Can Biden cancel private student loans? 3 options

For supporters of a blanket student loan waiver, momentum seems to be building in their favor. But would private student loan borrowers be left out?

Yesterday, Democratic House and Senate leaders reintroduced a resolution calling on President Biden to use executive action to write off $ 50,000 in federal student loan debt for each borrower. The effort mirrors similar Congress resolutions from last year.

Renewed pressure from lawmakers to cancel student debt coincides with additional efforts by organizations defending student loan borrowers. At least 328 organizations, including major unions and civil rights groups, have signed a letter last month, urging President Biden to cancel student debt.

“There is a growing energy and a strong bipartite public support for immediate large-scale debt cancellation, ”the organizations wrote. “Such executive action is one of the few tools available that could immediately boost over 44 million borrowers and the economy.”

But a more nuanced discussion of what a student loan cancellation might look like for borrowers lost in the conversation.

Private student loans

Private student loans issued by banks and other commercial lending entities are very different from federal student loans. Private student loans generally have higher interest rates and rigid repayment terms compared to most federal student loans. In addition, private student loans are not eligible for major federal student loan programs, such as income-tested repayment, civil service loan forgiveness, and loan pardon. Private student loans have also been excluded from federal aid programs such as the CARES Act, which suspended payments, interest and collections on federal student loans in response to the COVID-19 pandemic.

Under current law, there is no mechanism to convert a purely private student loan into a federal student loan.

Executive action to cancel student debt

Advocates of student loan borrowers and their allies in Congress have refined a simple argument: that President Biden has the power to unilaterally write off student debt using executive action. This would allow Biden to act quickly and avoid what could be a messy fight in Congress.

Advocates point to the provision in the Higher Education Act which gives the Secretary of Education the power to “enforce, pay, compromise, [or] waive ”student loans or“ release ”a borrower from obligations. Several student loan legal experts have argued that using this provision to globally write off student loan debt is legal, but others – including lawyers for the US Department of Education under former Education Secretary Betsy DeVos – disagreed, arguing it would exceed the authority given to the president by Congress when it established the Law on Higher Education.

President Biden has expressed skepticism about his power to enact such drastic student debt relief using executive action. Yesterday, however, the White House indicated that it was open to this possibility and was actively considering options.

Even if the Biden administration determines that such executive action is legal and continues, however, relief would likely be limited to federal student loans only. The compromise authority in the Higher Education Act cited by supporters of student debt cancellation only covers federal student loans. The president does not necessarily have the express authority under the law to compromise, waive or release borrowers from their obligations under a purely private student loan promissory note. So while executive action to cancel student debt could bring substantial relief to millions of people, private borrowers could be left out.

Legislation from Congress to Cancel Private Student Loans

While President Biden may not have the legal authority to unilaterally cancel private student loans through executive action, Congress could potentially pass legislation to do so.

Last year, Democrat MP Madeleine Dean offered a amendment to the National Defense Authorization Act which would have provided up to $ 10,000 in immediate assistance to borrowers to repay their private student loans. This amendment was passed by the House in July, but was never taken up by the Republican-controlled Senate.

With Democrats now controlling both houses, a similar bill reintroduced in Congress could potentially stand a chance of being passed. However, such a bill may require 60 votes in the Senate to overcome an obstruction. With Democrats holding just 50 seats, 10 Republicans are expected to support such a move, which can prove difficult. And while Democrats could potentially remove the filibuster to facilitate the passage of simple majority legislation, it is not clear whether canceling private student loans would enjoy unanimous support from Democrats in the Senate. And at least two Democratic senators have rejected eliminating the filibuster.

Ultimately, while private student loan debt cancellation is not impossible, there are many hurdles that would need to be overcome to make it a reality.

Bankruptcy reform as a fallback solution?

Earlier this week, Senate Democrats unveiled a sweeping bankruptcy bill that would fundamentally change the U.S. bankruptcy system and make it easier for borrowers to pay off their student loans through bankruptcy. Currently, it is very difficult (although technically impossible) for borrowers to pay off their student loans while going bankrupt.

If a bankruptcy reform bill is able to garner sufficient support in the House and Senate, the measure could prove to be a sufficient mechanism to provide private student loan borrowers with a path to release from bankruptcy. their private student loan, without having to resort to a specific private student loan. debt cancellation legislation.

Further reading

Biden backs student debt cancellation, expresses openness to executive action

Democrats are taking new steps to pressure Biden to cancel student debt – will it work?

Senators unveil sweeping bill to write off student loan and medical debt in bankruptcy

3 reasons Biden ruled out student loan relief from Stimulus – and what it means for borrowers

6 student loan reforms that are possible with a democratic Senate