Here’s how Biden could move to cancel student loans

President Joe Biden has reached out to headlines that he will launch a plan to cancel federal student loans “in the coming weeks” and that he will aim to forgive less than $ 50,000 in debt per borrower.

A Biden move to eliminate some student loans through “executive action, with a pencil” would seem politically smart before the November midterm elections, but could easily end up being blocked by the judiciary, said Mark Kantrowitz, an expert on student loans.

A second way, according to Kantrowitz, would be for Biden’s Department of Education to make a policy change that offers broad forgiveness, with this approach “much more likely to survive the legal challenge.”

The third and best option is for the president to work with U.S. lawmakers to enact a law that cancels student debt, as Congress has the “power of the bag” and there would be no problems with the demands, considers Kantrowitz, who is the author. of books such as “Twisdoms about Paying for College” and “How to Appeal for More College Financial Aid.”

Limiting forgiveness to borrowers who owe $ 10,000 or less would keep the price at $ 75 billion, but it would still completely eliminate federal student loan debt for a third of all borrowers, or more than 15 million people, he said. ‘expert, citing a recent political document. who wrote. And that “cheap” price could attract the support of Democratic and Republican lawmakers.

The problem with the legislative approach is that Congress has struggled to pass substantive bills in recent years and “the only thing that can be achieved is to appoint a post office,” he said. The White House has repeatedly said Biden would sign a bill to eliminate $ 10,000 per borrower, but no such measure is about to hit the president’s desk.

Republican lawmakers have expressed opposition to the forgiveness of student loans, with Arkansas Sen. Tom Cotton saying the debt “is no different from small business loans or car loans.”must be returned. ” This was stated by Senator Mitt Romney of Utah is a “bribe” of Democrats as they face a “desperate” poll ahead of the midterm.

So hence the buzz around option 1: executive action. Biden is considering this route and would forgive at least $ 10,000 per borrower, according to several reports released last week citing unnamed sources.

Government officials have tried to limit aid to the debt of college students and people earning no more than $ 125,000 or $ 150,000, with the cut for joint taxpayers of $ 250,000 or $ 300,000, according to a Washington Post report. .

Biden could announce his executive action when he gives his inaugural address on May 28 at the University of Delaware, Kantrowitz said.

“If I was going to announce something, this would be the perfect time,” he told MarketWatch. Biden graduated from college in 1965, before moving to Syracuse to study law.

Finishing the details around the executive action could take a while, and there may not be a lawsuit that can block the pardon “until they really have a pronounced policy,” Kantrowitz said. It is also possible, he says, that there will be a preliminary measure long before the midterm elections, and then Biden’s decision to cancel student debt would be seen in the rearview mirror in November, leaving some voters thinking, ” What have you done for me today? “

“But if it does well, just before the midterm elections, and maybe more than $ 10,000, then there is a strong division between Democrats and Republicans, where voters will see Democrats support loan forgiveness, while Republicans oppose it, “Kantrowitz said.

“So the key is not to have the final court ruling before the election, because then it’s old news.”

Student loan problems have been the winning election for Democrats in the past, as the party fared well in 2006 after pledging to halve interest rates on student loans, Kantrowitz said, and add that he tries to “avoid politics as much as possible” and aims to “be neutral.”

Biden’s authority to cancel student debt is considered “wishful thinking”

While debtor advocates have argued that U.S. presidents have the authority to forgive student loans, Kantrowitz does not accept his view, saying it is “basically illusion.”

Proponents of her case have been working to make the actual transcript of this statement available online.

One problem, however, is that a preamble limits that authority to programs already approved by Congress, Kantrowitz said. Another problem is that the language “in this part” links only to an old secured student loan program that ended in 2010.

Kantrowitz said it is also a “misinterpretation of the law” to see the waiver authority of the Heroes Act of 2003 that would allow for a broad loan forgiveness.

He believes the Supreme Court, which currently has a 6-3 Conservative majority, could block any Biden enforcement action aimed at a comprehensive cancellation of student debt.

If Biden administration officials “actually want to forgive” and their main goal is not to “prepare for electoral success,” then they should rely on regulatory action, rather than executive orders. , said Kantrowitz.

Related: Analysts say the Supreme Court overturns Roe v. Wade would increase Democratic turnout in the midterm elections

The proposal based on a regulatory change causes a “fire storm”

Kantrowitz’s proposal based on a regulatory change is based on the fact that repayment plans based on existing income are already loan forgiveness programs, with debt eliminated after 20 or 25 years.

“You can reduce the pardon period to five years,” Kantrowitz told MarketWatch. People who have already been on income-based repayment plans for five years would have their debts immediately forgiven, while others would not have the immediate cancellation they want, but would arrive in years instead of decades, and their monthly payments would be limited. if they are not large incomes.

Kantrowitz described the proposal in a blog post in late March and said it had an effect on Education Department officials, who had not had such a radar approach.

“I have my spies in the department and I have received some clues that ignited a firestorm,” he said.

Opposition to the forgiveness of student loans, affected companies

Critics of forgiveness stress that it is far from a long-term solution.

“They forgive student loans and then what?” Brian Riedl tweeted, a senior member of the Conservative Manhattan Institute who focuses on budgeting, taxation, and economic policy. “Lenders themselves continue to lend. Students borrow even more while also waiting for their forgiveness round. Universities are increasing tuition for these less price-sensitive students. We are in the same mess in 5 years, with more rescues “.

Kantrowitz said that limiting the amount canceled to a figure such as $ 10,000 “minimizes the potential for moral hazard a bit, because borrowers will realize that they will still be stuck paying off some of their student loans.”

Americans oppose other taxpayer-funded programs that do not benefit, “but for some reason people seem to take the issue of student loan forgiveness more personally and put it under their skin.” to say.

The financial aid expert also said limiting earnings-based forgiveness could be tricky, as the Internal Revenue Service would likely want borrowers to approve any sharing of their income with the Department of Education.

“The problem with resource testing is that it can’t be done automatically. You have to have an application process,” he said.

Biden told reporters Monday that his “not yet” student loan plan was over.

Some public companies could be hurt by the pardon, a Height Capital Markets analyst said.

“Student loan forgiveness could put pressure on the student loan service fee for administrators, such as Nelnet NNI,
+ 2.17%.
It could also reduce student loan refinancing for businesses such as Navient NAVI,
+ 1.82%
and SoFi Technologies SOFI,
“Edwin Groshans of Height said in a note Monday.

This report was first published on May 2, 2022.

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