President-elect Joe Biden has made a campaign proposal for erase $10,000 for an estimated 37 million Americans who owe federally-backed student loan debt, and experts are divided on whether the new president will be able to deliver on that promise.
“Just erasing student debt…that was one of the more left-leaning ideas that won’t be feasible given that the Republicans really fought the Democrats to lure” Congressman Michael Petrilli, chairman of the think tank Thomas B Fordham Institute, told Yahoo Finance.
There are two avenues that could theoretically cancel student debt: either through legislation or through executive action.
In practice, student loan forgiveness could either be included as part of a new stimulus package passed by Congress or signed into law by a President Biden asking his education secretary to forgive the debt.
“We are committed to fighting to ensure that student debt relief is included in any future stimulus agreement,” said Natalia Abrams, executive director and co-founder of Student Debt Crisis.
The decree route is based on the Higher Education Act, which grants broad authority to the president (through the Secretary of Education) to cancel the debt.
“I have a proposal with Elizabeth Warren that the first $50,000 in debt be defeated,” said Senate Minority Leader Chuck Schumer (D-NY). affirmed recently, “and we think Joe Biden can do it with the pen as opposed to legislation.”
The Biden administration would have ‘the power and legal authority to order its Department of Education to cancel millions of student debts from day one of its administration,’ the loan project’s legal director says. Predators, Eileen Connor.
“Cancellation will not necessarily happen overnight”
The stock of student debt in the United States is nearly $1.7 trillionaccording to the New York Fed.
“This is something that has dashed the hopes and dreams of too many Americans for too long,” former presidential candidate Andrew Yang pointed out on Yahoo Finance Live (video above). “I met people on [campaign] trail who were in their 50s and 60s and were still struggling with some of the $1.6 trillion in student loan debt.
About 7% of this debt was seriously overdue as of July 2020. Amid the coronavirus pandemic, the federal government government payment break on federal loans has helped many borrowers avoid default.
It’s unclear whether Biden’s team will pursue the executive’s argument, and experts are cautious about the idea that debt cancellation would happen anytime soon.
“Voiding won’t necessarily happen overnight,” said Ashley Harrington, director of federal advocacy at the Center for Responsible Lending at Yahoo Finance, adding that the process included taking the first steps to understand the legal arguments to be made. forward and coordinate with agencies like the Internal Revenue Service (IRS) to ensure the debt is not taxable.
At the same time, the National Student Defense Network noted that the education secretary can quickly take “administrative proceduresenshrined in the Higher Education Act to cancel borrowers’ student loans.
The Predatory Lending Project argued that a Executive Decree could be a real solution to Obama-era borrower defense regulations protecting defrauded borrowersthat the Trump administration tried to dismantle despite court decisions favoring borrowers.
‘Economic activity would in turn be stimulated.
Debt cancellation could have ripple effects, experts have previously said.
A report by Moody’s Investors Service said canceling student loans could stimulate the economy in the short term by serving as a “tax cut-like stimulus.”
“Partial or full cancellation of student debt would increase household disposable income by the amount of debt service saved,” the report said. “Economic activity would in turn be boosted by the portion of these savings on debt service being channeled into other current and investment spending. At the same time, some households could potentially increase their spending beyond their savings on debt service if their improved net financial worth encourages them to save less and spend more overall, which will further stimulate the economy.
And since more than 90% of student debt is in the hands of the US government, the report notes, forgiving that debt isn’t all that different from cutting government taxes.
A separate report by Bard College’s Levy Economics Institute added that debt cancellation “could raise real GDP by an average of $86 billion to $108 billion a year” and reduce unemployment.
“The cancellation will disproportionately impact black and brown borrowers, low-income borrowers and female borrowers,” Harrington noted, stressing that it is especially true for black borrowers “Because of the history of discriminatory policies…in the financial market which continue to this day.”
This post has been updated with a tweet from Senator Elizabeth Warren.