This new memorandum from the U.S. Department of Education says the president can’t cancel student loans.
Here’s what you need to know—and what it could mean for your student loans.
According to a new legal memo, the U.S. Secretary of Education doesn’t have the legal authority to cancel student loan debt on a wide-scale basis. This implies that the incoming Education Secretary, or even President-elect Joe Biden, would not be able to cancel student loans for millions of student loan borrowers with “the stroke of a pen.” The non-binding memo provides legal arguments why only Congress can cancel student loans. While advocates for student loan cancellation such as Sen. Elizabeth Warren (D-MA) likely will disagree with the contents of the memo, here are some principal arguments that are offered.
Student Loan Cancellation: The argument in favor
Before reviewing the reasons not to cancel student loans, it’s important to highlight the many reasons to cancel student loans. Advocates say student loan cancellation will stimulate the economy, help encourage borrowers to save for retirement or purchase a home, reduce disparity, and save a generation from financial ruin. There are various proposals to cancel student loan debt, even if student loan cancellation was dropped from the last stimulus package. These proposals range from $10,000 of student loan debt cancellation to cancelling all $1.7 trillion of student loan debt for 45 million borrowers. What legal authority, if any, does the Secretary of Education have to cancel student loan debt for all student loan borrowers? Warren and others argue that:
- the Higher Education Act of 1965 (which is current law) provides legal authority for the U.S. Secretary of Education to cancel student loans.
- In their view, the president already has legal authority to cancel student loans. They reference Section 432(a) of the Higher Education Act, which grants the U.S. Secretary of Education the authority “to modify, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.”
MORE FOR YOU
Most recently, Warren and Senate Minority Leader Chuck Schumer (D-NY) have called on Biden, through an executive order, to cancel up to $50,000 of student loan debt for every borrower who earns $125,000 or less per year. To date, Biden hasn’t supported this proposal, opting instead for $10,000 of student loan debt cancellation.
Why the president can’t cancel student loans
According to the memo, which the Education’s Department’s Office of the General Counsel drafted, “we believe the [Secretary of Education] does not have the statutory authority to cancel, compromise, discharge, or forgive, on a blanket or mass basis, principal balances of student loans, and/or to materially modify the repayment amounts or terms thereof.” The memo includes several reasons why student loans can’t be cancelled en masse, including:
1. Congress controls spending (and student loan cancellation is spending)
Of the three, co-equal branches of government, only Congress can appropriate federal spending. Per the U.S. Constitution, “[n]o Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law[.]” The Education Department, like the president, is part of the executive branch. According to the memo, the executive branch, on its own without Congress, can’t make spending decisions.
2. Congress would have explicitly written that the president can cancel everyone’s student loans
As the memo states, “Congress does not hide elephants in mouseholes.” (Gonzalez v. Oregon). If Congress really wanted to delegate full authority to the Education Secretary to cancel millions, billions or trillions of dollars of student loan debt of student loan debt, Congress would have explicitly written the law as such. It would be rare for Congress to write legislation so vaguely as to empower the executive branch unilaterally to cancel student loan debt — without congressional involvement — for millions of student loan borrowers.
3. The Education Department can cancel student loans, but only in limited circumstances
Congress has empowered the Education Department to cancel student loans in limited circumstances. While the Education Secretary has relied on this provision to cancel student loans, most student loan debt cancellation has been relatively small compared to the current proposals for widespread student loan debt cancellation. For example, student loans can be cancelled due to fraud, school closure or total and permanent disability. This implies that student loan cancellation is done more on a case-by-case basis than on a wide-scale basis. According to the memo, Congress could authorize the Education Department to cancel student loan debt for all student loan borrowers, but hasn’t done so yet.
Biden has called on Congress to cancel $10,000 of student loans immediately for every student loan borrower. Biden says he is unlikely to cancel student loans through an executive order. It’s possible that student loan cancellation is included in the new stimulus package, along with $2,000 stimulus checks. Alternatively, student loan cancellation could be delayed if Congress limits the size of the new stimulus package and prioritizes other financial remedies in response to the Covid-19 pandemic. Importantly, this memo is not legally binding and a future presidential administration could reach alternative conclusions. Congress also could pass a law to cancel student loans, or could pass a law to grant student loan cancellation authority to the president. Until then, it’s unlikely that Biden or the U.S. Secretary of Education will cancel student loans unilaterally.
How to pay off student loans faster
What’s the best way to pay off student loans? There’s no guarantee that Congress will cancel student loans in the new stimulus package, or through standalone legislation. Even if there is student loan cancellation, Congress hasn’t finalized who qualifies for student loan forgiveness. That’s why it’s essential for you to make a student loan game plan now. Start with these three options, all of which have no fees: