The student loan forgiveness idea continues to be on the forefront, with people on both sides battling.
Biden has renewed the pandemic- related pause on student loan payments (started during the Trump administration) three times during his presidency, and calls to issue blanket loan forgiveness grow louder.
Even if it is determined that a president has the constitutional authority to forgive some student loan debt, it is unclear how the government will pay for it. It becomes a sort of unfunded mandate thing.
Early on, Biden said he was open to eliminating at least $10,000 in student debt per borrower. Since then, some law makers have been urging the president to act by canceling up to $50,000 of student debt per borrower.
At this stage, it is unclear whether Biden holds the legal authority to issue blanket student debt forgiveness. Advocates argue that payment freezes have set the legal basis to forgive loans with an executive order.
According to analysts, an estimated 43 million people hold student loans, collectively totaling around $1.6 trillion, with the average borrower owing around $36,000.
Legal consequences are likely to follow. Any president canceling student debt stirs up larger questions as to the government’s authority to enforce, pay, compromise, waive and release these loans.
If the Biden administration concludes it holds the legal authority to issue blanket student loan forgiveness, while the cost will vary depending on how much debt is forgiven per borrower, forgiving all outstanding federal student loans would cost around $1.6 trillion. Forgiving student debt up to $50,000 per borrower would cost about $1 trillion.
Should all $1.6 trillion in student loan debt be forgiven, it will become the costliest spending initiative — outpacing unemployment insurance, the earned income tax credit and food stamps. It is $1.6 trillion added to the national debt and increases the amount of debt service, meaning that there will be fewer resources available for other social spending programs, and higher taxes will be required in the future to pay for it.
But the federal government isn’t the only institution that handles student loans. Though the government issues and owns about 92 percent of student loan debt, the remaining amount is owned by private banks and simply managed by the government.
This is known as federal family education loans (FFEL). If the president can move forward with some level of student debt forgiveness, both loan programs would need to be addressed.
This makes issuing blanket student debt forgiveness a contentious issue. It is like erasing debt on the balance sheet. Whereas the federal FFEL, they are not direct loans, the overwhelming majority of that $250 billion is held by private banks. It is like erasing dollars on a balance sheet.
Those FFEL loans may also influence how debt forgiveness turns out – do they erase it or take it as a loss or using federal dollars to pay off outstanding balances?
In any case, the student loan moratoriums, which began under Trump, have been continuously extended by the current administration. The education department also approved $2 billion in relief for more than 107,000 borrowers via borrower defense claims. Additionally, the education department made policy changes that discharged about $5.8 billion to more than 323,000 borrowers.
The Public Service Loan Forgiveness (PSLF) program was also overhauled, reviewing previously denied PSLF applications and giving borrowers the opportunity to have their determinations reconsidered.
The Education Department estimated that 22,000 borrowers who were previously deemed ineligible for PSLF immediately became eligible for $1.74 billion in loan forgiveness — without any further action needed on their part.
The next challenge will be what to do for those who did pay off their own loans? Do we need to provide several more trillion dollars to not “discriminate” against anyone who ever had a student loan?
So many questions are unanswered – especially the big ones: How and who pays for this? And what about future student loans?
It will be interesting to follow and sure to provide a torrent of legal challenges.
(I wonder if mortgage or auto debt relief is up next? This opens the door to many possibilities!!)