During the 2020 Democratic primaries, candidate Joe Biden promised he would cancel $10,000 of student loans. This made him one of the more conservative primary candidates, with others calling for relief ranging anywhere from $50,000 per borrower to canceling all student loans, public and private.
In his years as president, borrower advocates were unsure if Biden would follow through on what the Democratic base considers a moderate campaign promise. For some time he claimed that he did not have the legal power to cancel loans by executive order and Congress would need to act on the issue.
His political caution may be justified. While polls show some form of debt forgiveness is popular, once we get into the weeds of where to cap overall forgiveness amounts or what income limits should apply, polling shows opinions splinter. Though there are strong majorities who support some level of debt cancellation, opinions differ on the details of how loan forgiveness should work.
In the end, it looks like the administration tried to split the difference between those who thought $10,000 was plenty of relief, and those who demanded more help for poorer borrowers, especially minorities with historical inequities in household wealth.
Nearly Universal Debt Relief of $10,000
Joe Biden has long said his limit for unilaterally canceling loans without an act of Congress would be $10,000. He did not want to be known as the president who overstepped his powers or be tied up in lengthy litigation over the legality of his plan.
Even at the $10,000 level, Biden was always wary of alienating working-class voters who may have not gone to college and feel like they are now bailing out those who did take out student debt. This has become a chief line of attack from Republicans.
Biden made the announcement after lengthy internal deliberations that likely took into account his historically low poll numbers, continuing inflationary pressures, and other economic and political headwinds as he leads his party into November’s midterms.
Since the party in power generally has a rough time during midterm elections, Democrats are frantically trying to keep enthusiasm up among its base, which includes a broad swathe of younger voters who stand to benefit from this move.
Debt Relief of $20,000 for Lower-Income Pell Grant Recipients
Millions stand to benefit from the broad relief of $10,000 per borrower. Yet, there are a number of low-income students – especially minority ones – who had to take out much more in loans than their peers. This is due largely to inequities in wealth between Black and white families.
The National Association for the Advancement of Colored People (NAACP) and progressive Democrats have pushed for more than $10,000 of relief, which would be particularly crucial for low-income and minority borrowers.
The administration appears to have split the difference between competing demands and kept $10,000 as the limit for broader debt relief, while giving low-income borrowers more room with its $20,000 limit. This will most benefit Black borrowers, according to CNBC’s analysis of National Center for Education Statistics data.
But even that higher limit on debt forgiveness appears to have drawn criticism from those who think it doesn’t do enough.
Derrick Johnson, president and CEO of the NAACP, was critical that Biden didn’t cancel $50,000 of loans or more per borrower. In an op-ed, he called student debt forgiveness a “racial and economic justice issue” that could help close the racial wealth gap.
“Canceling just $10,000 of debt is like pouring a bucket of ice water on a forest fire,” Johnson said.
Republicans United in Opposition
Almost as soon as it was announced, Biden’s student debt forgiveness plan became fodder for Republican lawmakers who sought to portray it as a handout to irresponsible, liberal college-goers at the expense of working Americans.
“It’s a handout for high-income college and advanced degree graduates paid for by taxpayers who had no part in taking out these loans," Missouri Senator Roy Blunt said.
Senate Minority Leader Mitch McConnell said the plan was a “slap in the face” of the working class.
The White House Twitter account made certain to remind Republicans that some of them had benefited from government debt forgiveness in the past.
In an uncharacteristic stream of tweets, the account revealed how much certain lawmakers’ personal businesses had gotten in loan forgiveness from the pandemic-era Paycheck Protection Program.
What Were Biden’s Other Options for Canceling Debt?
Canceling $50,000 of Federal Student Debts Per Borrower
This is the number that Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer believe Democrats should push for. Biden has pushed back, suggesting it could damage banks or hurt future lending for student loans. Progressives, meanwhile, suggest that anything less could be construed as a broken campaign promise and will fail to animate the Democratic base for the coming midterms.
The White House argues that it does not have the executive power to cancel such a large amount of debt. Skeptics push back that if the administration believes it has the authority to cancel $10,000, why does that authority suddenly disappear at $50,000?
This threshold would zero out debt for 30 million Americans, the overwhelming majority of student loan borrowers. And for those public borrowers within any income limits set, it will affect almost all 43 million of them to a degree.
Senator Warren, in fact, asked the Legal Services Center at Harvard Law if current law allowed the president to instruct their Education Secretary “to cancel federal student loan debt on a broad or categorical basis.”
They concluded “that such broad or categorical debt cancellation would be a lawful and permissible exercise of the Secretary’s authority under existing law.”
The matter remains unresolved legally. And since it seems that President Biden does not have an appetite for this level of relief, it would require a legislative solution, which remains unlikely.
Her earlier skepticism aside, Senator Warren was one of many Democratic lawmakers praising the president the day after the announcement. Warren and Majority Leader Schumer said in a joint statement:
With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by cancelling significant amounts of student debt for millions of borrowers. The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the President can take on his own to help working families and the economy.
Canceling 100% of All Public and Private Student Debt
Senator Bernie Sanders (I-VT) is at the forefront of calls to cancel all $1.75 trillion in student debt, public and private.
This would zero out debt for all 43 million public borrowers, as well as the relatively few others who are in debt only to private institutions. The plan would cancel $1.61 trillion in federal debt and $131.1 billion in private debt.
This is a highly unlikely path, though other progressives such as Congresswoman Alexandria Ocasio Cortez do support it.
Extending Pandemic Payment Freeze
President Biden has extended the pandemic-era student loan payment freeze for the eighth and final time, he said in his August press conference. This means that after December 2022, borrowers who have been able to ignore their student loans for the better part of three years will have to address them somehow.
His predecessor initiated a freeze on student loan payments at the start of the pandemic in March 2020. An important aspect of the freeze was that no interest would accrue on the remaining balance while the borrower was not making payments.
This sets it apart from other temporary relief options, such as going into forbearance, where payments are paused for a fixed time, but the loan balance grows as interest adds up.
The Fed noted in May that 60% of borrowers made no payment towards these student loans during the more than two years since the payment and interest freeze took effect. The other 40% who made some payments will find themselves in a better position once the extension ends.
Offering Plan to Cap Monthly Payments at 5% of Income
While it will undoubtedly be a financial shock for some people to get used to making loan payments again at the end of the year, the administration is softening the blow by offering a new Income Driven Repayment plan.
The Department of Education offers four income-driven repayment plans. Three of the plans have a payment rate of 10% of the borrower’s income.
Under the fourth, new repayment plan, the rate would change to 5% of the borrower’s discretionary income.
Processing "Borrower Defense" Claims
The Borrower Defense process is a way for a borrower to have some of their loans reduced or forgiven if the school lied about things like graduation rates or average graduate salaries.
During the Trump administration, tens of thousands of borrowers were eligible for some amount of relief under this process. But in the summer of 2019, Education Secretary Betsy DeVos changed the eligibility requirements, leaving these borrowers with stalled or denied applications. According to members of a class action lawsuit against Secretary DeVos, “the Department of Education halted all processing of borrower defense claims and refused to adjudicate any borrower defense from any student. As of 2019, more than 200,000 students had a borrower defense application pending. Many of them had been unresolved for nearly four years.”
Within six months of taking office, President Biden’s administration tackled the backlog of Borrower Defense applications and, on July 1, 2021, forgave some or all of the loans of 73,000 borrowers, for a total of $1 billion in debt relief.
Most recently, on June 23, 2022, the Department of Education agreed to immediately cancel another $6 billion for 200,000 students of predatory colleges, as part of a settlement in a class action lawsuit against the Department of Education that goes back to the Trump administration.
Prior to that announcement, Biden’s gradual approach to canceling student loans had focused on two major universities.
Canceling Debt for Students at ITT Tech and Corinthian University
There are some specific examples of Biden unilaterally canceling millions or billions of dollars in student loan debt at a time.
ITT Tech, which shut down in 2017 after the government pulled its federal funding, misled students about how much they could expect to earn after graduating and about the ability to transfer credits.
In arguably his first actual act of debt cancellation, in June of 2021, President Biden informed 18,000 “alumni” of ITT Tech that the entirety of their debt to the now-defunct business was canceled, amounting to a total of $500 million in loan forgiveness.
That may have been a dry run for one of his more recent acts of debt cancellation, an order of magnitude much larger than ITT Tech. A year later, Biden decided to go after another for-profit university that had conned borrowers.
In June 2022, the Biden administration informed 100,000 former students of Corinthian University, another predatory institution that has since been shuttered, that their debt was entirely forgiven. The Corinthian relief program will eventually impact 500,000 borrowers as they are informed on a rolling basis.
For Corinthian borrowers, this amounts to a total of $5.8 billion of debt relief. It also showed Biden was willing to go much bigger than ITT Tech’s $500 million in loan relief and potentially look at relief in the billions of dollars for hundreds of thousands of borrowers.
At the same time though, it was not so different from the ITT Tech debt forgiveness because it targeted borrowers from a specific predatory for-profit institution.
However significant these accomplishments were, they were narrow in terms of who they affected and a far cry from the near-universal $10,000 debt cancellation Biden campaigned on.
Moving Stalled Applications for Public Service Loan Forgiveness Forward
The Public Service Loan Forgiveness (PSLF) program was established as part of the College Cost Reduction and Access Act, which Congress passed with bipartisan support and President George W. Bush signed into law in 2007.
Many of the problems that the broader 2007 legislation sought to address mirror today’s issues with college debt. Despite the law’s intention, it failed to address some of the core issues that make student loans one of the most burdensome forms of American household debt.
It expanded Pell Grants for low-income borrowers and gradually cut interest rates on Stafford Loans in half, helping increase access to higher education for future student borrowers.
But one of the most discussed parts of the plan was the PSLF program, in part because it was a path to actual debt cancellation for past borrowers.
Under PSLF, if a borrower worked in a public service capacity and continued making on-time payments, the remainder of the federal debt was canceled after 10 years. Unfortunately, there was very little guidance in the actual legislation on which occupations or employers were eligible to meet the “public service” requirement.
In 2012, under President Barack Obama, the Department of Education finally created an Employer Certification Form that allows borrowers to find out if their current and past work as nurses, teachers, first responders, and similar public interest jobs qualified them for PSLF.
In 2017, a decade after the law’s passage, the first round of students who were eligible for the forgiveness program began filing applications with loan servicers and the DoE, now under the Trump administration. To their shock, 99% of their applications were denied, leading to the resignation of a student loan servicer watchdog.
In response, this year, the Department of Education began informing up to 500,000 borrowers who had applied for PSLF since 2017 that their applications were now approved. Once all half a million borrowers have been fully approved for debt forgiveness, this move will account for a total of $6.2 billion in loan relief. That would be considered, in dollars and cents, Biden’s most ambitious move for debt relief.
Changing Bankruptcy Laws to Include Student Debt
Student debt is unique among debts in that it will stay with you even after a bankruptcy filing. Someone going through bankruptcy would have to prove that their student loans represented an “undue hardship,” which is open to broad interpretation and generally leaves a very high threshold for discharging student loans during bankruptcy.
Advocates have tried to change bankruptcy law for decades so student loans were treated like other forms of financial obligations, which could be discharged through bankruptcy.
Eventually, enough pressure was brought to bear on lawmakers that last fall a top Democrat wrote the legislation, which was promptly co-sponsored by a top Republican, that would reshape how student loans were treated in bankruptcy. The FRESH START Through Bankruptcy Act was introduced by Sen. Dick Durbin (D-IL) and co-sponsored by Sen. John Cornyn (R-TX), and members of both parties have voiced support. However, it has yet to be voted out of the Judiciary Committee. From there it will face the full Senate and will likely need at least 10 Republicans in addition to all 50 Democrats to overcome a potential filibuster.
This one-page description of FRESH START offers an overview of what the bill proposes:
- Make Federal Student Loans eligible for discharge in a bankruptcy proceeding ten years after the first loan payment is due.
- Retain the existing 'Undue Hardship' option for private student loans and for federal student loans that have been due for less than ten years.
- Increase institutional accountability by creating provisions that require colleges with more than one-third of their students receiving federal student loans to partially refund the government if a student's loan is later discharged in bankruptcy.
- Provide bankruptcy as an option for student borrowers who have no realistic path to pay back their overwhelming student loan debt to help them get back on their feet.
While this would drastically change how student debt is treated during bankruptcy proceedings, as of now it has only been introduced in one committee in one half of the legislature. We won’t know how viable the bill is until we start seeing some committee and full votes in the Senate and House.
What Will Biden Push For?
August’s plan to offer most borrowers $10,000 in loan forgiveness may be a signal that the administration has done the most it plans to, for now.
Given the broad economic uncertainty of the moment, a key metric of the program’s immediate success will be whether economists can decide if it will worsen inflation.
Another gauge of success will be how much it motivates youth and minority voters in the coming midterm elections. Both demographics have mixed records of turnout at non-presidential elections, though the Democrats are hoping that this year is an exception.
Between the loan forgiveness and other moves outlined above, the administration has made remarkable strides in rectifying some of the most egregious shortcomings of the student loan industry.
With any luck for borrowers of the past and future, the series of executive actions will move the needle on the uniquely American problem of massive student loan debt.