Biden doesn’t have the legal authority to cancel student loans, but is Nancy Pelosi wrong?

House Speaker Nancy Pelosi said President Joe Biden does not not have the legal authority to enact a large-scale student loan forgiveness. These 80 advocacy organizations disagree.

Here’s what you need to know.

Student loans

Last month, Pelosi (D-CA) surprised Washington by stating the president cannot unilaterally cancel student loans without an act of Congress. Pelosi said Biden has the power to “delay” or “postpone” student loan payments, but he does not have the power to cancel a large-scale student loan. Put simply, Pelosi rationalized that the American public may not be happy to pay off someone else’s student loan debt. At first glance, this is a direct backlash against a progressive movement in Congress led by Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) to put pressure on the president to cancel up to $ 50,000 in student loans through executive order. While Pelosi’s office later clarified that Pelosi would back Biden by using “any authority he thinks he has” to fight student loans, the message was already clear. As you can imagine, this was not suitable for 80 advocacy organizations, including Student Debt Crisis, a leading nonprofit that supports large-scale student loan cancellation. In one letter in Pelosi, these 80 organizations made, among others, the following arguments regarding the cancellation of student loans. (After each argument included in the letter is a counter argument, which did not appear in the letter, which was added to balance the outlook).


1. Biden clearly has the power to cancel student loans

The organizations argue that Biden has clear legal authority through the Higher Education Act of 1965 to write off student loan debt. For example, Biden has canceled $ 3 billion in student loans since becoming president. He also twice extended student loan relief, which included a temporary forbearance of student loans and resulted in the cancellation of student loans for student loan borrowers. This includes the calculation of student loan default for income-tested repayment and public service loan forgiveness.

Counterargument: Biden lacks the legal authority to order large-scale student loan cancellation

Lawyers disagree that Biden has clear legal authority to cancel student loans. Opponents of a large-scale student loan cancellation claim Congress failed to grant a president unlimited, one-sided power to write off unlimited student loan debt for every student loan borrower. Higher education in 1965 did not say so explicitly, and Congress is unlikely to completely abdicate its spending power in favor of another branch of government. As Pelosi noted, only Congress can enact a full-scale student loan cancellation, or Congress could grant the president such potential power.


2. Cancellation of student loans stimulates the economy

Organizations argue that canceling student loans would stimulate the economy. For example, they argue that a student loan forgiveness of up to $ 50,000 for each student loan borrower would generate $ 108 billion per year for the next ten years in gross domestic product (GDP) and create 1.5 million dollars. new jobs per year. Plus, student loan borrowers would have more money to buy a home, get married, raise a family, save for retirement, or start a new business. Canceling a student loan can also lead to higher geographic mobility, the ability to find better employment opportunities, higher credit scores, and higher college graduation rates.

Counter-argument: canceling student loans is not the best stimulus for the economy

According to new research from the Committee for a Responsible Federal Budget, a non-partisan, non-profit organization, the total and partial cancellation of student loans will have a minimal effect on the economy:

  • Total cancellation of the student loan: only $ 0.08 to $ 0.23 in economic activity for every dollar of student loan canceled.
  • Cancellation of student loan of $ 10,000: translates into an economic multiplier of 0.13x.
  • Cancellation of student loan of $ 50,000: gives an economic multiplier of 0.10x.

Their research also revealed three reasons why canceling student loans is not an optimal stimulus compared to UI or stimulus checks, for example. Their three reasons are: 1) Due to income driven repayment plans, student loan cancellation has minimal impact on cash flow; 2) Cancellation of student loans poorly targets those least likely to spend; and 3) The current state of the macroeconomics given the constraints of supply and demand.


3. Student Loan Cancellation Benefits Student Loan Borrowers Who Are In Financial Difficulty

According to a to study of the Roosevelt Institute, large-scale student loan cancellation helps financially troubled student borrowers. For example, a large-scale student loan forgiveness “would benefit student borrowers in the bottom quintiles of household wealth much more than those in the top quintiles.” Per capita student loan borrowers in the top 10% wealth bracket would get $ 562 student loan cancellations, while per capita student loan borrowers in the bottom 10% wealth bracket, research finds 11. $ 090 (Latinx) and $ 17,366 (African Americans).

Counter-argument: student loan cancellation would benefit wealthy student borrowers

New research shows that large-scale student loan cancellations primarily benefit wealthy student loan borrowers. Research shows that student loan cancellation is regressive: student loan cancellation would benefit the top 10% as well as the bottom 30% of employees combined. Why? People with higher incomes tend to borrow larger student loans to pursue more expensive higher education and professional studies. The authors note that most statistics on student loan cancellation exclude the reality of student loan cancellation through income-based repayment plans. They point out that most financially struggling student loan borrowers will get student loan forgiveness through income-focused repayment plans, so their student loan balances today “greatly overstate current values.” of what these student loan borrowers will pay in student loan debt, adjusted for student loan forgiveness.


Student loan cancellation: final thoughts

Student loan relief has been extended for six months until January 31, 2022. In total, this will include more than $ 110 billion in student loan cancellations for student loan borrowers. (Here’s what Biden student loan relief means for your student loans). Pelosi’s comments about the limits of executive power and the corresponding assertion of congressional power over spending – including the cancellation of student loans – do not suit progressives. Pelosi, who is a progressive congressman, disagrees with Warren and Schumer, who both say the president already has the legal authority to cancel student loans. While Pelosi’s comments have no legal or political status, they reflect an uncomfortable reality in Congress for many student loan borrowers. That is, Congress does not support the large-scale cancellation of student loans. It’s surprising to many student loan borrowers, even though Democrats control Congress. While there are progressive voices in Congress who want to cancel student loans for millions of student loan borrowers, there is no broad-based support for large-scale student loan cancellation. That said, there is bipartisan support for other ways to help student loan borrowers pay off their student loans. For example, Congress adopted the Public Service Loan Forgiveness program with bipartite support. Both political parties support simplifying student loan repayments. A new bipartisan student loan cancellation bill would help more student loan borrowers struggling to achieve a healthy financial footing in bankruptcy.

Whether you are supporting or opposing a large-scale student loan cancellation, make sure you stay in control of your student loans. Understand all of your options for paying off your student loans. Here are some popular options for student loans that can help you save money:


Student loans: related reading

Here’s what Biden’s student loan relief means for your student loans

Biden extends student loan relief until January 31, 2022

Student loan cancellation focused today on Capitol Hill

Student loan cancellation may help more borrowers, but that doesn’t mean Biden will cancel everyone’s student loans

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