If Biden won’t cancel your student loans, here’s why.
Here’s what you need to know — and what it means for your student loans.
Will your student loans get cancelled? The answer to that question may depend on a single legal memo that the U.S. Department of Education is preparing for President Joe Biden. This student loans review won’t be binding law, but it will include an analysis of the president’s authority to cancel student loans unilaterally by executive order and without Congress. That’s the latest on student loan cancellation: in the “battle” between progressives in Congress and the president, it may come down to a question of legal authority, and who has the power to enact wide-scale student loan forgiveness. Biden won’t necessarily follow the recommendations outlined in the memo, however. “He’ll look at that legal authority,” White House Chief of Staff Ron Klain said, referring to Biden. “He’ll look at the policy issues around that, and he’ll make a decision.” Earlier this year, the Trump administration’s Education Department concluded that the president does not have wide-scale, unilateral authority to enact student loan cancellation by executive order without further congressional authorization. U.S. Secretary of Education Miguel Cardona is expected to deliver the memo to Biden within weeks.
Here are some key legal issues, as outlined in a recent paper from Harvard Law School, that could make the case for student loan cancellation an uphill battle:
1. Student loan cancellation: Can the president even cancel student loans?
Biden wants to cancel student loans 3 ways. However, he doesn’t believe that he has the legal authority to enact wide-scale student loan cancellation. Under the Property Clause and the Appropriation Clause of the U.S. Constitution, the executive branch can’t forgive debt that is owed to the federal government without a statutory grant from Congress. Federal student loans, for example, are owed by borrowers to the federal government. Typically, Congress has the “power of the purse” and controls federal spending, which would include student loan cancellation. Only Congress has the power to dispose of federal property, unless Congress explicitly places that authority with an administrative agency. Supporters of student loan cancellation say that the Higher Education Act of 1965, which Congress passed, provides a statutory basis to give the Education Department unlimited authority to forgive student loans in whole or in part. So, to pass legal muster, the Biden administration would need to argue that while the executive branch doesn’t have the authority to enact student loan cancellation, the Higher Education Act of 1965 grants some exception because Congress granted such a right through legislation nearly 60 years ago. However, that will require some statutory interpretation, which brings us to the next point.
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2. Student loan forgiveness: What does the law actually say?
Supporters of student loan forgiveness cite Section 432A in the Higher Education Act of 1965 regarding the Education Department’s authority “to modify, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” A plain text reading of this provision could support wide-scale student loan forgiveness at will. However, the Education Department previously has defined the term “modify” as meaning to “change moderately or in a minor fashion,” while the Office of Management and Budget has argued that a modification “may be any size.” That said, the author notes that the legislative history of the Higher Education Act does not support a broad interpretation of the Education Department’s discretion to forgive student loans that are performing (e.g., not in default). The Education Department may have to show that Congress in 1965 intended to relinquish all responsibility for federal student loans and granted unlimited authority to the Education Department to cancel student loans at will. This may be a challenging threshold to overcome, despite the plain text reading.
3. Student loan cancellation: it’s not the student loans you think
The Higher Education Act does not support forgiveness of private student loans or even all federal student loans. Rather, the Higher Education Act only provides for explicit modification or settlement of FFELP Loans and Perkins Loans. That may be surprising because the Education Department does not own the vast majority of these student loans. Most FFELP Loans are owned by private investors or financial institutions, while most Perkins Loans are issued by colleges and universities. Importantly, there is no explicit mention of modification or settlement of Direct Loans, although supporters of student loan cancellation say the assumption is that Direct Loans would be included because their loan terms are similar those of FFELP Loans and Perkins Loans. Since the Education Department doesn’t own most FFELP Loans or Perkins Loans, the Education Department can’t formally “cancel” these student loans, but likely would have to assume the student loan obligations.
Further, there may be an issue with appropriations. Congress appropriated money for federal student loans, but didn’t create a new appropriation for the forgiveness of those same student loans. Even if the Education Department now finds it has authority to cancel student loans, a court could require the Education Department to prove that Congress intended for all student loans to be eligible for complete student loan forgiveness. If the Education Department seeks to cancel student loans, a court could deny student loan cancellation if the court finds the Education Department sought to “infer appropriations from ambiguous statutory text.”
Student loan forgiveness: next steps
There are other legal argument that support and oppose the president’s authority to cancel student loans without further authorization from Congress. There is a plain text reading of Section 432A that could support student loan cancellation. At the same time, the provision is statutorily ambiguous and doesn’t explicitly reference wide-scale student loan forgiveness or state that Congress is transferring unlimited power to cancel all student loans to the executive branch. The Education Department has the power to cancel student loans. For example, Biden has cancelled at least $2.3 billion of student loans since becoming president. The question will be how far does that power of student loan cancellation go? Is it limited or absolute? Does it include student loan cancellation for every student loan? Biden differs from Senators Elizabeth Warren and Chuck Schumer’s views on the amount of student loan cancellation and who has the power to forgive student loans — making student loan cancellation a legal question — but all three agree that there should be at least some wide-scale student loan cancellation. In Congress, student loan cancellation is very much a policy issue, with some progressive members believing it’s an essential policy that will stimulate the economy and reduce disparities, while others (primarily Republicans and moderate Democrats) believe it’s poorly targeted, is expensive, and doesn’t address the actual problem of the cost of higher education. So, if Biden doesn’t cancel student loans, understand that for student loan cancellation to endure as a policy goal, Congress will need to deliberate the merits of student loan cancellation and find a legislative proposal that can satisfy more than progressive Democrats.
Be thoughtful about your next steps for student loan repayment. Make sure you consider these potential options in addition to student loan forgiveness: