Cancellation and forgiveness of the student loan has been a hot topic over the past month, as consumer advocates and Democratic leaders in Congress push for President Biden’s action.
Last week, House and Senate Democratic leaders re-submitted a resolution urging President Biden to use executive action to write off $ 50,000 in student loan debt for each 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 urging President Biden to write off student debt.
Last week the Biden administration expressed openness to the idea of writing off student loan debt through the executive branch in accordance with the Higher Education Act. There is debate over whether the president will have the authority to decide on full forgiveness of student loans by decree, but the White House indicated that it is considering the legality of this path.
But defenders are concerned that even if some form of student loan cancellation is adopted (either unilaterally by President Biden through presidential decree or under congressional legislation), some borrowers will be left on the sidelines.
Higher Income Student Loan Borrowers
Moderate Democrats and even some student loan advocates have proposed limiting any student debt write-off program to lower-income borrowers, as better-off people will have more options to pay off their loans.
However, if there are income limits, it is unclear what they will be. Senator Elizabeth Warren (D-MA) has previously proposed limiting benefits to borrowers earning less than $ 250,000 a year. Biden previously campaigned for an annual income cap of $ 125,000 as part of his own student loan forgiveness plan. Senate Minority Leader Chuck Schumer (D-MA) recently also advertised this same income cap. It is unclear if (or how) this income cap will take into account factors such as marriage, geographic location, cost of living, or number of dependents.
The debate about income limits for forgiving student loans may reflect the current debate about income limits for incentive checks. President Biden and Progressive Democrats are pushing for $ 1,400 checks as part of the next COVID-19 stimulus package limited to single people earning less than $ 75,000 a year or married couples earning less than $ 150,000 a year. But moderate Democrats (especially in the Senate) are pushing for lower income ceilings.
Student loan borrowers with higher and vocational education
Similar to concerns about income, some critics of student debt cancellation argue that the benefits should be aimed at working and middle-class borrowers. Legislators have specifically singled out college and professional borrowers, such as doctors and lawyers, as not deserving of forgiveness on an education loan.
It can be problematic to exclude borrowers simply on the basis of their educational level or an associated type of student loan (for example, Graduate PLUS loans, which are only issued to graduate students), given that many such borrowers are still struggling with overwhelming debt. and low incomes.
Student loan borrowers with higher balances
Many proponents of student loan forgiveness include a limit on the amount that must be lifted. While Democratic Senate leaders and House Progress advocates pushed for a $ 50,000 student loan forgiveness, Biden publicly expressed support for the $ 10,000 forgiveness. Cancellation of $ 10,000 student loan will eliminate total student loan debt for approximately 16.3 million borrowers, or 36 percent of all borrowers, and a 50% cut in loan balances by an additional 9.3 million, representing an additional 20 percent of all borrowers.
Could student loan forgiveness be limited to only borrowers with lower account balances? Or will borrowers with higher balances still be eligible to have a portion of their student loans canceled? And will these borrowers have additional options to manage their balance, for example, by refinancing the remaining loans at reduced interest rates? At the moment, these questions remain largely unanswered.
Borrowers Parent PLUS
Parent PLUS loans are issued to parents of undergraduate students. The parent is solely responsible for the payment. Parent PLUS loans are generally high interest rate loans with much fewer repayment options than other types of federal student loans.
Research shows that some Parent PLUS borrowers are struggling with dwindling savings. Default rates on Parent PLUS loans are on the rise, and more than half of Parent PLUS borrowers have experienced some degree of interruption to their regular, timely monthly payments.
But it is unclear if Parent PLUS borrowers will be included in the broad student debt write-off program. Many Parent PLUS borrowers cannot qualify as “low income people” even as they struggle with huge account balances and high interest rates. The Biden administration recently suggested that Parent PLUS loans could be included in the student loan forgiveness initiative, but during his campaign, Biden stressed the relief that would target students.
Private student loan borrowers
If the Biden administration concludes that the executive’s action to cancel student debt is legal, any relief is likely to be limited to federal student loans. The president’s compromise powers under the Higher Education Act, cited by proponents of unilateral student debt write-off, apply only to federal student loans; The Department of Education does not have the authority to unilaterally cancel private student loans.
While this may keep borrowers of private student loans from writing off student loans, Congress may step in to pass legislation that forgives or repeals private student loans. Last year, House Democrats did just that. Rep. Madeleine Dean (Democratic Republic) 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 have a narrow majority in both chambers, a similar law could reappear. But it’s unclear if the Senate will have enough support to overcome the pirate.