Cancel student loans? Well, it may depend on this one thing.
Here’s what you need to know.
There has been growing hope for student loan forgiveness during the incoming Biden administration. These calls are not new, however. Over the past two years, there have been multiple calls to cancel student loans:
- Bernie Sanders: Cancel all student loans, including federal student loans and private student loans.
- House Democrats: Cancel $30,000 of student loans.
- Senate Democrats: Cancel $10,000 of student loans.
- Elizabeth Warren: Cancel billions of student loans
- Joe Biden: Cancel $10,000 of student loans (for borrowers impacted by Coronavirus).
There have been other proposals in Congress and on the campaign trail too. So, what happens next? Will you get student loan forgiveness?
It really depends on one thing.
Student Loan Forgiveness
Student loan forgiveness really depends on one thing: who controls the U.S. Senate. Why? Biden may have won the presidency. However, the party that wins the U.S. Senate, in many ways, will have significant influence over the direction of public policy over the next two years. The runoff elections in Georgia will determine whether Democrats, led by Sen. Chuck Schumer (D-NY), gain control of the Senate, or if Republicans, led by Sen. Mitch McConnell (R-KY), retain control.
If Democrats win U.S. Senate
- If Democrats win, Schumer will push legislation to cancel student loans.
- It’s unclear which of these student loan proposals Schumer ultimately would endorse.
- For example, Schumer could support student loan forgiveness of up to $10,000 for each borrower.
If Republicans win U.S. Senate
- If Republicans retain control of the Senate, student loan forgiveness likely won’t become law.
- Senate Republicans generally have not supported plans to cancel student loans. McConnell, as Senate majority leader, can dictate which bills come to the Senate floor. Student loan forgiveness likely will not be one of them.
- Senate Republicans could still support other bipartisan legislation on student loans, but generally want to limit federal spending (and student loan forgiveness, effectively, is a form of federal spending).
Cancel student loans through executive order?
If Republicans retain control of the U.S. Senate, then the next question is what other options, if any, do Democrats have to cancel student loans. The baseline approach to cancel student loans is through congressional legislation. The U.S. Constitution grants power to the legislative branch (Congress) to make laws, and this includes federal spending. Without congressional approval, there is not a clear cut path to cancel student loans. Some have argued that Congress is not the only branch of government that has the power of student loan forgiveness. They believe that the president can use executive action to cancel student loans. Warren and others have advocated this position, which implies Biden could forgive student loans without congressional approval. However, this is not clear from a legal perspective.
Hypothetically, let’s assume Republicans control the Senate, Biden uses executive action to cancel student loans, and Biden does so over the objection of Senate Republicans. The president has authority to issue executive orders. The question, however, is whether a president has authority to cancel student loans through executive action. It’s possible that this hypothetical scenario leads to legal challenges, including a temporary injunction to halt any student loan forgiveness.
Ultimately, if there is student loan forgiveness, the federal government (taxpayers) foots the bill. While student loan borrowers would welcome Congress or Biden forgiving their student loans, not everyone (including many Republicans) supports this policy. If Democrats win the Senate, then the path to at least some student loan forgiveness could become easier. However, if Republicans win, don’t expect student loan forgiveness simply because Biden is president. So, Democrats in Congress could support student loan forgiveness. Biden could support student loan forgiveness. However, the one thing that determines the outcome could be who becomes the next Senate Majority Leader.
Pay off student loans
Whether Congress or Biden acts to cancel student loans, it’s unclear how and when it might take shape. In the interim, get prepared and develop a student loan game plan. Here are good places to start to pay off student loans, all of which have no fees: