Student debt cancellation is already on the agenda as President-elect Biden’s transition
President-elect Joe Biden has made a campaign proposal for erase $ 10,000 for an estimated 37 million Americans who owe federally guaranteed student loans, and experts are divided on whether the new president will be able to keep that promise.
“Just wipe out student debt … that was one of the more left-wing ideas that won’t be feasible given that Republicans really fought Democrats to draw” In Congress, Michael Petrilli, chairman of the think tank Thomas B. Fordham Institute, said Yahoo Finance.
There are two avenues that could theoretically cancel student debt: either through legislation or through executive action.
In practice, the student loan cancellation could either be included as part of a new stimulus package passed by Congress or enacted by President Biden asking his Education Secretary to cancel the debt.
“We are committed to fighting to have student debt relief included in any future stimulus deal,” said Natalia Abrams, Executive Director and Co-Founder of Student Debt Crisis.
The path of decree is based on the Law on Higher Education, which confers broad authority on the president (through the education secretary) to cancel the debt.
“I have a proposal with Elizabeth Warren that the first $ 50,000 of debt be defeated,” said Senate Minority Leader Chuck Schumer (D-NY) affirmed recently, “and we think Joe Biden can do it with the pen rather than the legislation.”
Biden administration would have “the power and legal authority to order its education department to write off millions of student debt on day one of its administration,” predatory loan project legal director said , Eileen Connor.
“Cancellation will not necessarily happen overnight”
The outstanding student debt in the United States is nearly $ 1.7 trillion, according to the New York Fed.
“This is something that has crushed the hopes and dreams of too many Americans for far too long,” former presidential candidate Andrew Yang said on Yahoo Finance Live (video above). “I have met people on [campaign] trail who were in their 50s and 60s and still struggling with a portion of the $ 1.6 trillion in student loan debt. “
About 7% of this debt was in serious delinquency in July 2020. Amid the coronavirus pandemic, the federal government government payment break on federal loans has helped many borrowers avoid delinquency.
It’s unclear whether Biden’s team would pursue the executive’s argument, and pundits are cautious that debt cancellation will happen anytime soon.
“The cancellation won’t necessarily happen overnight,” Ashley Harrington, federal director of advocacy at the Center for Responsible Lending, told 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 make sure the debt is not taxable.
At the same time, the National Student Defense Network noted that the education secretary can quickly take “administrative measures”Enshrined in the law on higher education to cancel student loans of borrowers.
The Predatory Lending Project argued that a decree could be a real solution to Obama-era borrower defense regulations protecting defrauded borrowers, which 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 previously said.
A report by Moody’s Investors Service said the cancellation of student loans could boost 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 share of these debt service savings funneled into other current and investment spending. At the same time, some households could potentially increase their spending beyond their debt service savings if the improvement in their net financial wealth gives them an incentive to save less and spend more globally, which would stimulate even more. the economy.
And since over 90% of student debt is in the hands of the U.S. government, the report notes, forgiving that debt isn’t all that different from cutting government taxes.
A separate report by the Levy Economics Institute at Bard College added that debt cancellation “could increase real GDP by an average of $ 86 billion to $ 108 billion per year” and reduce unemployment.
“The cancellation will have a disproportionate impact on black and brown borrowers, low-income borrowers and female borrowers,” Harrington noted, noting that it is especially true for black borrowers “Because of the history of discriminatory policies… in the financial market that continue to this day. “
This post was updated with a tweet from Senator Elizabeth Warren.