Could private student loans be forgiven under Biden?


President Biden has asked lawyers for the US Department of Education and the Department of Justice to conduct a legal review of his options for canceling student debt. This legal review is ongoing and it is unclear what the outcome will be, although we may find out soon.

Biden has always expressed support for student debt cancellation, but he opposed calls for a student loan forgiveness of more than $ 50,000 or more, an amount pushed by Progressive Democrats and a broad coalition of advocacy groups, trade unions and civil rights organizations. He indicated that he would support $ 10,000 in student loan forgiveness, and he also argued that any student debt forgiveness should target low-income borrowers.

But would borrowers with private student loans benefit from any massive student debt forgiveness? Here is what we know.

Private student loans

Private student loans are issued by commercial lenders such as banks, schools, state-linked or non-profit lending authorities, and other private entities. These types of student loans often have higher interest rates than federal loans and fewer repayment options. They may also require a co-signer.

Private student loans differ from an older federal student loan program called the Federal Family Education Loan Program (FFEL), in which a private lender created a type of federal loan backed or guaranteed by the government. These types of loans might qualify for certain federal student loan repayment and forgiveness programs, and may also be consolidated into a government-owned student loan through the Federal Direct Consolidation Program. But purely private student loans cannot access any federal loan program and cannot be consolidated into a federal direct loan.

Biden cancels student loan debt thanks to executive action

While Biden has expressed general support for student loan debt cancellation, he has expressed serious doubts about his authority to enact any sort of massive student loan cancellation through government action. executive. Several major student loan legal advocacy groups, as well as their allies in Congress (such as Massachusetts Senator Elizabeth Warren), argued that the Higher Education Act – the sweeping law that governs much of the federal student aid system – gives the president very broad powers to “compromise, waive or release” a borrower’s student debt obligations. Borrower advocates also highlighted the HEROES Act, which Biden (and President Trump, before him) used to suspend payments and interest on federal student loans held by the government in response to the Covid-19 emergency. , effectively setting aside billions of dollars in student loan interest for the process.

But other experts disagree. Lawyers at the Ministry of Education under former secretary Betsy DeVos concluded that neither the Higher Education Act nor the HEROES Act give the president the kind of power that supporters of student loan cancellation say exists. In a legal opinion memo, lawyers for the ministry argued that the massive cancellation of student loans would be contrary to Congress’ intent when it drafted and passed these laws. The lawyers concluded that “Congress has allocated funds for student loans in the hope that these loans will be repaid” in the absence of “extraordinary and specific circumstances”.

Even if the current legal review conducted by the Biden administration concludes that mass student loan cancellation is achievable using executive action, any relief would almost certainly be limited to federal student loans only. The Higher Education Act and the HEROES Act only govern the federal student aid system. Private student loans are largely governed by individual loan agreements and promissory notes between the borrower and the lender, with a mix of state and federal regulation.

Biden could sign bill passed by Congress to cancel private student loans

The Biden administration has repeatedly stated that the president would gladly sign a student debt cancellation bill passed by Congress. And there have been several recent proposals that could benefit private student loan borrowers:

  • Last year, the House passed a bill that would provide a $ 10,000 rebate on private student loans for borrowers facing financial hardship due to the pandemic.
  • Also last year, an amendment to the National Defense Authorization Act would have provided up to $ 10,000 in financial assistance to borrowers to help them repay their private student loans.
  • In February, Senate Democrats unveiled the Medical Bankruptcy Fairness Act of 2021. This bill would make several reforms to the U.S. bankruptcy code and allow student loan borrowers (including those with private student loans) to pay for themselves. meet their federal and private obligations. student debt in bankruptcy – something that is currently very difficult to do due to the harsh treatment of student debt by the bankruptcy code.
  • Earlier this month, the House passed the Comprehensive Debt Collection Improvement Act, which would allow private student loan borrowers and their co-signers to pay off their loans if they become totally and permanently disabled.

While these bills are promising, they face long chances in the Senate, where Democrats hold only a bare majority, and most laws require Republicans’ support to overcome an obstruction. In addition, congressional attention is currently shifting to other issues, including infrastructure legislation, police reform and voting rights.

Ultimately, a significant reform and cancellation of private student loans is possible, but it’s a long way to go, and Biden has limited powers to unilaterally deal with private student loans using executive power. It would likely take Congressional legislation that goes through both the House and the Senate for there to be a drastic private student loan forgiveness. Whether that will happen remains to be seen.

Further reading

Will Biden cancel student loan debt? We may know soon

Biden Student Loan Forgiveness Review: Should You Take Action Now to Write Off Student Debt Later?

College Cancels Student Loan Debt Using Biden Stimulus Bill Money

If you’ve paid off your student loans, you may be eligible for a refund