Will Biden cancel your student loans in January?
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 cancel his student debt from day one 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 executive order cancellation of student loan
Just a few months ago, Democrats denounced President Trump’s use of executive action to extend the relief of the stimulus to millions of Americans. With Biden due to take office in January, however, the roles have turned. Now some are urging Biden to forgive billions, if not more than a trillion dollars in 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 called not only for the cancellation of this debt, but also for the elimination of the tax liability that results from a loan forgiveness. He believes Biden has the power to cancel student loans with an executive order under the Higher Education Act.
Senator Elizabeth Warren (D-MA) also calls on Biden to cancel up to $ 50,000 in student loans. Before the elections, she presented a resolution with Senator Schumer calling on the next president to write off up to $ 50,000 in student loan debt. She complaints that canceling student loans would be the “biggest stimulus we could add to the economy.”
Representative Alexandria Ocasio-Cortez (DN.Y) also joined calls for the cancellation of student loans. She said Congress was not needed to forgive student loans and it was enough to “push” Biden to do so.
Can Biden legally cancel student loans with an executive order
If Biden follows this advice, student loan borrowers could wake up on Jan.21, 2021 with most if not all of their canceled student loans. The question remains, however, whether such a decree is legal.
At first glance, this seems like an easy question to answer. Our government of checks and balances certainly does not give one person the power to spend a trillion dollars of taxpayer dollars. Even Alexander Hamilton would bristle with such an idea. Of course, he never met Senators Schumer or Warren.
They claim that the Higher Education Act of 1965 gives the president the power to do pretty much whatever he (or she) wants with regard to federal student loans. Citing a Harvard Law School study, they to believe the President has the power to cancel student debt:
“Congress has already granted the Secretary of Education the legal authority to largely cancel student debt under Section 432 (a) of the Higher Education Act of 1965 (20 USC 1082 (a)), which grants the Secretary the power to modify, “… compromise, waive or release any right, title, claim, lien, or demand, however acquired, including any equity or right of redemption. ‘ The Ministry of Education would have used this authority to implement modest relief for federal student loan borrowers during the COVID-19 pandemic. “
Others to disagree. They argue that while the Higher Education Act gives the agency the power to amend debts in specific circumstances, it does not give the president general power to write off student loans. What the two sides agree on, however, is that if Biden were to write off student loans with an executive order, it would lead to years of litigation.
Who benefits from the student loan forgiveness
As noted above, Senator Warren says canceling student loans would be the “biggest stimulus we could add to the economy.” Recent analysis, however, questions such claims of pollyanna. Recent analysis by the Committee for a Responsible Federal Budget suggests that the benefits of the stimulus would be minimal and targeted to those who need it least.
First, unlike stimulus checks or unemployment benefits, student loan forgiveness does not put money in borrowers’ pockets. Second, most of the benefits of student debt cancellation would go to those earning higher incomes. According to the CRFB, “the cancellation of student debt is poorly targeted on those who are most likely to spend, given that nearly three quarters of repayments come from the 40% of the richest employees.”
Finally, the cancellation of the student loan does not offer any help to those who did not attend university. A recent study by the Pew Research Center found that the economic fallout from the pandemic hit low-income Americans the most. Unemployment, for example, has hit those without a college education much harder than even those with a college education.
How much would forgiveness of student loans cost
The cost of canceling a student loan depends on several factors. The key factors include the amount of debt forgiven per borrower and the income limits to qualify for debt cancellation.
The original version of the Heroes Act provided for $ 10,000 in student loan forgiveness. The Congress Budget Office valued that the provision would cost between $ 250 billion and $ 300 billion. Increasing the loan forgiveness amount to $ 50,000 would of course increase that cost, but not by a factor of five. The average student loan balance after graduation is around $ 32,000, according to at the National Conference of State Legislatures.
Nevertheless, the cost would be substantial. Some estimate the cost to be around 1000 billion dollars.
Will Biden cancel student loans
It is still unclear whether Biden will take executive action to cancel student loans and what that executive action would look like. Under Schumer’s plan to cancel up to $ 50,000 in student loans, 75% of borrowers would benefit from a full loan cancellation, according to Schumer. Ninety-five percent of borrowers would benefit from some relief.
Yet Biden’s plan doesn’t go that far. To date, he has requested a loan forgiveness of up to $ 10,000. Even with his plan, he did not commit to implementing it by decree. We’ll have to wait and see if he changes his mind within the first 100 days of his administration.