Why You Shouldn’t Bank on Student Loan Forgiveness

Illustration for article titled Why You Shouldnt Bank on Student Loan Forgiveness

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Once he assumes office, President-elect Joe Biden is expected to ask Congress to immediately cancel $10,000 in student debt for all borrowers and extend the payment moratorium on federally backed student loans that’s scheduled to lapse this month. But will debt forgiveness pass the Senate? It’s possible—but there’s no guarantee that will happen.

President-elect Biden’s plan

“On Day 1, the president-elect will direct the Department of Education to extend the existing pause on student-loan payments and interest for millions of Americans with federal student loans,” David Kamin, a Biden transition adviser, said in a recent press conference. The length of student loan payment pause has not yet been specified.

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Details are scarce, but President-elect Biden also wants to expand income-based repayment plans and reform the debt forgiveness program for borrowers working in public service.

Currently, 45 million student loan borrowers collectively owe $1.7 trillion of student loan debt. Per Forbes, canceling $10,000 in outstanding student loans would erase outstanding student loans for more than 16 million people—about a third of all current borrowers. 

What happened to the plan for $50,000 in debt relief?

Democratic Senate leaders like Chuck Schumer and Elizabeth Warren have pushed for $50,000 in cancelled debt, and they’ve urged President-elect Joe Biden to use an executive order to make that happen.

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However, the legality of using executive authority is not cut-and-dry, and such an action would likely face legal challenges in the Supreme Court. If the executive order was ruled to be unconstitutional, the government would have an administrative mess on its hands, especially if it had to restore debt that had already been erased.

Biden’s preferred route is to go through Congress, but Democrats hold a Senate majority by the slimmest of margins (50-50, with VP-elect Kamala Harris serving as the tie-breaking vote). And to avoid a filibuster that could jeopardize passage of a student debt relief bill, the Senate would require 60 votes. That means that nine Republican senators would have to support large-scale debt cancellation.

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Another option is a legislative procedure known as budget reconciliation, which could pass student debt relief legislation with a simple senate majority, but that has limitations, too. As Ryan D. Doerfler, a law professor at the University of Chicago, recently told CNBC, “Democrats can only make use of reconciliation procedures three times over the next two years.” Republican Senators could also try to block student debt relief on the grounds that it’s not related to budget changes, which is required for reconciliation legislation. Whether Democrats will pursue that option remains to be seen.

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Considering these legislative options, once could reasonably argue that $10,000 in debt forgiveness would have a better shot at passing with at least some bi-partisan support, compared to $50,000.

So what does this mean for my student loans? 

As a precaution, assume that you’ll be making student loan payments in February (even if an extended payment moratorium is much more likely than debt relief). However, Valerie Curtin, executive director of Compliance and Financial Aid at Helena College, recommends holding off on making extra payments on your loan in the next few weeks. This makes sense—especially if your student debt is $10,000 or less, you’ll want to see if that amount will be cancelled before paying it off out-of-pocket.

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“I think cash is very important right now, so the more cash you can keep in your pocket the better, as long as you are making your payments and you are staying on time with your payments it is okay to stay at a lower payment rate,” Curtin said.

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