Here’s how Biden could cancel student loans

President Joe Biden has grabbed the headlines when he says he will roll out a federal student loan forgiveness plan “within the next two weeks” — and will aim to write off less than $50,000 in debt per year. borrower.

A move by Biden to eliminate some student loans through “executive action, with the flick of a pen,” would sound politically smart ahead of November’s midterm elections, but it could easily end up be blocked by the court system, said Mark Kantrowitz, an expert on student loans.

A second path, according to Kantrowitz, would be for Biden’s education department to make a regulatory change that offers a broad pardon, with that approach “much more likely to survive a legal challenge.”

The third and best option is for the president to work with U.S. lawmakers to enact legislation that cancels student debt because Congress has the “power of the stock market” and there would be no issues with lawsuits, Kantrowitz believes. , who is the author of books such as “Twisdoms about Paying for College” and “How to Appeal for More College Financial Aid”.

Limiting the forgiveness to borrowers who owe $10,000 or less would keep the price tag at $75 billion, but still completely eliminate federal student loan debt for a third of all borrowers, or more than 15 million people, the official said. expert, citing arrecent policy paper he wrote. And that “cheap” price could draw support from both Democratic and Republican lawmakers.

The problem with the legislative approach is that Congress has struggled to pass substantive bills in recent years, and “the only thing that gets through is naming a post office,” he said. The White House has repeatedly said that Biden will sign a bill that cuts $10,000 per borrower, but no such measure is about to hit the president’s desk.

Republican lawmakers have voiced their opposition to student loan forgiveness, with Senator Tom Cotton of Arkansas saying such debt is ‘no different from small business loans or auto loans’ and ‘must be repaid’ . Utah Sen. Mitt Romney says it was a ‘bribe’ from Democrats as they face ‘desperate’ polls ahead of midterm elections .

Hence the buzz around option 1 – executive action. Biden is considering that route and would forgive at least $10,000 per borrower, according to multiple reports released last week citing unnamed sources.

Administration officials have considered limiting aid to undergraduate debt and people earning no more than $125,000 or $150,000, with the threshold for joint filers being $250,000 or $300,000. , according to a Washington Post report.

Biden could announce his executive action when he gives the keynote address on May 28 at the University of DelawareKantrowitz said.

“If he were to announce anything, now would be the perfect time,” he told MarketWatch. Biden earned a bachelor’s degree in college in 1965, before heading to Syracuse for law school.

It could take some time to finalize details regarding executive action, and there may not be a lawsuit blocking the pardon ‘until they actually have a pronounced policy. “, said Kantrowitz. It’s also possible, he says, that there will be a preliminary injunction well before the midterm elections, and then Biden’s decision to write off student debt would be in the rearview mirror by November, leading some voters to think “What have you done for me? today?”

“But if he does the right thing – right before the midterm elections – and makes maybe more than $10,000, then that creates a sharp divide between Democrats and Republicans, where voters will see that Democrats support canceling the loans, while Republicans oppose it,” Kantrowitz said.

“So the key is not to have the final court decision before the election, because then it’s old news.”

Student loan issues have been election winners for Democrats in the past, as that party fared well in 2006 after pledging to halve student loan interest rates, Kantrowitz said, adding that he tries “to avoid politics as much as possible” and aims to “be neutral”.

Biden’s power to cancel student debt seen as ‘wishful thinking’

While debtor advocates have argued that US presidents have the power to cancel student loans, Kantrowitz don’t buy their point of viewsaying it’s “basically wishful thinking”.

Advocates point to the overriding power granted to the Secretary of Education in the Higher Education Act 1965.

One problem, however, is that a preamble limits that authority to programs already approved by Congress, Kantrowitz said. Another problem is that the wording “in this part” links only to a former guaranteed student loan program that ended in 2010.

Kantrowitz said it was also a “misinterpretation of the law” to see the waiver authority of the Heroes Act of 2003 that would allow for broad loan forgiveness.

He sees the Supreme Court, which currently has a 6-3 conservative majority, as likely to block any action by the Biden executive to largely write off student debt.

If Biden administration officials “really want to grant pardons” and their primary goal is not to “prepare for election success,” then they should rely on regulatory measures rather than executive orders, Kantrowitz said.

Proposal based on regulatory change triggers ‘firestorm’

Kantrowitz’s proposal that relies on regulatory change is based on the fact that existing income-based repayment plans are already loan forgiveness programs, with debt forgiven after 20 or 25 years.

“You could reduce the pardon period to five years,” Kantrowitz told MarketWatch. People who have already been on income-tested repayment plans for five years would have their debts canceled immediately, while others wouldn’t get the immediate cancellation they want, but it would happen in years rather than years. decades, and their monthly payments would be limited. if they don’t make a lot of money.

Kantrowitz set out this proposition in a blog post at the end of Marchand he said it had an effect on Education Ministry officials, who hadn’t had that kind of approach on their radar.

“I have my spies in the department, and I’ve had clues that he’s started a firestorm,” he said.

Opposition to scrapping student loans, businesses affected

Critics of forgiveness point out that it is far from a long-term solution.

“They forgive student loans and then what?” tweeted Brian Riedl, a senior fellow at the conservative Manhattan Institute who focuses on budget, taxation, and economic policy. “The same lenders continue to lend. Students borrow even more while waiting for their turn to forgive too. Colleges increase tuition more for these less price-sensitive students. We’re in the same mess 5 years from now, with more bailouts.

Kantrowitz said limiting the amount forgiven to a figure like $10,000 “minimizes the risk of moral hazard somewhat, as borrowers will realize that they will still be obligated to repay some of their student loans.”

Americans oppose other taxpayer-funded programs that they don’t benefit from, “but for some reason people seem to be taking the issue of student loan forgiveness more personally, and it gets away from them,” said he declared.

The financial aid expert also said limiting the discount based on income could prove tricky, as the Internal Revenue Service would likely want borrowers to approve any income sharing with the Department of Education.

“The problem with means testing is that you can’t make it automatic. You have to have an application process,” he said.

Biden told reporters on Monday that his student loan plan was “not yet” complete.

Some public companies could be hurt by the pardon, said an analyst at Height Capital Markets.

“Student loan forgiveness could lead to pressure on student loan service fees for services, such as Nelnet NNI,
-1.69%.
It could also reduce student loan refinances for companies, such as Navient NAVI,
+0.19%
and SoFi Technologies SOFI,
+3.43%,
Edwin Groshans of Height said in a note on Monday.

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