Can Biden Cancel Private Student Loans? 3 options

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Proponents of widespread student loan forgiveness seem to be gaining traction in their favor. But will private student loan borrowers be left out?

Democratic leaders in the House and Senate yesterday reintroduced a resolution calling on President Biden to use executive measures to write off $ 50,000 of federal student loan debt per borrower. These efforts reflect similar congressional resolutions last year.

A renewed effort by lawmakers to cancel student debt coincides with additional efforts by organizations advocating for student loan borrowers. At least 328 organizations, including prominent trade unions and civil rights groups, have signed letter last month urged President Biden to write off student debt.

“Energy is growing and a strong bipartisan public support for immediate cancellation of debts on a broad basis, ”the organizations wrote. “Such executive measures are one of the few instruments available that can immediately jump-start more than 44 million borrowers and the economy.”

But in the course of the conversation, a more detailed discussion of how broad student loan abolition might look to borrowers is lost.

Private student loans

Private student loans from banks and other commercial lending institutions are very different from federal student loans. Private student loans usually have higher interest rates and inflexible repayment terms compared to most federal student loans. Moreover, private student loans are not suitable for key federal student loan programs such as income-adjusted repayment, government service loan forgiveness, and loan recovery. Private student loans have also been excluded from federal aid programs such as the CARES Act, which suspended payment of federal student loans, interest, and fees in response to the COVID-19 pandemic.

Under current law, there is no mechanism for converting a purely private student loan into a federal student loan.

Executive action to cancel student debt

Advocates for student loan borrowers and their congressional allies have honed a simple argument: President Biden has the power to unilaterally cancel student debt using executive action. This would allow Biden to act quickly and avoid the chaotic congressional struggle.

Advocates point to a provision in the Higher Education Act that empowers the Minister of Education to “enforce, pay, compromise, [or] waive student loans or “release” the borrower from its obligations. Several student loan legal experts have argued that using this provision for widespread cancellation of student loan debt legallybut others, including the US Department of Education attorneys under former Education Secretary Betsy DeVos, disagreed, arguing that it would exceed the authority given to the President by Congress in passing the Higher Education Act.

President Biden has expressed skepticism that he would have the power to enact such a massive cancellation of student debt using executive action. However, yesterday the White House pointed out that it is possible and is actively considering options.

However, even if the Biden administration determines that such executive action is legal and ongoing, aid will likely be limited to federal student loans only. The compromise right in the Higher Education Act, cited by proponents of student debt cancellation, applies only to federal student loans. The President does not necessarily have clear powers under the law to compromise, refuse, or release borrowers from their obligations under a purely private student loan bill. So, while executive measures to cancel student debt can make the lives of millions of people a lot easier, private borrowers can be excluded.

Congressional legislation to abolish private student loans

While President Biden may not have the legal authority to unilaterally revoke private student loans through the executive branch, Congress could potentially pass legislation.

Last year, Democratic Congresswoman Madeleine Dean proposed amendment to the National Defense Act, which would provide borrowers with immediate assistance of up to $ 10,000 in paying off private student loans. The amendment was passed by the House of Representatives in July but was never passed by the Republican-controlled Senate.

Now that Democrats control both chambers, a similar bill re-introduced into Congress has the potential to be passed. However, such a bill could require 60 votes in the Senate to overcome the stonewalling. Since Democrats have only 50 seats, 10 Republicans must support such a measure, which can prove difficult. And while Democrats could potentially eliminate the pirate to make it easier to pass the law with a simple majority, it is unclear whether forgiving a private student loan would be unanimous support for Democrats in the Senate. And at least two Democratic senators refused to eliminate the pirate.

Ultimately, while debt cancellation on a private student loan is not impossible, many obstacles need to be removed for it to become a reality.

Bankruptcy reform as a reserve?

Earlier this week, Senate Democrats submitted bankruptcy law this would fundamentally change the US bankruptcy system and make it easier for borrowers to repay student loans through bankruptcy. It is currently very difficult (although technically impossible) for borrowers to pay off their student loans through bankruptcy.

If the bankruptcy reform bill can gain sufficient support in the House of Representatives and Senate, this measure may prove to be a sufficient mechanism to provide private student loan borrowers with a way to repay the private student loan without having to rely on a specific private student loan. debt cancellation legislation.

Further reading

Biden supports cancellation of student debt, expresses readiness for action by management

Democrats have taken new steps to get Biden to write off student debt – will it work?

Senators Unveil Student Loan and Medical Debt Bankruptcy Bill

3 Reasons Biden Eliminated Student Loan Benefits From Incentive – And What It Means For Borrowers

6 Student Loan Reforms Possible With a Democratic Senate

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