President Joe Biden (Photo by Oliver Contreras-Pool/Getty Images)
What if President Joe Biden doesn’t cancel student loans?
Here’s what you need to know.
Student Loans
It’s possible that Biden won’t cancel your student loans. Despite the lobbying from progressives and the pressure to enact up to $50,000 of student loan forgiveness, Biden, ultimately, may decide not to cancel student loan debt. Most recently, Biden didn’t include student loan cancellation in the latest stimulus package. This doesn’t mean he doesn’t want your student loans cancelled. Biden supports of $10,000 of student loan forgiveness, and since becoming president, he has cancelled $2.3 billion of student loans. However, he may not be able to enact student loan cancellation by executive order unilaterally without further congressional authorization. The answer to that question, or at least a legal opinion, will be at the center of a memorandum that U.S. Secretary of Education Miguel Cardona will deliver to the president in the coming weeks. The Education Department, under President Donald Trump, wrote in a legal memo that the president doesn’t have existing unilateral authority to cancel student loans. Biden’s Education Department may reach the same or a different conclusion. However, the Education Department can only recommend; Biden will be the final decisionmaker.
If Biden doesn’t enact student loan cancellation, what could happen next? Here are three scenarios:
Option 1: Congress cancels student loans
Remember: there are two main paths to student loan cancellation. If the president cannot cancel student loans, Congress would be the appropriate federal branch of government that could cancel student loan debt. Currently, progressive Democrats in Congress have rallied around a proposal from Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) to cancel up to $50,000 of student loans. The U.S. Department of Education says that up to $50,000 of student loan cancellation would fully cancel student loans for 36 million student loan borrowers. Importantly, this proposal is only for federal student loans and for student loan borrowers who earn up to $125,000 a year. The reality, however, is this student loan proposal won’t become law. Congress won’t pass any legislation that cancels up to $50,000 of student loan debt per borrower. Why? There aren’t enough votes in Congress. It’s also unlikely there are enough votes in Congress to cancel student loan debt of any amount. That may come as a surprise. It doesn’t mean there isn’t support to reform higher education or help borrowers manage student loan debt. Rather, it means, if put to a floor vote, Democrats likely wouldn’t be able to secure enough votes to pass any legislation for wide-scale student loan cancellation. So, what happens next? Congress could draft legislation that moderate Democrats and perhaps some Republicans could support. That could be a tall order, but finding more common ground on student loans will be the best bet to get student loan forgiveness.
Option 2: Change the bankruptcy laws on student loans
If the president or Congress doesn’t cancel student loans, there are still other options to help student loan borrowers. For example, Congress could amend the U.S. Bankruptcy Code to make student loan cancellation in bankruptcy more accessible for borrowers. As a U.S. senator, Biden opposed student loan forgiveness in bankruptcy. However, as president and a presidential candidate, Biden now says student loan borrowers should be able to discharge student loans in bankruptcy. Warren, a former bankruptcy law professor at Harvard, has been a leading advocate for student loan reform, particularly on this issue. This may be one issue that Democrats and Republicans could find some common ground.
Option 3: Simplify student loan repayment plans
Another option is that Congress could simplify student loan repayment. This is area that is ripe for bipartisanship. Currently, there are four income-driven repayment plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR). These income-driven repayment plans base your monthly payment on your discretionary income, typically 10-20%, and allow you to get federal student loan forgiveness on your remaining balance after 20 years (undergraduate student loans) or 25 years (graduate student loans). They are especially helpful for student loan borrowers who are struggling to make student loan payments or who are unemployed. Congress could simplify student loan repayment in several ways. For example, Congress could make enrollment automatic (with an ability to opt out) so that student loan borrowers don’t have to sign up proactively. Second, Congress could simplify the number of student loan repayment plans to minimize confusion. Third, Congress could consider student loan cancellation earlier than 20 years or 25 years. For example, Trump proposed student loan cancellation for undergraduate student loans after 15 years.
Student loan cancellation: next steps
Biden could still enact student loan cancellation, if the Education Department says he has the legal authority. That legal memo and student loan review could be delivered to the president within weeks. Importantly, any recommendation from the Education Department is simply an opinion and not legally binding. Therefore, it’s possible that any unilateral executive action on student loan cancellation could be challenged in court. As he has indicated, Biden wants student loan cancellation three ways. In addition to wide-scale student loan cancellation, Biden also want to reform higher education. However, there is no guarantee that Congress will act on any of his agenda. While these three options are not the only potential next steps, they represent three potential paths that Congress could navigate if Biden doesn’t cancel student loans. In any event, make sure you have a student loans game plan. Here are some helpful options to consider:
