As a senator, Joe Biden helped lenders make it almost impossible to discharge student debt in bankruptcy court. But as a president with a depressed economy and a potential Republican Senate, undoing his own legacy and cancelling student debt may be one of Biden’s only options to stimulate the economy — and progressives and even some Democratic leaders argue that he has the power to do it all on his own, whether Senate GOP leader Mitch McConnell likes it or not.
Today, 45 million Americans owe a collective $1.7 trillion dollars in student debt, with the average borrower owing $36,214. Before loan payments were suspended as a result of the pandemic, student borrowers who were making payments typically paid between $200 and $299 per month. Black student borrowers take on more debt on average and are more likely to default on that debt than white borrowers. Lower-income student debtors on average face a larger debt burden as a share of income than wealthier borrowers — and during the pandemic, they have fallen behind on payments at a far greater rate than higher-income debtors.
On the campaign trail, Biden has advocated for cancelling $10,000 of debt per person in response to the COVID-19 pandemic. Biden has also advocated for cancelling student debt used to pay tuition expenses for undergraduates earning less than $125,000 at public schools and historically black colleges and universities (HBCUs).
Under one proposal, pushed by Senator Elizabeth Warren and Senate minority leader Chuck Schumer, the White House would use its executive authority to cancel $50,000 worth of student debt per borrower.
Biden, however, has not taken a position on whether the executive branch can unilaterally cancel debt absent legislation from Congress.
Asked about student debt, @JoeBiden declines to say whether he would take executive action to cancel student loan debt.
He points to HEROES Act passed by the House–which he said forgives $10K per borrower –and says "it should be done immediately."
— Michael Stratford (@mstratford) November 16, 2020
A Debate Over Executive Authority
A president’s power over student debt stems in part from most student loans being held directly by the federal government. Following the financial crisis, the federal government bailed out the student loan industry and began to originate loans itself rather than relying on private lenders.
In recent years, private companies contracted to service federal student loans have faced charges of mismanagement and abuse. One such servicer, Navient, faces multiple lawsuits from state attorneys general in Pennsylvania and New Jersey alleging that it engaged in deceptive practices such as steering borrowers away from income-based repayment plans. Another servicer, Great Lakes, is the subject of a class-action lawsuit accusing the company of incorrectly lowering borrowers’ credit scores during the pandemic.
When the coronavirus pandemic hit, the Trump administration used executive authority to provide relief to student borrowers by suspending payments on federal student loans through December 31. However, there are currently no plans to extend the suspension, which would expire before Biden’s inauguration on January 20. This would leave at the very least a monthlong gap where student borrowers would be expected to make payments during a pandemic.
According to proponents, Trump’s executive orders to suspend student debt payments provide a blueprint Biden can use to cancel it. In March, when the Trump administration first suspended payments, they claimed the authority under Section 432(a) of the Higher Education Act to do so.
The same authority could be used by a Biden administration to cancel student debt across the board. Such an action would be controversial and could potentially result in legal challenges — but proponents say existing federal law gives the executive branch the authority to “compromise, waive, or release” claims against student debtors.
The likely prospect of a Republican-controlled Senate has accelerated calls for Biden to embrace debt cancellation. In an op-ed last week after the election, Warren described debt cancellation as “the single most effective executive action available to provide massive consumer-driver stimulus.”
Biden’s Record on Debt Relief
Cancelling student debt could be “a stimulus for the economy” that would have “immediate and long-term effects,” explained Louise Seamster, a professor of sociology at the University of Iowa whose research helped inform Warren’s debt forgiveness plan. “We’re running out of runway on the status quo. Even the mortgage industry has started complaining that student debt is eating into their profits. People can’t buy houses at the age when they usually buy houses.”
Progressive groups are already gearing up to fight for debt cancellation once Biden is in office. “President-elect Biden and Vice President-elect (Kamala) Harris will not need to wait for Congressional action to make a difference for millions of former students and their families,” Eileen Connor, the legal director at the Project on Predatory Student Lending, said in a statement. “They have the power and legal authority to order their Department of Education to cancel millions in student debts on day one of their administration.”
But actually cancelling student debt would be a major shift for Biden, who spent much of his career in the Senate making it harder for student borrowers to reduce their debt in bankruptcy. In 1978, Biden helped pass legislation that required students to wait five years after graduation before they could file bankruptcy on their student loans. And in 2005, Biden helped pass a landmark bankruptcy reform bill that made it virtually impossible for any student borrower to discharge their student debt in bankruptcy.
“This is one of the problems where the longer you let it go, the worse it gets,” said Seamster.