President Biden has directed attorneys at the U.S. Department of Education and the Department of Justice to conduct a legal review of his options to cancel student debt. That legal review is ongoing, and it is unclear what the conclusions will be, although we may know soon.
Biden has consistently expressed support for cancelling student debt, but he has opposed calls for upwards of $50,000 or more in student loan forgiveness, an amount pushed by progressive Democrats and a broad coalition of advocacy groups, labor unions, and civil rights organizations. He has indicated that he would support $10,000 in student loan forgiveness, and he has also argued that any student debt cancellation should be targeted to lower income borrowers.
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But would borrowers with private student loans benefit from any sort of mass cancellation of student debt? Here’s what we know.
Private Student Loans
Private student loans are originated by commercial lenders such as banks, schools, state-related or nonprofit lending authorities, and other private entities. These types of student loans often have higher interest rates than federal loans and fewer repayment options. They may also require a cosigner.
Private student loans differ from an older federal student loan program called the Family Federal Education Loan (FFEL) program, whereby a private lender originated a type of federal loan that was backed or guaranteed by the government. Those types of loans could be eligible for certain federal student loan repayment and forgiveness programs, and can also be consolidated into a government-owned student loan through the federal Direct consolidation program. But purely private student loans cannot access any federal loan programs, and cannot be consolidated into a federal Direct loan.
Biden Cancelling Student Loan Debt Through Executive Action
While Biden has expressed general support for cancelling student loan debt, he has expressed serious doubts that he would have authority to enact any sort of mass student loan forgiveness through executive action. Several leading student loan legal advocacy groups, as well as their allies in Congress (such as Massachusetts Senator Elizabeth Warren), have argued that the Higher Education Act — the sweeping statute that governs much of the federal student aid system — gives the president very broad powers to “compromise, waive, or release” a borrower’s student debt obligations. Borrower advocates have also pointed to the HEROES Act, which Biden (and President Trump, before him) used to suspend payments and interest on government-held federal student loans in response to the Covid-19 emergency, effectively cancelling billions of dollars in student loan interest in the process.MORE FOR YOUIf Biden Cancels Student Loans, It Could Look Like ThisWhat If Biden Doesn’t Cancel Student Loans?5 Signs Biden Won’t Enact Student Loan Cancellation
But other experts disagree. Attorneys at the Department of Education under former Secretary Betsy DeVos concluded that neither the Higher Education Act nor the HEROES Act gives the president the kind of power that advocates of student loan cancellation say exists. In a legal opinion memo, Department attorneys argued that mass student loan forgiveness would be contrary to what Congress intended when it drafted and enacted these statutes. The attorneys concluded that, “Congress appropriated funds for student loans with the expectation that such loans would be repaid” absent extraordinary and “specific circumstances.”
Even if the current legal review being conducted by the Biden administration concludes that mass student loan forgiveness is achievable using executive action, any relief would almost certainly be limited to federal student loans only. The Higher Education Act and the HEROES Act only govern the federal student aid system. Private student loans are governed largely by individual loan contracts and promissory notes between the borrower and lender, with a mix of state and federal regulation.
Biden Could Sign a Bill Passed by Congress to Cancel Private Student Loans
The Biden administration has repeatedly stated that the President would gladly sign a student debt cancellation bill passed by Congress. And there have been several recent proposals that could benefit private student loan borrowers:
- Last year, the House passed a bill that would provide for $10,000 in private student loan forgiveness for borrowers experiencing financial hardship as a result of the pandemic.
- Also last year, an amendment to the National Defense Authorization Act would have provided up to $10,000 in financial assistance to borrowers to help them pay down their private student loans.
- In February, Senate Democrats unveiled the Medical Bankruptcy Fairness Act of 2021. This bill would make several reforms to the U.S. bankruptcy code, and would make it much easier for student loan borrowers (including those with private student loans) to discharge their federal and private student debt in bankruptcy — something that is currently very difficult to do because of the bankruptcy code’s harsh treatment of student loan debt.
- Earlier this month, the House passed the Comprehensive Debt Collection Improvement Act, which would allow private student loan borrowers and their cosigners to discharge their loans if they become totally and permanently disabled.
While these bills are promising, they face long odds in the Senate, where Democrats hold only a bare majority, and most legislation requires buy-in from Republicans to overcome a filibuster. In addition, Congress’s attention is currently on other matters including infrastructure legislation, police reform, and voting rights.
Ultimately, significant private student loan reform and cancellation is possible, but it’s a long shot, and Biden has limited powers to address private student loans unilaterally using executive authority. It would probably take Congressional legislation that passes both the House and the Senate for there to be sweeping private student loan forgiveness. Whether that will happen remains to be seen.