President-elect Joe Biden could make good on his campaign promise to cancel billions of dollars in student loan debt after Democrats flipped the Senate last week, securing a monopoly on power for the first time in more than a decade.
The incoming Biden administration plans to ask Congress to immediately cancel $10,000 in student debt for all borrowers — a move that will likely draw criticism from both Republicans who are wary about the nation's ballooning deficit and progressive Democrats who want the president to move further left on the issue.
Sens. Chuck Schumer, D-N.Y., and Elizabeth Warren, D-Mass., as well as Reps. Alexandria Ocasio-Cortez, D-N.Y., and Ayanna Pressley, D-Mass., have urged Biden to use an executive order to cancel $50,000 of outstanding federal student loans per borrower.
Warren said Biden could use existing executive authority under the Higher Education Act to order the Department of Education to cancel student loan debt. Previous estimates show that proposal would provide total forgiveness to more than 75% of borrowers and partial forgiveness for more than 95%.
“We have to push the Biden administration hard," Ocasio-Cortez told Punchbowl News last week. "This whole thing, ‘We can’t cancel student loan debt,’ is not gonna fly.”
But Biden has said it's "arguable" whether the president has the power to forgive $50,000 in student debt without the approval of Congress.
“I’m going to get in trouble for saying this, [but] it’s arguable that the president may have the executive power to forgive up to $50,000 in student debt,” Biden told The Washington Post in December. “Well, I think that’s pretty questionable. I’m unsure of that. I’d be unlikely to do that.”
Under legislation endorsed by Biden, economically distressed borrowers would immediately have $10,000 in student debt forgiven. The government would also cover monthly loan payments for people with private student loans until September 2021 and forgive $10,000 of their debt.
“Immediate $10,000 forgiveness of student loans, helping people up there in real trouble," Biden said in November. "They’re having to make choices between paying their student loan and paying the rent. Those kinds of decisions.”
Critics of large share debt cancellation have also argued it would disproportionately benefit individuals with higher incomes who likely did not lose their job during the pandemic-induced recession. More than 70% of laid-off workers do not have a bachelor's degree, including 43% who did not attend college at all.
Less than one-third of all student debt is held by households without a bachelor's degree – while nearly two-fifths of debt is held by households with graduate degrees. A recent survey conducted by the Pew Research Center shows that most of the economic suffering from the crisis is concentrated among less-educated individuals.
Analysis from the Committee for a Responsible Federal Budget shows that canceling student loan debt is an ineffective stimulus measure: Eliminating $1.5 trillion in loans would translate to just $90 billion or less in cash available to spend in 2021, and $450 billion over the next five years.
"The majority of those most affected by the current economic crisis likely have little or no student debt," the analysis said, noting that more than 70% of unemployed workers do not have a bachelor's degree. "It is unlikely that broad student debt cancellation would be well-targeted toward those experiencing income loss. Nor is it well targeted toward those with low incomes."
Outstanding student loan debt has doubled over the past decade, nearing a staggering $1.7 trillion. About one in six American adults owes money on federal student loan debt, which is the largest amount of non-mortgage debt in the U.S. It has been cited as a major hindrance in people’s “economic life” by Federal Reserve Chairman Jerome Powell.
Biden has also promised to extend the Trump administration's pause on federal student loan payments, which is scheduled to lapse this month. It's unclear for how long Biden would extend the payment freeze.
"On day one, 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," said David Kamin, the incoming deputy director of the National Economic Council.