President Biden’s $10,000 Student Loan Forgiveness Proposal: What to Know

The pros and cons of broad federal student loan cancelation are currently being debated by top political leaders. President Biden has previously expressed his support for $10,000 in student loan forgiveness per borrower. However, he recently asked his Secretary of Education Miguel Cardona to review his legal authority for canceling up to $50,000 via executive order.

Senators Elizabeth Warren and Chuck Schumer believe the Biden administration already has the ability to wipe away student debt. But others don’t support the use of executive action for a number of reasons, ranging from questions of legality to opposing mass student loan forgiveness altogether.

Here’s what you need to know about President Biden’s $10,000 student loan forgiveness proposal and what it could mean for student loan borrowers.

Can President Biden cancel student loan debt?

President Biden has repeatedly voiced his preference that legislation be the driving force for student debt cancelation, rather than making it happen with a stroke of his own pen.

That being said, he’s facing immense pressure from Democratic party leadership and student loan activists to provide student loan relief unilaterally via executive order.

But does the president have the authority to cancel student loan debt? This question is at the center of the student loan debate, and here’s why.

Why some favor an executive order for federal student debt cancellation

The U.S. Constitution specifically provides Congress with the “power of the purse”, meaning it controls public funds (e.g. taxing and spending) — not the president. So, why are so many elected officials pushing for the president to circumvent their own authority by issuing an executive order?

Proponents of student debt cancelation indicate that mass forgiveness will help the economy and reduce racial wealth gaps. But there isn’t widespread support for student debt cancelation among Congress.

This means it’ll be much harder (and a much lengthier process) to enact legislation that satisfies all players and makes a meaningful impact for struggling borrowers.

Additionally, canceling student debt through executive order allows for a type of accounting loophole in which the government wouldn’t have to increase taxes or shift funds from other programs to pay for it.

This is a huge arguing point. The Congressional Budget Office previously determined that canceling $10,000 of student debt for every borrower would cost $250 billion to $300 billion or more.

Student debt cancelation via executive order negates one of the biggest hurdles: coming up with an acceptable bipartisan way to pay for it.

Why some are against student loan cancelation via executive order

Many critics are worried that debt cancelation will disproportionately benefit high-income earners who sought advanced degrees by knowingly taking on large amounts of debt. Some legal experts and political leaders also argue that canceling student loans through executive action is an overreach of the president’s authority.

Therefore, any unilateral move by the executive branch would likely be met with staunch legal challenges all the way to the Supreme Court (which has a 6-3 conservative majority).

This is one of the primary reasons President Biden has previously knocked the ball back into Congress’ court when pressed about his position on student debt cancelation.

Student loan cancelation debate is gaining momentum

There’s been a push to forgive student loans for a while now, but the issue really gained steam this past election cycle. Since then, the student loan crisis has continued to stay at the forefront of political discussions due to the economic fallout of the COVID-19 pandemic.

There have been numerous student debt cancelation proposals, from $10,000 of student loan forgiveness to full cancelation of both private and federal student loans (and everything in between). Some proposals focused on targeted relief of borrowers already in default, while others focused on certain qualifications like being a first responder or an essential worker during the pandemic.

This “throw it at the wall and see what sticks” approach has helped keep student loan forgiveness in the news. But ultimately, broad student loan cancelation will come down to two major factors: whether Congress can work together to find a solution and whether the president has legal authority to do it himself.

How precedent can impact the president’s ability to cancel student loan debt

The Department of Education is currently compiling a legal memo that analyzes and outlines the president’s authority to cancel student loans without congressional authorization. Although this conclusion isn’t legally binding, it’ll provide the president with additional recommendations and policy issues to consider when making his final decision.

The previous Trump administration did a similar review and determined that the president doesn’t have the authority to cancel wide-scale student loan debt. But this determination wasn’t legally binding either.

Supporters of student loan cancelation via executive order argue the Higher Education Act of 1965, specifically section 432(a), gives the Department of Education authority to forgive student loans.

We’ve seen this authority in action most recently under the Biden administration, which has canceled $1.3 billion of student loans for borrowers with total and permanent disability and $1 billion for students who were previously defrauded or had school closures.

We also saw this authority be leveraged throughout the COVID-19 pandemic by both the Trump and Biden administrations in the form of an extended student loan payment and interest freeze.

Although the executive branch has used this authority before, it’s been in a very limited capacity and with great controversy.

After all, many legal and student loan experts still believe former President Trump didn’t have the authority to pause payments and interest. But the decision wasn’t challenged legally because it had widespread bipartisan support and benefited tons of borrowers during a national emergency.

So, it’ll be interesting to see how these previous student loan policy decisions influence the president’s ability to cancel student debt going forward.

How does this student loan proposal affect borrowers?

We don’t know what President Biden’s proposal means for student loan borrowers just yet. His proposal could result in executive action that will then be challenged at the highest level. Alternatively, we could see Congress duke it out for a student debt relief solution or we could see nothing happen at all with continued promises of future student loan forgiveness.

However, an executive order seems more and more likely considering his request to review his legal authority to cancel student debt, as well as the recent appointment of Richard Cordray to lead the Department of Education’s Office of Federal Student Aid.

Cordray is the former head of the Consumer Financial Protection Bureau (CFPB) and a progressive ally of Senator Warren. If you’re reading between the lines, his appointment likely means big changes are coming for federal student loans, which could include student loan cancelation.

So, where does this leave you as a student loan borrower? Here’s a few questions to consider as you weigh the outcomes of broad student loan cancelation and make decisions for your own student debt.

• Why did President Biden ask for guidance on the legality of canceling $50,000 of student debt? President Biden went on record saying he won’t support $50,000 of cancelation via executive order during a February CNN televised town hall meeting. So why ask his Secretary of Education to evaluate $50,000 of student debt cancelation? If it’s determined that he has the authority to cancel student loan debt, his proposal of $10,000 will appear to be much more moderate. This could be beneficial in terms of garnering more support (or more importantly, less opposition) when weighing the likelihood of Republicans filing an appeal with the Supreme Court.
• Who would benefit the most from canceling $10,000 worth of student loans? Canceling $10,000 of federal student loans would be a huge financial boost for many low-income Americans. However, research from economists at the University of Chicago found that broad student debt cancelation would be a regressive policy that would disproportionately help high-income earners.
• Should borrowers move forward with refinancing their federal student debt? There’s a decent chance the White House will attempt to wipe away $10,000 to $50,000 of federal student debt. But there’s also an equal chance that it’ll be challenged in the courts, meaning it probably won’t stick considering there’s a 6-3 Supreme Court conservative majority.

If you’re worried about missing out on any potential loan cancelation benefits, you could leave a portion of your federal student loan debt untouched and refinance the remainder to lock in a low interest rate.

Not sure what to do? Reach out to us or schedule a consult with one of our student debt experts to receive a deep dive and customized plan for your unique student loan situation.