Student loan cancellation has come down to two paths.
Here’s what you need to know.
There are two main paths to student loan cancellation. You can mix and match approaches, find an alternative way, or even call it a different name. However, make no mistake: student loan cancellation — if it happens — likely will happen one of two ways. There are two brewing battles, and depending on who wins, it could shape the outcome of student loan cancellation and have a lasting impact on your student loans. These are the two battles:
Path #1: President Joe Biden (executive branch) vs. Senators Elizabeth Warren and Chuck Schumer (legislative branch).
Path #2: Warren and Schumer (legislative branch) versus moderates Democrats and Republicans (legislative branch).
Path 1: Biden enacts student loan cancellation by executive order
When you read tweets on Twitter or hear your friends say “Biden can just cancel student loans,” they’re referring to the first path to student loan cancellation. If Biden cancels up to $50,000 of student loans, 36 million people would get total student loan cancellation. However, it’s not that simple. Beyond the policy debate on the merits of wide-scale student loan forgiveness, there are important legal considerations and rules that may govern whether your student loans get cancelled and by whom. In a nutshell, this path is a battle between Congress and the president. On this path, there’s no debate whether student loan cancellation is smart policy or will help millions of student loan borrowers. The parties already agree that student loan cancellation is good policy that will provide needed economic relief and save a generation from mounting debt. Both Biden as well as Warren and Schumer support student loan cancellation immediately. However, the parties differ on two main topics: first, how much student loan debt to cancel, and two, who cancels student loans.
To his credit, Biden already has acted to forgive at least $2.3 billion of student loan debt since becoming president. America already has reacted in different ways to Biden cancelling student loans. For example, Biden cancelled $1 billion of student loans for 72,000 student loan borrowers. He also cancelled another $1.3 billion of student loans for 41,000 borrowers with total and permanent disability. That said, Warren and Schumer want Biden — not Congress — to cancel up to $50,000 of student loans through an executive order immediately. Citing the Higher Education Act of 1965, they say that the president has full legal authority to enact student loan cancellation with the “click of a pen.” Biden disagrees and says that he doesn’t think he has the unilateral authority to cancel student loans through an executive order. To “settle” this dispute, Biden has asked the U.S. Department of Education to opine on Biden’s legal authority to cancel student loans via an executive order. However, there’s one major problem.
Importantly, Biden wants to cancel student loans three ways. So, if wide-scale student loan cancellation doesn’t happen, there are still other ways that Biden can help more student loan borrowers get their student loans cancelled.
Bottom Line: It’s too early to tell what the Education Department will conclude, or whether Biden will accept the recommendation. That said, if Biden proceeds to cancel student loans, expect legal challenges, which could delay implementation of student loan cancellation.
Path #2: Congress cancels student loans through legislation
Warren and Schumer don’t want to mention it, but there’s a low likelihood that Congress will pass student loan cancellation. That may come as a surprise, but there doesn’t appear to be enough votes to pass wide-scale student loan forgiveness. There are at least 16 U.S. senators, including Warren and Schumer, who want student loan cancellation up to $50,000. These 16 senators signed on to a resolution that calls on Biden to enact student loan cancellation by executive order. Warren, who has championed wide-scale student loan forgiveness, held an explosive congressional hearing on student loans and student loan cancellation. During the hearing, Warren not only renewed her call to cancel student loans, but also said that Navient—one of the nation’s largest student loan servicers—should be fired from servicing federal student loans and that Navient’s CEO, Jack Remondi, should be fired too. Despite this hearing, it’s unclear whether moderate senators will join her movement. So far, Republicans don’t support student loan cancellation, and few moderate Democrats have shown their support for any student loan cancellation, let alone $50,000. That’s problematic because Democrats need all 50 Democrats to support student loan cancellation for the legislation to become law.
Bottom Line: Congress would be the logical branch of government to cancel student loans. However, it doesn’t appear there are enough votes to pass any legislation on wide-scale student loan forgiveness. That leaves Democrats in a bind because there best hope student loan forgiveness by executive order. However, that’s far from guaranteed.
Student loan cancellation: next steps
Will you get student loan cancellation? Ideally, Warren and Schumer would want Congress to cancel student loans. Why? They can craft legislation on their terms, including who qualifies for student loan forgiveness and how much gets cancelled. Biden has already indicated he would sign any legislation on student loan forgiveness that Congress sends him, including student loan cancellation up to $50,000. That, by itself, is positive for Democrats in Congress. However, Biden also knows that Congress likely wouldn’t pass such legislation. This is why Warren and Schumer are pressing Biden to act unilaterally, but it may be an uphill battle. First, Biden doesn’t support student loan cancellation by executive order of any amount. Biden could change his mind following a legal review of student loan cancellation, but he’s been clear where he stands. Second, it’s challenging to argue — despite a literal reading of the Higher Education Act that supporters of student loan cancellation cite — that Congress granted the executive branch unlimited authority to cancel student loan debt for every single student loan borrower. It’s rare for Congress to give up its powers completely and simply pass them to the executive branch. Second, if Biden decides to cancel student loans, remember he will decide the scope and terms of student loan cancellation. This means Biden, not Congress, could decide who qualifies for student loan cancellation and how much student loan debt gets cancelled. Ideally, Schumer and Warren would want Congress to control the terms and conditions of student loan cancellation. However, now it looks like their best hope is for Biden to agree to student loan forgiveness, but it will be on his — not their — terms.
As you evaluate your options for student loan repayment, make sure you consider these potential options:
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