Over the past several months, the Biden administration has taken action to forgive, cancel student loans and other billions of dollars in aid. But one particular type of student loan is constantly overlooked: private student loans.
Federal student loans and private student loans
By most estimates, student loan outstanding in the United States is roughly $ 1.8 trillion. The vast majority of this debt consists of federal student loans, which are either issued directly or guaranteed by the federal government. But a significant portion of outstanding student loan debt consists of purely private student loans – roughly $ 136 billionaccording to NerdWallet and MeasureOne.
Typically, federal student loans have a lot more options for repayment, default settlement and loan forgiveness. For example, income-based repayment programs, loan rehabilitation programs, government service loan forgiveness, and administrative termination are generally only available for federal student loans as mandated by federal law. Private student loans are usually only governed by the terms of the underlying loan bill, which usually does not provide the borrower with many options.
Biden’s Student Loan Forgiveness and Relief Initiatives
Over the past several months, the Biden administration has used executive measures to provide both broad-based and targeted assistance to student loan borrowers:
- June Biden extended benefit for borrowers which was granted only partial loan forgiveness under the Borrower Protection Before Disbursement Program, which was created to cancel federal student loan debt for borrowers defrauded by their schools. The relief will result in the cancellation of $ 500 million in student debt for 18,000 borrowers.
- On August 6, the Biden administration announced extending the current pause in the payment of federal student loans, interest and fees until January 31, 2022. The benefit was originally planned to expire in September.
- On August 9, the Ministry of Education announced a series of public hearings that mark the initial phase of the process. review key federal student loan forgiveness and repayment programs…
- On August 19, the Biden administration announced that there would be automatic repayment of $ 5.8 billion federal student loan debt to over 300,000 disabled borrowers through the Total and Permanent Disability discharge (TPD) program.
- On August 20, the Ministry of Education announced that there would be retroactive interest waiver for 47,000 current and former military personnel on active duty who were eligible, but did not receive a waiver of interest due to service in dangerous war zones.
These initiatives will bring relief to millions of student loan borrowers. But importantly, this relief is limited federal For student loan borrowers only. Borrowers with purely private student loans that were issued by a private lender and not guaranteed by the government are excluded from this entire benefit.
Why are private student loans excluded from Biden’s aid programs?
The answer is simple: Biden’s legal powers are limited by federal law, and he must act in accordance with existing federal laws and related regulations. Federal student loan programs are governed by laws such as the Higher Education Act and the HEROES Act of 2003, and the CARES Act, passed last year. But these statutes do not give Biden the right to provide any assistance to borrowers on private student loans.
Even the widespread student loan cancellation – which student loan borrower activists and advocacy groups are urging President Biden to accept – will have similar restrictions. Legal scholars speaking on behalf of the borrowers argued that the president has legal authority to take sweeping measures to forgive student loans. Biden himself has expressed reluctance and skepticism about this. But scholars specifically pointed to the powers under the Higher Education Act and the Heroes Act; thus, even if Biden decided to pay off student loan debt on a massive scale, it would almost certainly have to be limited to federal student loans only.
What does this mean for private student loan borrowers?
Ultimately, an act of Congress will be required to make a significant difference for private student loan borrowers. Members of Congress have proposed several bills to provide assistance for private student loans in the past. For example, a proposed growth bill in 2020 would write off up to $ 10,000 in private student loan debt for borrowers in economic distress. This year, Democrats in Congress submitted bills to private student loan disability statement and private student loan recovery programsimilar programs offered to borrowers of federal student loans.
But so far these bills have not gone anywhere. And even a bipartisan initiative for simplify the repayment of student loan debt in bankruptcy, which may actually pass Congress with its bipartisan backing, limits bankruptcy reform to federal student loans only.
In the absence of meaningful action by Congress, private student loan borrowers will continue to be excluded from student debt relief programs.