Can Biden Cancel Private Student Loans? 3 Options – Forbes


WASHINGTON, DC – FEBRUARY 03: U.S. President Joe Biden meets with Democratic senators to discuss his … [+] $1.9 trillion American Rescue Plan in the Oval Office at the White House on February 03, 2021 in Washington, DC. In an effort to generate bipartisan support for his plan, Biden met with Republican senators a day earlier to discuss his COVID-19 relief plan, which Democrats are working to push through Congress with or without the GOP. (Photo by Stefani Reynolds-Pool/Getty Images)
For advocates of broad student loan forgiveness, momentum seems to be building in their favor. But would private student loan borrowers be left out?
Yesterday, Democratic leaders in the House and Senate reintroduced a resolution calling on President Biden to use executive action to cancel $50,000 in federal student loan debt for every borrower. The effort reflects last year’s similar congressional resolutions.
The renewed push by lawmakers to cancel student debt coincides with additional efforts by organizations advocating for student loan borrowers. At least 328 organizations, including prominent labor unions and civil rights groups, signed on to a letter last month urging President Biden to cancel student debt.
“There is growing energy and strong bipartisan public support for immediate broad-based debt cancellation,” the organizations wrote. “Such executive action is one of the few available tools that could immediately provide a boost to upwards of 44 million borrowers and the economy.”
But lost in the conversation is a more nuanced discussion of what broad student loan cancellation may look like for borrowers.
Private student loans issued by banks and other commercial lending entities are vastly different from federal student loans. Private student loans typically have higher interest rates and inflexible repayment terms compared to most federal student loans. Moreover, private student loans are not eligible for key federal student loan programs like income-driven repayment, Public Service Loan Forgiveness, and loan rehabilitation. Private student loans have also been excluded from federal relief programs such as the CARES Act, which suspended federal student loan payments, interest, and collections in response to the COVID-19 pandemic.
Under current law, there is no mechanism to convert a purely private student loan into a federal student loan.
Student loan borrower advocates and their allies in Congress have honed in on a simple argument: that President Biden has the power to unilaterally cancel student debt using executive action. This would allow Biden to move quickly, and to avoid what could be a messy fight in Congress.
Advocates point to provision in the Higher Education Act that gives the Secretary of Education the authority to “enforce, pay, compromise, [or] waive” student loans, or “release” a borrower from their obligations. Several student loan legal experts have argued that using this provision to broadly cancel student loan debt is legal, but others — including U.S. Department of Education attorneys under former Education Secretary Betsy DeVos — have disagreed, arguing that it would exceed authority granted to the President by Congress when it established the Higher Education Act.
President Biden has expressed skepticism that he would have the authority to enact such sweeping student debt relief using executive action. Yesterday, however, the White House did indicate it is open to the possibility and is actively considering options.
Even if the Biden administration determines that such executive action is legal and it proceeds, however, the relief would likely be limited to federal student loans only. The compromise authority in the Higher Education Act cited by advocates of student debt cancellation covers only federal student loans. The President does not necessarily have express authority under the statute to compromise, waive, or release borrowers from their obligations under a purely private student loan promissory note. Thus, while executive action to cancel student debt could provide substantial relief to millions of people, private loan borrowers could be excluded.
While President Biden may not have legal authority to unilaterally cancel private student loans through executive action, Congress could potentially pass legislation to do so.
Last year, Democratic Congresswoman Madeleine Dean offered an amendment to the National Defense Authorization Act which would have provided up to $10,000 in immediate assistance to borrowers to pay down private student loans. This amendment passed the House in July, but was never been taken up by the Republican-controlled Senate.
With Democrats now controlling both chambers, a similar bill reintroduced into Congress could potentially stand a chance of passing. However, such a bill may require 60 votes in the Senate to overcome a filibuster. With Democrats only holding 50 seats, 10 Republicans would have to support such a measure, which may prove to be difficult. And while Democrats could potentially eliminate the filibuster to make it easier to pass legislation with a simple majority, it is unclear if private student loan forgiveness would have unanimous Democratic support in the Senate. And at least two Democratic senators have rejected eliminating the filibuster.
Ultimately, while cancellation of private student loan debt is not impossible, many hurdles would have to be cleared for it to become a reality.
Earlier this week, Senate Democrats unveiled a sweeping bankruptcy bill that would fundamentally change the United States bankruptcy system, and make it easier for borrowers to discharge their student loans through bankruptcy. Currently, it is very difficult (although not technically impossible) for borrowers to discharge their student loans through bankruptcy.
If a bankruptcy reform bill is able to garner sufficient support in the House and Senate, the measure could prove to be a sufficient mechanism to provide private student loan borrowers with a path to private student loan discharge, without having to rely on specific private student loan debt cancellation legislation.
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