Personal Finance

When Will Joe Biden Forgive Your Student Loans?

If Joe Biden is able to forgive your student loans, when will it happen?

At a press conference on Monday, Joe Biden voiced his support for forgiving up to $10,000 in student loans per borrower and for reforming the public service loan forgiveness program, but stopped short of saying he’d use executive action to implement it.

President-elect Biden said, “the legislation passed by the Democratic House calls for immediate $10,000 forgiveness of student loans” and “It should be done immediately.”

Republicans don’t support loan forgiveness because it doesn’t address the immediate economic fallout from the COVID-19 pandemic. The payment pause and interest waiver addresses the financial challenges caused by the pandemic, but student loan forgiveness does not. In their words, it is a “giveaway.”

Certainly, Joe Biden is very likely to extend the payment pause and interest waiver, if Congress and President Trump don’t do it first.

But, what about student loan forgiveness?

The new administration is under pressure from progressives to forgive student loan debt. Senators Chuck Schumer and Elizabeth Warren have called on the next president to forgive $50,000 in student loans per borrower. More than 235 organizations, including the American Association of University Women (AAUW), NAACP, National Association of Consumer Bankruptcy Attorneys (NACBA), National Urban League and Veterans Education Success, have signed a letter to President-elect Biden urging him to use executive action to cancel federal student loan on his first day in office. More than 800,000 people have signed a petition to erase student loan debt.

Top priorities of a Biden administration will include COVID-19, economic recovery, racial equity and climate change. Student loan forgiveness could be included as part of economic recovery legislation. Student loan forgiveness also factors into racial equity, since Black and Brown students are disproportionately impacted by student loan debt.

But, Joe Biden wants to work with Congress and unify the country. He needs cooperation with Congress to implement his legislative agenda, not just student loan forgiveness. He needs the support of Congress to confirm his cabinet picks. Using executive action to implement student loan forgiveness immediately might be too confrontational. He is likely to give Congress a chance to do the right thing before he declares that the country can’t wait. Executive action will be necessary only if Congress blocks most of his proposals.

A lot depends on the Georgia Senate races. If Democrats win both runoff elections, they will control the House and Senate, allowing them to pass legislation, albeit with some resistance from Republicans. Democrats will not have the 60-vote supermajority required to cut off debate in the Senate, so Republicans can use filibusters to block legislation.

The $10,000 in loan forgiveness and overhauling the public service loan forgiveness program might be included in an economic stimulus bill. Republicans might support the changes to public service loan forgiveness, even if they don’t like loan forgiveness, because the proposed changes cap the amount of student loan forgiveness at $50,000 and eliminate the potential for moral hazard. Moral hazard occurs when students borrow to the limit because they expect that their student loan debt will be forgiven.

There are, however, many open questions about the details.

  • Will the forgiveness be limited to just federal student loans or also include private student loans?
  • If the forgiveness is limited to just federal student loans, will it be limited to federal student loans held by the U.S. Department of Education, like the payment pause and interest waiver?
  • Will the forgiveness be limited to just undergraduate student loan debt, or will graduate student loan debt also be eligible for forgiveness?
  • Will the forgiveness be limited to tuition-related debt?
  • Will the forgiveness be limited to debt borrowed to pay for public colleges and universities, HBCUs, HSIs and MSIs? Or, will student loans for private colleges and universities also be eligible?
  • Will the forgiveness be limited to borrowers who owe $10,000 or less in federal student loans? Such a limitation will forgive the loans of about a third of federal student loan borrowers, but forgive only about 5 percent of outstanding federal student loan debt. Borrowers who dropped out of college tend to have small loan balances, often under $10,000, but don’t have the degrees that can help them repay the debt.
  • Will there be an income cap on the loan forgiveness? A debt-to-income threshold?
  • Will the forgiveness be limited to economically distressed borrowers? (The Heroes Act defines economic distress as including borrowers with income under 150% of the poverty line, borrowers with student loans in a deferment or forbearance, borrowers with a serious delinquency and borrowers in default.)
  • Will the student loan forgiveness be tax-free?

To pass Congress, student loan forgiveness must be narrowly targeted at borrowers in financial distress. Otherwise, it raises a fairness issue. Student loan forgiveness doesn’t benefit people who didn’t go to college or who already paid off their student loans.  

Regardless of the actions taken by Congress, Joe Biden will likely use his existing authority to discharge the student loans of borrowers who are eligible for the borrower defense to repayment. He will also reissue Obama administration guidance that encourages the use prosecutorial discretion to not oppose undue hardship bankruptcy discharge petitions of financially distressed student loan borrowers.

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