July 13, 2024


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Why Student-Loan Forgiveness Wasn’t in Biden’s Budget

Now that’s what I call cancel culture.
Photo: Drew Angerer/Getty Images

The cost of college in America is too damn high. For decades, that has been the consensus among debt-laden university graduates and policy experts alike. The United States spends more per student on higher education than any developed country save Luxembourg. And in the judgment of the OECD, America’s exorbitant tuition rates have “virtually no relationship to the value that students could possibly get in exchange.”

As a result of this policy failure, U.S. college attendees and graduates collectively hold over $1.7 trillion in student debt — and student-loan forgiveness has become a defining cause of the American left.

Shortly before his inauguration, Joe Biden called on Congress to forgive $10,000 of every borrower’s student debt, but the president did not include any loan forgiveness in his COVID-relief plan. And the $6 trillion budget Biden released last week doesn’t feature any student-debt forgiveness either.

That doesn’t mean all hope for student-loan forgiveness is dead, however. Here’s a rundown of where the fight for debt relief stands now.

During his campaign, Biden called for:

• Forgiving $10,000 in federal student-loan debt for every borrower.

• Forgiving all of the undergraduate student debt accrued by borrowers who attended public colleges or minority-serving nonprofit colleges.

• Expanding the existing Public Service Loan Forgiveness program by canceling $10,000 a year in student debt for every year a borrower works in a public-sector or nonprofit job, for up to five years.

Meanwhile, to address the underlying college-affordability crisis, Biden proposed making public colleges tuition-free for students from households earning less than $125,000 a year and increasing Pell Grants.

Other Democrats have proposed a more sweeping debt jubilee: Senate Majority Leader Chuck Schumer and Democratic senator Elizabeth Warren have called on Biden to forgive $50,000 in federal student-loan debt for every borrower through executive action — which is to say, without congressional approval.

Biden has rejected this proposal on both substantive and procedural grounds. The president said in February, “I don’t think I have the authority to [cancel student debt] by signing the pen.” He has separately maintained that $50,000 is too high a sum, especially given the relatively high incomes of Americans who graduate from high-tuition colleges.

So Biden has shot down progressives’ highest hopes for debt forgiveness, but he still officially wants Congress to forgive a ton of student debt. Yet he has declined to include any form of student-loan forgiveness in his budget request to Congress.

There are many possible reasons for this decision. One is that the Democratic Party’s thin congressional majorities have a limited tolerance for new federal spending; some Democrats are squeamish about tax increases, while others are uncomfortable with increasing the deficit. This political constraint makes it impossible for Biden to enact every policy he promoted on the campaign trail. In fact, it’s not clear that the president will have the votes to enact his top governing priorities, which include investments in climate, infrastructure, elder care, child care, universal prekindergarten, child allowances, paid leave, and tuition-free community college.

By all appearances, student-debt relief ranks fairly low on the president’s list of desired policies. He spoke little about the issue during his campaign, and he has gone out of his way to advertise his opposition to canceling more than $10,000 per borrower in a bid to reassert his “moderate” credentials (which his relatively ambitious spending plans have called into question). In a recent interview with the New York Times, Biden said he doesn’t consider himself a “progressive” because “the idea that you go to Penn and you’re paying a total of 70,000 bucks a year and the public should pay for that? I don’t agree.” The choice to triangulate on this issue isn’t entirely unreasonable. Democrats need to increase their support among non-college-educated voters, and some polls suggest that Americans who’ve never attended college view student-loan forgiveness less favorably than those who have: In February, a Harris-Yahoo Finance poll found Americans with a high-school education or less opposed student-debt forgiveness by a margin of 65 to 35. This said, other surveys have found that non-college graduates (a group that includes Americans who attended some college but did not graduate) back forgiveness by a slightly larger margin than college grads. In any case, there does appear to be strong majority support for at least some amount of federal student-loan forgiveness.

If Biden had put student-debt relief in his budget request, it (probably) wouldn’t have made much substantive difference. Moderate Democrats in the Senate have already demonstrated that they’re perfectly comfortable rejecting the president’s requests. And as of this writing, there aren’t 50 votes in the Senate for forgiving $10,000 per borrower. Generally speaking, presidential budgets are largely public-relations documents since Congress has the ultimate authority over spending. The White House apparently concluded that capping the size of its budget request at $6 trillion was more important than pleasing debt-forgiveness advocates from a political perspective.

But there is another complementary explanation for the White House’s decision: Although Biden has expressed skepticism about his authority to cancel student debt without congressional approval, the White House asked Education secretary Miguel Cardona to prepare a memo examining the legality of such a move. The Departments of Justice and Education are still working on that review. And higher-education expert Mark Kantrowitz believes Biden is waiting for that memo’s verdict before seeking congressional support.

The notion that the president can spend more than $1 trillion on wiping out Americans’ student debt — by himself, with the stroke of a pen — may sound far-fetched. But there is a coherent legal theory behind the idea.

The Higher Education Act of 1965 empowered the Department of Education to “compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” And thanks to a reform passed under Barack Obama in 2010, the federal government now owns roughly 92 percent of all student debt. Which is to say, more than $1.5 trillion of Americans’ student debt is owed to the Department of Education — which has the explicit authority to waive “any claim” it possesses and can therefore unilaterally make all that debt disappear.

This theory makes sense to me. But it needs to make sense to federal judges in order to work, and thanks to the Trump presidency, the federal judiciary is quite conservative. “Using an executive order to forgive federal student loans will likely be met with a lawsuit and preliminary injunction and eventually fail,” Kantrowitz told NBC in November.

So for mass student-debt forgiveness to happen through executive action, three things would need to occur: (1) The Department of Education’s review would need to find that Biden has the authority to cancel student debt, (2) Biden would have to decide to use that authority, and (3) the judiciary would need to uphold his right to that authority.

All three of these developments seem unlikely. As I have mentioned, Biden evinces little enthusiasm for the student-debt issue and has generally gone out of his way to steer clear of controversy. Exploiting an obscure federal statute to deliver $430 billion in aid to the minority of Americans who hold student debt — in defiance of Congress and on the basis of a coherent but contested legal theory — just doesn’t seem like Uncle Joe’s game.

While the president has shown little enthusiasm for blanket student-debt forgiveness, his administration is trying to mitigate borrowers’ burdens through regulatory action and legislative proposals. On his first day in office, Biden extended the moratorium on student-loan repayment through the end of September (the administration does not expect to extend that deadline further, however, so borrowers will once again be on the hook for payments come October). Meanwhile, Biden’s COVID-relief bill, the American Rescue Plan, included a provision that makes income derived from forgiven student loans untaxable through the end of 2025, which is to say, if you have your student loans forgiven before 2026, you will never owe taxes on that income. That clears a potential hurdle to mass forgiveness, although the provision did not come at Biden’s request, and its ultimate significance remains unclear.

The administration’s most significant actions on student debt will likely come through regulatory rewrites of existing debt-forgiveness programs. The White House has already taken steps to eliminate red tape and make it easier for borrowers to qualify for forgiveness. But its full package of regulatory reforms will take time to implement, as they must be enacted through an arduous process of hearings and deliberation. Among the changes the administration is pursuing are:

Restoring the Borrower Defense to Repayment program. In recent decades, entrepreneurs in the for-profit college space made a disruptive discovery: You don’t need to develop a quality educational institution to get rich off federal student-loan dollars. You can just invest heavily in advertising that tricks prospective students into attending your garbage pseudo-college.

Alas, the Obama administration stifled this innovation by imposing accountability standards on federal student loans; institutions that failed to guide a reasonable percentage of their students into gainful employment upon graduation would no longer be eligible for federal dollars. Further, Obama made students who had already attended a shoddy for-profit school eligible for debt forgiveness. During his time in office, 99.2 percent of borrowers who applied for such forgiveness received it. But the Trump administration loosened the Obama-era rules, and Betsy DeVos’s Department of Education denied forgiveness to 99.4 percent of eligible borrowers.

The Biden administration is working to restore Obama’s accountability standards. In March, it canceled $1 billion in student debt for roughly 72,000 defrauded borrowers.

Making it easier for disabled Americans to secure debt forgiveness. If you take on student debt and then develop a medical condition that prevents you from securing the gainful employment your education was supposed to provide, you can apply for debt forgiveness under the Total and Permanent Disability Discharges program. But failure to provide proper documentation of one’s poverty can cost eligible borrowers their due relief. Biden has temporarily exempted borrowers from such requirements, and in March, the Department of Education canceled $1.3 billion of student debt for 41,000 disabled borrowers.

Fixing the Public Service Loan Forgiveness program. The PSLF is supposed to encourage highly educated Americans to work for the public instead of for private corporations, even though the latter tend to offer higher pay. If you make your monthly student-loan payments for ten years while working for the government or a qualifying nonprofit, the rest of your loan balance is supposed to be forgiven.

But the program’s rules are so elaborate and confusing that barely one percent of borrowers who applied for PSLF have received it. The Biden administration aims to rewrite those rules to make it easier for applicants to secure relief. The president has also proposed expediting borrowers’ eligibility for forgiveness under the program: Under his plan, borrowers would have half their loan balance forgiven after five years in public service.

Finally, Biden’s American Families Plan — one of his top legislative priorities — would modestly increase college affordability by upping Pell Grants, making community college tuition-free, and boosting aid to schools that serve minorities.

In sum, blanket loan forgiveness remains possible. But in all likelihood, the Biden presidency will yield only small-bore reforms that deliver relief to specific kinds of borrowers, while most will carry on bearing the burdens of America’s inefficient, scam-ridden system of higher education.