Democrats press Biden to cancel $50K in student loan debt

WASHINGTON (SBG) — Under growing pressure from Democrats and progressive activists to cancel up to $50,000 in student loan debts with an executive order, the White House said Thursday that President Joe Biden is counting on Congress to address the crisis, but officials also did not rule out unilateral action.

"I think he took a step through executive action on the first day and would look to Congress to take the next step," White House press secretary Jen Psaki said Thursday, referring to an executive order extending a pause on student loan payments.

However, Psaki later tweeted that the White House is “reviewing whether there are any steps he can take through executive action,” suggesting the option is not entirely off the table.

A resolution introduced earlier in the day with support from dozens of House and Senate Democrats called for President Biden to sign an executive order directing the secretary of education to administratively forgive up to $50,000 in student loan debt per borrower and directing the IRS to ensure they are not taxed for the relief. Democrats estimate the move would slash the nation’s outstanding student debt balance by $1 trillion.

“We have met with the president, we are pushing the president and his people, and we are very hopeful...,” said Senate Majority Leader Chuck Schumer, D-N.Y., at a news conference. “We are not going to let up.”

More than 43 million Americans who currently owe federal student loan debt would benefit from the action, but advocates expect lower-income borrowers would get the biggest boost. Nearly 80% of loan recipients would see their entire debt wiped out, including about 95% of those currently in default.

“There is very little the president could do with the flick of a pen that would help our economy more,” Schumer said.

Democrats maintain the Higher Education Act of 1965 grants the secretary of education authority to modify or waive student debt. President Donald Trump cited the same law last year in canceling interest on student loans during the pandemic, but previous presidents have never tried to exert that power on this scale.

“This is the moment of reckoning, and the president must heed our call,” said Rep. Ayanna Pressley, D-Mass., framing the issue as a racial and economic justice imperative.

Sen. Elizabeth Warren, D-Mass., who sponsored a similar resolution with Schumer last fall, spotlighted the issue Wednesday at the confirmation hearing for Miguel Cardona, Biden’s nominee for education secretary. She cited data showing student debt has left many Americans in a deep economic hole, including some senior citizens whose Social Security checks are garnished for repayment.

“Dr. Cardona, this is a crisis,” Warren said. “You are in a unique position to be able to do something about it. Congress gave the Department of Education tools to help borrowers with student loan debt.”

Cardona committed to doing everything possible to provide borrowers with “immediate relief,” but he did not specifically comment on debt forgiveness. He noted disproportionate damage loan debt has done to Black and Latino students, exacerbating economic inequalities.

An attempt to forgive debt by executive action would face stiff Republican resistance, as well as likely legal challenges. At Cardona’s hearing, Sen. Richard Burr, R-N.C., dismissed the idea as “dangerous and foolhardy.”

“I will oppose any effort to simply move debt from borrowers onto the taxpayers,” Burr said, pointing instead to bipartisan legislation that would cap monthly payments at 10% of discretionary income.

Sen. Sherrod Brown, D-Ohio, acknowledged broad student debt relief might spur some backlash, particularly from those who did not go to college or who already paid off their loans. Still, he argued debt forgiveness would benefit millions of Americans who have been negatively impacted by the coronavirus pandemic.

“We’ve got to do big things and move the country forward,” said Brown, who co-sponsored the resolution Thursday. “Too many kids don’t have the opportunity they would if they didn’t face this gargantuan debt.”

President Biden has wielded expansive executive powers in his first two weeks in office, signing more than 30 executive actions on various issues, including an extension of a temporary freeze on student loan payments. However, he has voiced reservations about using that authority to forgive debt outright.

“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.”

As a candidate, Biden offered a more modest plan than many of his Democratic opponents, proposing $10,000 of student loan forgiveness for every year of national or community service a borrower completed, up to $50,000. His plan would also cut maximum monthly payments to 5% of discretionary income, with forgiveness after 20 years of responsible payments.

He also proposed several other reforms to make college more affordable in the future, such as doubling the maximum value of Pell grants and making public colleges tuition-free for low-income students. In addition, Biden supported reversing provisions in a 2005 bankruptcy reform bill that made it harder for borrowers to discharge private student loan debt.

In December, Biden publicly backed a provision in the House HEROES Act that would have granted up to $10,000 in loan forgiveness. That measure was not included in the $900 billion relief package that was ultimately passed, and the issue was not directly addressed in Biden’s $1.9 trillion American Rescue Plan proposal.

Progressive groups and advocates for borrowers expressed disappointment that Biden’s coronavirus relief proposal did not include debt forgiveness. More than 300 organizations signed a letter urging him to use executive authority to cancel debt last month.

“The absence of a legislative request to cancel student debt heightens the urgent need for President-Elect Biden to cancel student debt administratively,” the Center for Responsible Lending and several other organizations said in a joint statement. “Overwhelming research shows that student debt cancellation would provide dramatic relief particularly in low-income neighborhoods and among communities of color that are disproportionately burdened by ballooning debt.”

While an executive order would undoubtedly be the fastest way to address the debt relief crisis, there are other options. Several pieces of legislation have been proposed in recent years that would either reduce debt or ease the burden of repayment.

Warren’s plan would forgive up to $50,000 in loans for borrowers with annual household incomes below $100,000, with the benefit gradually phasing out at higher incomes up to $250,000. Economists calculated the package would cost $640 billion and provide at least some relief to 95% of borrowers.

During the 2020 presidential campaign, Sen. Bernie Sanders introduced a proposal to wipe out all student debt that would have cost $1.6 trillion. Even some Democrats rejected blanket forgiveness for all borrowers, which would benefit top earners with graduate degrees as well as those who have difficulty making monthly payments.

Although Republicans have endorsed some efforts to simplify the loan repayment process and grant forgiveness to those who make payments for 20 years, they have persistently balked at wiping out debt unconditionally. Some maintain the crisis is exaggerated and most borrowers can handle their monthly payment.

Still, many economists say broad relief is justified. Most federal student debt is held by higher-income graduates, but those who are struggling to keep up with payments are more likely to be people of color, lower-income workers, and borrowers who did not ultimately graduate from college.

“It really is an intervention that helps people from low-income families and Blacks and Hispanics, and Blacks in particular,” said Laura Perna, executive director of the Alliance for Higher Education and Democracy at the University of Pennsylvania.

According to a 2019 Brandeis University study, the average Black borrower still owes 95% of their debt after 20 years, while the typical white borrower only owes 6%. That debt can prevent borrowers from buying homes, starting families, and opening businesses, and it carries lasting consequences for their financial stability.

“While the majority of people have debt loads we wouldn’t consider to be outrageous, there are a lot of people exiting higher education and carrying pretty significant burdens into the workforce,” said Cliff Robb, a consumer science professor at the University of Wisconsin-Madison.

As college costs rise, so do student debt levels and default rates. A 2018 analysis by the Brookings Institution estimated up to 40% of borrowers could be in default by 2023, with Black borrowers falling behind at a far higher rate than whites. The outlook could be even more dire in the wake of the pandemic.

“A lot of borrowers aren’t able to make much progress on their loan payments,” said Robin Howarth, a senior researcher at the Center for Responsible Lending.

As he weighs his response to this issue, President Biden faces a very different political and economic environment than he did during his campaign. The coronavirus pandemic has decimated some sectors of the economy, and the federal government has already spent more than $3 trillion on stimulus programs, pushing deficits to record levels.

The White House has struggled to drum up bipartisan support for Biden’s $1.9 trillion rescue package, with moderate Republicans presenting a much slimmer $600 billion counteroffer. The president still aims to propose spending trillions more this month as part of his economic recovery plan, and he has several other ambitious and expensive items on his agenda.

Given those other priorities, it is not clear whether Biden would consider taking on an additional $1 trillion in forgiven debt to be worth the political capital his administration would need to expend. Economists are divided over how much of a stimulative impact student debt relief would have.

According to a 2018 report by the Levy Economics Institute, wiping out student debt would create millions of jobs and boost gross domestic product by $86 billion to $108 billion per year. It would also result in increases in small business formation, household formation, degree attainment, and access to credit.

“For complete debt forgiveness, you would find an annual benefit for up to ten years of $100 billion,” Howarth said.

However, the Committee for a Responsible Federal Budget calculated that even total student loan forgiveness would have a relatively small macroeconomic effect relative to its cost. Other measures like small business loans, direct stimulus payments, enhanced unemployment benefits, and aid to state and local governments provide much bigger “bang for buck.”

“Because borrowers often pay back their loans over 10, 15, or even 30 years, debt cancellation will increase their available cash by only a fraction of the total loan forgiveness,” the CRFB analysis stated.

Robb recognized there would long-term budgetary impacts associated with wiping out $1 trillion in debt, but he argued the positives would outweigh the negatives. At a time when many households are facing uncertainty and severe economic strain, this is one problem the federal government could fairly easily solve.

“I think the sooner we can alleviate these kinds of economic issues, the better,” he said.

If the Biden administration did take the steps Democrats are urging, experts say that would only address one aspect of the crisis. More would still need to be done to reform higher education and ensure future generations of students do not find themselves buried under a similar mountain of debt.

“We need to have more conversations about, what are the mechanisms from the federal and state policy perspectives to ensure all people can go to college, they can afford to pay the costs, and it’s more than just taking on a lot of debt,” Perna said.