Biden Could Forgive Student Loan Debt on Day One

• Democratic leaders and organizations urge "the next president" to help students.
• Biden could cancel federal student loan debt for most borrowers by executive order.
• Critics say broad debt forgiveness by order has drawbacks and blind spots.

The moment President-elect Joe Biden walks into the Oval Office on January 21, he could be ready to sign one of the biggest education policies in history: canceling most student loan borrowers' debt. After decades of climbing college tuition rates, and various federal proposals to aid struggling students, student debt forgiveness has never been closer to becoming reality.

Biden could forgive up to the first $50,000 of every student borrower's federal loan debt by executive order — one of several immediate directives that Democrats are urging Biden to issue, bypassing what could be an evenly divided or majority-Republican Congress.

The call to circumvent Congress using the power of the executive order first came by way of a legal memo written by a group of Harvard Law School professors. The lawyers affirmed that "the Higher Education Act gives the Secretary of Education the authority to cancel student loan debt."

“I have a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished, and we believe that Joe Biden can do that with the pen as opposed to legislation.” Source: — Senate Minority Leader Chuck Schumer (D-NY) Link: More Info

Senator Elizabeth Warren and Senate Minority Leader Chuck Schumer (who could become the majority leader) reissued the proposal. Soon after, a coalition of 237 organizations — including the NAACP and the National Education Association — wrote to Biden's team, urging them to use executive action to cancel student debt.

Educators, policymakers, and pundits remain in vigorous debate over such a directive's legality and impact. And despite political momentum behind debt forgiveness, Biden has not publicly endorsed executive action to accomplish it. However, along the campaign trail, Biden proposed canceling at least $10,000 of every borrower's federal student loan debt in response to COVID-19.

Student Debt Forgiveness as Part of Biden's New Deal

While the pressures of COVID-19 give lawmakers additional reasons to make college more affordable, free-college plans would likely still struggle to be passed by Congress. Debt forgiveness, on the other hand, could be done "with the pen as opposed to legislation."

In the first days of what Senator Schumer says could be a Franklin D. Roosevelt-style presidency, Biden could provide total forgiveness to more than 75% of borrowers.

“[A] bold plan for the next President of the United States to use existing authority under the Higher Education Act to cancel up to $50,000 in federal student loan debt for federal student loan borrowers.” Source: — Senate Democratic Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) Link: More Info

Proponents of debt forgiveness say a generous write-off would stimulate the economy. According to a 2017 report from the Federal Reserve System, students making payments on loans for their education paid almost $400 per month, on average. Additionally, with more than a quarter of Americans behind on loan payments, canceling student debt could help provide relief for millions of households.

Unintended Consequences of Canceling Student Debt

Lawyers with the Legal Services Center of Harvard Law School call the proposal to cancel student debt by executive order "lawful and permissible." Other commentators dispute such an order's legality, saying it represents an overreach of executive power.

One potential drawback of canceling student loan debt by executive order is that it could open the door to lawsuits from loan lenders. And without the thorough planning that passing debt cancellation through Congress could provide, addressing student debt by executive order risks saddling borrowers with a big tax bill.

Without a comprehensive plan to make college affordable, wiping out existing debt would only be a temporary fix.

Other potential drawbacks of debt cancellation are independent of whatever legal mechanism might be used to enact it. Perhaps the largest issue is that without a comprehensive plan to make college affordable, wiping out existing debt would only be a temporary fix. If the larger system isn't changed, debt will immediately begin to accrue at the same rate as before.

Additionally, according to MarketWatch, "Canceling all student debt would provide a disproportionate impact — by dollar amount — on borrowers with the most debt." As a result, debt forgiveness could provide the greatest financial boost to law and med school grads — individuals who often go on to make lucrative salaries.

Furthermore, a study conducted by the think tank Demos found that "policies which eliminate all student debt for young households would expand the divide between median Black and white wealth by an additional 9%." Research suggests that although young Black families could see their median wealth increase by $7,400, the increase in wealth for young white families would be about $10,400.

Canceling all student debt would help ease the economic burden of Black families, but it could also inadvertently exacerbate inequality. Some policymakers argue that any plans regarding student loan forgiveness should reduce the burden of student debt while also making sure to decrease existing wealth disparities.

Rather Than Cancel Debt Once, Cancel Interest Permanently

The current student-loan system has been difficult to navigate successfully for many Black borrowers, who tend to borrow more than their white peers and are less likely to have family help pay it off. Research shows that 12 years after starting college, Black students carry more of their original federal loan debt than any other racial or ethnic group — in fact, they typically owe at least 10% more than what they borrowed initially.

Underrepresented minority students face many challenges to getting to, and through, college. The quicksand effect of student loan interest erodes their hard-won educational success. However, some policy experts say that targeting interest rates rather than sweeping away student debt could prevent that erosion at a much lower cost. And there's also support from some Republicans for this tactic: Republican Senator Marco Rubio proposed nixing student loan interest last year.

Early in the coronavirus pandemic, President Donald Trump placed a moratorium on all federal student debt collection, which included a freeze on interest. Trump has extended student loan relief through the end of the year.

The Committee for a Responsible Federal Budget suggests that "extending the current executive action to defer loan repayments and cancel interest would achieve much of the economic benefit of loan cancellation at only a very small fraction of the cost."

University of Michigan professor Matt Reed also proposes eliminating all federal student loan interest. "Pay back all that you borrowed, but only what you borrowed," writes Reed, "There's a simplicity and fairness to that proposal that could make it politically achievable and sustainable."

Feature Image: Al Drago / Stringer / Getty Images News / Getty Images North America