WASHINGTON, DC – FEBRUARY 3: United States President Joe Biden meets with Democratic Senators to celebrate his … [+]
For those in favor of a comprehensive student loan waiver, the momentum seems to be building in their favor. But would private student loan borrowers be left out?
Yesterday, Democratic leaders in the House and Senate reintroduced a resolution calling on President Biden to take executive action to cancel $ 50,000 in federal student loan debt for each borrower. The effort reflects similar resolutions made by Congress last year.
The new legislative push to cancel student debt coincides with additional efforts by organizations advocating student loan borrowers. At least 328 organizations, including prominent trade unions and civil rights groups, signed a letter last month urging President Biden to cancel the student debt.
“There is growing energy and strong bipartisan public support for immediate, broad-based debt relief,” the organizations wrote. “Such executive action is one of the few tools available that could instantly boost more than 44 million borrowers and the economy.”
But in the conversation a more nuanced discussion is lost about what a comprehensive cancellation of student loans for borrowers can look like.
Student personal loans
Private student loans made by banks and other commercial lenders are very different from federal student loans. Private student loans typically have higher interest rates and inflexible repayment terms compared to most federal student loans. Additionally, private student loans are not eligible for major federal student loan programs such as earnings-based repayment, public sector lending, and loan rehabilitation. Private student loans have also been banned from federal aid programs like the CARES Act, which suspended payments, interest and recoveries on federal student loans in response to the COVID-19 pandemic.
Under current law, there is no mechanism to convert a purely personal student loan to a federal student loan.
Executive action to remit student debt
Advocates of student loan borrowers and their allies in Congress have focused on a simple argument: that President Biden has the power to unilaterally cancel student debt through executive action. This would allow Biden to move quickly and avoid a potentially messy fight in Congress.
Proponents point to a provision in the Higher Education Act that gives the Minister of Education the power to “enforce, pay, compromise, [or] forego student loans or “release” a borrower from their obligations. Several student loan legal experts have argued that it is legal to use this provision to extinguish student loan debt extensively, but others – including US Department of Education attorneys under former Education Secretary Betsy DeVos – have disagreed, arguing that doing so would exceed the powers granted to President Congress in introducing the Higher Education Act.
President Biden has expressed skepticism that he would be empowered to issue such extensive student debt relief through executive action. However, yesterday the White House signaled that it is open to the possibility and is actively considering options.
However, even if the Biden administration determines that such executive action is legal and continues, the relief would likely be limited to federal student loans only. The power of compromise in the College Act, cited by advocates of student debt relief, only includes federal student loans. The president does not necessarily have the express legal authority to compromise, waive, or relieve borrowers of their obligations under a purely private borrower’s note loan for student loans. So while the executive’s action to eradicate student debt could bring significant relief to millions of people, private borrowers could be excluded.
Congressional Private Student Loan Termination Act
While President Biden may not have the legal authority to unilaterally cancel private student loans through action by the executive branch, Congress could possibly legislate to do so.
Last year, Democratic Congresswoman Madeleine Dean offered an amendment to the National Defense Authorization Act that would have provided borrowers with up to $ 10,000 in emergency aid to repay personal student loans. This amendment passed the House of Representatives in July but was never adopted by the Republican-controlled Senate.
With the Democrats now in control of both houses, a similar bill reintroduced into Congress could potentially stand a chance of being passed. However, such a bill may require 60 votes in the Senate to overcome a filibuster. With Democrats only holding 50 seats, 10 Republicans would have to support such a move, which could prove difficult. And while the Democrats could potentially eliminate the filibuster to make it easier to pass laws by simple majority, it is unclear whether the Senate private student loan award would gain unanimous support from the Democrats. And at least two Democratic senators have refused to get rid of the filibuster.
Ultimately, debt relief for private student loans is not impossible, but many hurdles would have to be overcome to make it a reality.
Bankruptcy reform as a fallback?
Earlier this week, the Senate Democrats tabled a comprehensive bankruptcy bill that would fundamentally change the bankruptcy system in the United States and make it easier for borrowers to replace their student loans with bankruptcy. Currently, it is very difficult (if not technically impossible) for borrowers to redeem their student loans through bankruptcy.
If a bankruptcy reform bill can find sufficient support in the House and Senate, the move could prove to be a sufficient mechanism to provide private borrowers with a path to private student loan exemption without relying on a specific private student loan debt relief act.
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