Does Biden’s $1 billion in canceled student loans set the stage for mass debt forgiveness?
Around 72,000 borrowers caught a break last week: The U.S. Department of Education announced it will forgive student loan debt for students who attended colleges that used deceptive or predatory practices. That wipes out around $1 billion in debt held by borrowers who attended now defunct for-profit colleges like ITT Technical Institute and Corinthian Colleges.
During the final years of the Barack Obama presidency, the Department of Education tried to wipe out that debt, however, the Donald Trump administration limited the scope of the forgiveness. The decision announced last week is a reversal back to the Obama-era policy of granting full debt forgiveness to defrauded borrowers.
But this isn’t the massive debt cancellation that progressives are seeking. Indeed, this forgiveness represents only a tiny fraction of outstanding college debt: Just 0.05% of the more than $1.7 trillion total student loan debt. Or $1 in $1,700.
Biden’s move to forgive some student debt early in his presidency raises the question: Does this decision set the stage for broader forgiveness through executive order? On Tuesday, Sen. Bob Menendez suggested big action is needed when he tweeted: “This is just the beginning. Let’s go bigger and cancel up to $50,000 for all federal student loan borrowers!”
In the past, doing mass student loan forgiveness through the powers of the executive branch would’ve left borrowers with a huge tax bill—given the IRS treated forgiven student loans as income. That’s no longer the case: The $1.9 trillion package signed into law by President Biden earlier this month includes a provision to make forgiven student loan non-taxable. But that removed barrier to forgiveness hasn’t coincided with Biden publicly supporting such a move. Instead, Biden is on the record for supporting Congress to consider forgiving up to $10,000 in student loan debt for each borrower.
“The Biden administration is under intense pressure from the progressive wing of the Democratic coalition to forgive more student debt. But neither the $1 billion in forgiveness under borrower defense to repayment or a new law waiving tax payments on any forgiven student debt in the next five years is a guarantee that more debt will be forgiven,” Robert Kelchen, an associate professor of higher education at Seton Hall University, told Fortune.
Why the skepticism? Kelchen points to a lack of enthusiasm from Biden, who hasn’t publicly supported doing forgiveness without Congressional backing. The president also doesn’t support full forgiveness: In February, Biden bluntly shot down the idea of $50,000 forgiveness per student, saying “I will not make that happen.”
“At this point, President Biden seems hesitant to do broad debt cancellation via executive order, as he prefers to work with Congress on large proposals and it’s not entirely clear whether such a move would survive the inevitable legal challenge,” Kelchen said.
The decision by the Biden camp to go ahead and fully forgive the debt of students who attended troubled colleges like ITT Technical Institute—something that was blocked by the Betsy Devos lead Department of Education—isn’t getting met with much political pushback. That’ll change if Biden tries to forgive massive amounts of federal student loans through executive order.
“While I do expect Biden to take further steps to cancel more student debt, I don’t see his action this week as being in the same vein. Conservatives, like myself, are jumping up and down, screaming and yelling that widespread cancellation is the wrong plan. But you won’t see most of us up in arms over the increase in generosity of loan forgiveness for students that were the victims of fraud,” Beth Akers, resident fellow at American Enterprise Institute, told Fortune. “The action this week might have been more generous than the one I’d have liked to see, but it makes some sense given the circumstances. That’s a contrast to the more general effort to forgive debt which seems politically, rather than rationally, motivated.”
Senate Majority Leader and many of his Democratic colleagues support forgiving up to $50,000 per student. But that level of debt cancellation is certain to be met by Republican resistance in the narrowly Democratic controlled U.S. Senate. If fierce political resistance dooms the legislative path for debt forgiveness, that could be what finally pressures the White House to use the powers at its disposal.
“If progressives keep the pressure on President Biden and he grows frustrated with Congress not passing legislation on debt forgiveness,” Kelchen says Biden might then act without Congress.