Student Loan Forgiveness Review Could Mean This For Student Loan Cancellation

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President Joe Biden (Photo by Joe Raedle/Getty Images)

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President Joe Biden has asked for a legal review of student loans, and here’s what it could mean for student loan cancellation.

Here’s what you need to know.

Student Loans

If you have been following the latest news on student loan cancellation, Biden has asked the U.S. Secretary of Education Miguel Cardona to conduct a legal review of the president’s authority to enact wide-scale student loan cancellation. While the report is not expected for several weeks, the legal review is expected to answer at least one key question: whether the president can unilaterally cancel student loans by executive order without any further congressional authorization. Here is what the memo may say about student loans and student loan cancellation. Let’s explore some key potential scenarios:

1. Only Congress can enact wide-scale student loan cancellation

The first scenario is that the legal review includes the most common-held belief that only Congress (the legislative branch) has the power to decide federal spending. Student loan cancellation is a form of federal spending, and the president (the executive branch) typically cannot initiate new federal spending without proper congressional approval. Biden, a former U.S. senator, has said he doesn’t think he is legally able to enact student loan cancellation by executive order. This is why he has called on Congress to cancel $10,000 of student loans immediately for student loan borrowers.

2. Yes, you can cancel student loans by executive order

The second scenario is that the legal review supports the position advocated by Senate Majority Leader Chuck Schumer (D-NY), Sen. Elizabeth Warren (D-MA) and others, which says the president has existing legal authority to enact student loan cancellation and does not need any further congressional authorization. Schumer and Warren say that Section 432(a) of the Higher Education Act of 1965 grants the U.S. Secretary of Education the authority “to modify, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” Based on this existing law, Schumer and Warren argue that it’s unquestionable that the president (through the Secretary of Education) can cancel student loans for all student loan borrowers by executive order. If this scenario happens, Congress may even cancel student loans more than once. Schumer and Warren want Biden to cancel up to $50,000 of student loans by executive order. However, under their plan, only federal student loans would be cancelled for borrowers who earn less than $125,000 annually. Biden is not actively considering student loan cancellation of $50,000.

3. Yes, you can cancel student loans if Congress authorize

The third scenario is that the legal memo says that a president has the legal authority to enact student loan cancellation by executive order, but would require additional authorization from Congress. While Schumer and Warren would disagree with this potential conclusion, the perspective is that the Higher Education Act of 1965 likely didn’t envision a scenario in which the U.S. Secretary of Education decides to cancel student loans for millions of people. There are several reasons why student loan cancellation could not be permitted. First, in 1965, it’s unlikely that Congress could fathom that 45 million student loan borrowers collectively would owe $1.7 trillion of student loans. Second, it’s also unlikely that Congress, which is a co-equal branch of government with the executive branch, would unilaterally grant the executive branch unchecked authority to spend an unlimited amount of taxpayer funds on student loan cancellation. Third, the Higher Education Act does not reference “unlimited student loan forgiveness” or any other comparable language that indicates it would be legally permissible to forgive everyone’s student loan debt. While that language is not required, legal scholars may debate the underlying intent of Congress in drafting the legislation versus a plain reading of the text. If the Education Department reaches this conclusion, then Congress could grant the president such authority and Biden could enact student loan cancellation by executive order.

4. The president can enact at least some student loan cancellation

The fourth scenario is that the legal memo says the president can cancel student loans in limited circumstances for certain student loan borrowers. For example, Biden already cancelled $2.3 billion of student loans last month. First, Biden cancelled $1 billion of student loans for 72,000 student loan borrowers and second, he cancelled another $1.3 billion of student loans for 41,000 borrowers with total and permanent disability. So, Biden has existing authority to cancel at least some student loan debt for a select group of borrowers. The question will be how far does that executive power go, and is there a limit to how many student loan borrowers can get student loan forgiveness through an executive order.

Student Loan Cancellation: Next Steps

Once Biden receives the memo on student loan forgiveness, “He’ll look at that legal authority,” White House Chief of Staff Ron Klain said, referring to Biden. “He’ll look at the policy issues around that, and he’ll make a decision.” The legal memo won’t be binding law, however. Rather, the memo is a recommendation based on the Education Department’s legal interpretation. The Trump administration wrote a legal memo that said a president cannot unilaterally enact wide-scale student loan cancellation by executive order. That said, Biden’s Education Department could reach a different conclusion. Then, it would be Biden’s decision if he proceeds to cancel student loans and how much. Alternatively, he could maintain his current position that while he doesn’t have legal authority, he would sign a bill on student loan forgiveness that Congress passes. Will your student loans get cancelled? Ultimately, that will be up to the president and Congress. As you consider your options for student loan repayment, here are some smart options to consider to save money:

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