President Joe Biden’s framework for student loan forgiveness could look like this.
Here’s what you need to know — and what it means for your student loans.
Biden is weeks away from announcing three major decisions on student loans and student loan forgiveness. The most important decision among the three — wide-scale student loan cancellation — could impact millions of student loan borrowers. Will Biden cancel $10,000 of student loans? Will Biden cancel $50,000 of student loans? Will Biden forgo broad student loan forgiveness? Here is a potential framework that Biden could use to determine if he will cancel student loans.
1. Whether to cancel student loans
First, Biden must decide whether to cancel student loans. It’s not a foregone conclusion that Biden will enact wide-scale student loan cancellation. Biden has canceled more than $30 billion of student loans since becoming president. For example, Biden canceled $8.1 billion of student loans for public servants. He also agreed to cancel $6 billion of student loans for 200,000 student loan borrowers. Now, he must weigh the advantages and disadvantages of broad student loan relief. Supporters say wide-scale student loan forgiveness will stimulate the economy, reduce disparities, and provide financial relief for borrowers to get married, start a family, buy a home, save for retirement or start a business. Opponents say Biden has already canceled $400 billion of student loans and his plan represents wealth redistribution that will hurt working Americans who didn’t go to college.
2. How much student loan cancellation
Second, Biden must determine how much student loan debt to cancel. The most likely scenario is that Biden will cancel $10,000 of student loans for each eligible student loan borrower. However, the White House has denied Biden has decided to cancel $10,000 of student loans. That said, Biden has referenced $10,000 of student loan forgiveness since he ran for president in 2020. Progressive Democrats in Congress are still lobbying the president to cancel $50,000 of student loans, and the president could decide to cancel any amount of student loans.
3. Who qualifies for student loan forgiveness
Third, Biden must decide who qualifies for student loan forgiveness. There are clear requirements for public service loan forgiveness and borrower defense to repayment, for example. However, there is no precedent for wide-scale student loan forgiveness. If Biden proceeds with broad student loan cancellation, he will need to determine the rules for who qualifies. The Biden administration has floated potential annual income caps of $125,000 or $150,000 for individuals, which would limit who is eligible for student loan forgiveness. Some supporters say there should be no income caps and all student loan borrowers should qualify. Opponents have argued that if there are income caps, they should be targeted at lower-income student loan borrowers.
4. Legal authority for student loan cancellation
Fourth, Biden must address whether he has the legal authority to enact wide-scale student loan cancellation. Biden has said he doesn’t believe he has the existing legal authority to cancel student loans for most or all student loan borrowers. Rather, as Speaker of the House Nancy Pelosi has said, only Congress can cancel student loan debt, unless Congress proactively grants the president additional executive power. Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) argue that the president has existing power for broad student loan cancellation granted by Congress in the Higher Education Act of 1965. Biden could decide to cancel student loans but could face lawsuits that could block any implementation of student loan relief. Ultimately, the U.S. Supreme Court could decide the parameters of presidential power of student loan cancellation.
5. Impact on the economy / inflation / equality and justice
Fifth, Biden is likely to conduct various impact analyses before deciding on wide-scale student loan cancellation. For example, will student loan cancellation stimulate the economy? Will student loan forgiveness increase inflation? What does student loan forgiveness mean for equality and justice?
6. Political implications of student loan forgiveness
Finally, Biden will weigh the political implications of student loan forgiveness. The midterm election is November 8, 2022, and there are more than 450 members of the House and Senate up for re-election. Democrats could lose control of at least the U.S. House of Representatives, and a return to divided government could further delay Biden’s legislative agenda. Therefore, Biden must determine how any decision on student loan forgiveness will impact his party’s electoral prospects. Rep. Alexandria Ocasio-Cortez (D-NY) has said Biden must cancel student loan debt or he risks alienating a large constituency of Democrats who won’t vote. These constituents say Biden promised student loan forgiveness and he needs to deliver. That said, Biden also doesn’t want to alienate moderates and independents who could help Democrats retain control of Congress. Moderate and independent voters may view broad student loan forgiveness as prohibitively expensive, poorly targeted and likely to increase inflation during a recession.
Expect a decision on student loan forgiveness within weeks. Regardless of Biden’s decision, the student loan payment pause ends August 31, 2022. This means that federal student loan payments will restart beginning September 1, 2022. Now is the time to prepare for the return of student loan repayment. Know these great options to pay off student loans faster:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)