borrowers.
Limiting the amount of loan forgiveness may be preferred over more direct means-testing (which involves 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.
Implementing an application form can take as long as a year, as happened with the deferment for active cancer treatment. If student loan forgiveness does not require any information from the borrowers or private lenders, it can be implemented much quicker, in weeks to months.
Another idea involves 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 will 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.
Loan forgiveness might be limited to federal education loans that are held by the U.S. Department of Education, just like the eligibility restrictions on the payment pause and interest waiver, because it will be easier to implement. Commercially-held Federal Family Education Loan Program (FFELP) loans and private student loans would not be eligible. Borrowers with FFELP loans might be able to make them eligible by consolidating them into a Federal Direct Consolidation Loan.
With the midterm elections coming up, broad student loan forgiveness may come to the forefront of the debate between Democrats and Republicans. However, there are several changes that the Biden and Trump administrations have made so far to federal student loan programs that you may be able to take advantage of now. And don’t forget to check back for more on student loan forgiveness as we follow what the Biden administration and Congress does next.