Here are 5 key issues preventing President Joe Biden from making a final decision on student loan forgiveness.
Here’s what you need to know — and what it means for your student loans.
Student loan forgiveness won’t be happening any time soon. According to a report, Biden may not announce his plans for wide-scale student loan cancellation until later this summer. There are many reasons for a delayed decision on student loan forgiveness. However, here are the 5 key issues that are preventing the president from making a final decision to cancel student loans.
1. The amount of student loan forgiveness: $10,000 or $50,000
If Biden decides to enact wide-scale student loan cancellation, the most likely amount would be $10,000 per eligible student loan borrower. Why? Biden consistently has supported this amount of student loan forgiveness since his presidential campaign. He also said he won’t cancel $50,000 of student loans, which has been the other proposed amount in Congress. That said, given the delayed announcement, Biden could reconsider $50,000 of student loan cancellation. Sen. Elizabeth Warren (D-MA) and other advocates are pushing Biden to cancel more than $10,000 of student loan debt.
2. Who qualifies for student loan forgiveness: income limits
Despite the term “wide-scale student loan forgiveness,” not everyone will qualify for student loan forgiveness. That may come as a big surprise, but Biden could limit which student loan borrowers ultimately get their student loan canceled. Some progressive members of Congress want all student loan borrowers to qualify for student loan forgiveness. However, the Biden administration has floated income caps, which could mean you must earn below a certain income threshold to qualify for student loan forgiveness. Warren’s legislative proposal woul restrict student loan forgiveness to federal student loan borrowers who earn up to $125,000. Similarly, Biden could limit student loan forgiveness to federal borrowers who earn up to $125,000 or $150,000. An income cap would limit the overall cost of student loan forgiveness. However, there may be logistical challenges for the U.S. Department of Education if student loan borrowers will be required to provide proof of income.
3. Legal authority to enact wide-scale student loan cancellation
It’s not a foregone conclusion that Biden will cancel everyone’s student loan debt, or that he has the legal authority to do so. Warren has argued that Congress, through the Higher Education Act of 1964, authorized the president to cancel an unlimited amount of student loan debt for an unlimited amount of student loan borrowers. However, Biden, a former U.S. senator, has doubted that Congress granted that authority to the president. Biden has authority to cancel student debt through existing federal programs such as public service loan forgiveness or borrower defense to repayment, which Congress has authorized. To date, Biden has canceled $25 billion of student loans. The U.S. Department of Education has been exploring Biden’s legal authority to enact wide-scale student loan cancellation through executive action. The Trump administration concluded that the president doesn’t have such legal authority. That said, the Biden administration could reach an alternative conclusion. If Biden proceeds with student loan forgiveness, expect legal challenges, which potentially could delay implementation.
4. Political implications of student loan forgiveness
The midterm election on November 8 is the biggest election of Biden’s presidency. Why? The outcome will directly impact Biden’s legislative agenda for the remaining two years of his term. Student loan forgiveness could be a major issue for some voters, particularly for student loan borrowers. Advocates such as Rep. Alexandria Ocasio-Cortez (D-NY) say that if Biden doesn’t cancel student debt, young voters won’t vote in the midterm election. This could result in Democrats losing seats in Congress, which could help Republicans win control of the House of Representatives or possibly the Senate. The flip side of wide-scale student loan forgiveness is the potential alienation of independent and moderate voters. This group of borrowers may balk at the cost of student loan forgiveness and express concern about wealth redistribution.
5. The economic impact of student loan forgiveness
While supporters of student loan forgivenes say it will stimulate the economy, Republicans in Congress say it will increase inflation. The White House has said any broad student loan forgiveness would have minimal impact on inflation. However, Biden is sensitive to any impact on inflation, which could influence the outcome of the midterm election. “Wherever one stands on student debt relief, this approach is regressive, uncertainty creating, untargeted and inappropriate at a time when the economy is overheated,” former U.S. Treasury Secretary Lawrence Summers, a Democrat, tweeted in April. Before Biden decides next steps on student loan forgiveness, he will closely monitor inflation. Biden could wait until later this summer to announce his final decision. This announcement would coincide with the end of temporary student loan relief on August 31, 2022. That said, don’t wait until then to explore your best options for student loan repayment. Here are some smart ways to save money:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)