What Biden could be planning for student loan forgiveness

BY Sydney LakeMay 06, 2022, 9:09 PM
U.S. President Joe Biden speaks during a Cinco de Mayo reception at the Rose Garden of the White House in Washington, D.C., as seen in May 2022. (Photo by Saul Loeb—AFP/Getty Images)

Ever since President Joe Biden took office, there’s been pressure for him to cancel federal student loan debt. While he’s canceled about $20 billion in debt so far, it’s gone only to targeted groups of borrowers. But last week, Biden signaled he could be planning something much bigger for student loan debt forgiveness.

“I’m considering dealing with some debt reduction,” Biden said during a press conference. “I am not considering $50,000 in debt reduction [per borrower], but I’m in the process of taking a hard look at whether or not there will be additional forgiveness. I’ll have an answer on that in the next couple of weeks.”

Currently, federal student loan debt stands at $1.7 trillion among 45 million borrowers. Since taking office, Biden has canceled student loan debt for four distinct groups: defrauded borrowers, public service workers, borrowers with a total and permanent disability, and certain borrowers with an income-driven repayment (IDR) plan.

Other Democrats, including Senate Majority Leader Chuck Schumer, Sen. Elizabeth Warren, and Rep. Alexandria Ocasio-Cortez, have been pushing Biden to cancel up to $50,000 per student loan borrower, which Biden has repeatedly said he won’t do. During his presidential campaign, Biden said he would support canceling up to $10,000 per borrower. He’s said in the past that he doesn’t believe he can implement mass student loan forgiveness through executive order; other Democrats and cancellation advocates disagree.

“We know the administration was researching the legality of the president’s ability to cancel student debt through executive order,” Cecilia Clark, a student loan expert with NerdWallet, tells Fortune. “We don’t know the details of their findings, but President Biden’s latest statements signal cancellation through executive order is not only on the table, but is a likely course of action.”

All eyes are on Biden now to see whether he follows through on his announcement that there could be “additional forgiveness” coming in the next couple of weeks. Fortune spoke with student loan experts to find out what Biden could be planning for forgiveness.

Biden supports $10,000 in debt forgiveness

Biden has said on a few occasions—tracing all the way back to his presidential campaign—that he supports $10,000 in loan forgiveness per borrower. He has said, however, that he’s not keen on forgiving debt for borrowers who attended “elite” schools.

During a CNN town hall in February 2021, Biden said he objected to forgiving student loan debt for borrowers who went to “elite” private colleges including Harvard University, Yale University, and the University of Pennsylvania

“The idea that you go to [the University of Pennsylvania] and you’re paying a total of 70,000 bucks a year and the public should pay for that? I don’t agree,” he told the New York Times in May 2021.

Clark points out, though, that Biden’s campaign proposal included a “forgiveness phase-out” for borrowers earning more than $125,000 per year, and excluded loans for graduate degrees.

“The president canceling at least $10,000 seems more likely now than ever,” Clark says. “But there are still many unknowns around how the cancellation will be rolled out and who will qualify. We may not see across-the-board forgiveness.” 

The most realistic scenario will be close to the $10,000 Biden discussed during his campaign, agrees Mary Morris, CEO of Virginia529, the nation’s largest 529 education savings plan. But it’s more important for the government to consider the root cause of the debt crisis issue when making changes.

“It is important to fix the system in such a way as to provide relief for current and future borrowers,” Morris tells Fortune. “Simply eliminating debt for current borrowers does nothing to keep the issue from cropping up again down the road.”

More targeted student loan forgiveness

During his tenure, Biden has announced sweeping changes to the Public Service Loan Forgiveness program and has worked to eliminate debt based on claims of fraud by for-profit schools. His administration has also smoothed the process to receive forgiveness for borrowers with total and permanent disabilities and those students deceived by certain income-driven repayment plans

“We’ve already seen around $18.5 billion in student loan cancellation through existing forgiveness programs, according to Department of Education estimates,” Clark says. “Expect the administration to continue using these programs—like borrower defense to repayment, Public Service Loan Forgiveness, and income-driven repayment—to cancel debt, in addition to potential executive order cancellation.”

Morris adds that another way to provide more relief “without too high a cost” would be to ensure repayment and forgiveness programs exist in the future. Making IDR universal and automatic would help with that, she suggests.

“My caution is to use a variety of tools to improve the system and make it work better for everyone—current and future borrowers,” Morris says. “Eliminating the accrued interest on existing loans in forbearance, IDR, or even default would result in a substantial reduction of the overall student loan burden on individuals.”

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