Will your student loans get cancelled? It’s unlikely, according to the law.
Here’s what you need to know — and what it means for your student loans.
The answer to whether you will get your student loans cancelled essentially depends on a single legal memo that the U.S. Department of Education will deliver to President Joe Biden in the coming weeks. That may sound unfair to millions of student loan borrowers who are struggling to pay off student loans, but it’s now the reality. The latest battle over student loan cancellation between progressives and the president is no longer about policy. It’s now about the law. This memo will include a legal analysis of the president’s authority to cancel student loans unilaterally by executive order without further authorization from Congress. Based on current law, this could be another setback for student loan cancellation. While Biden can accept or ignore the recommendations contained in this non-binding legal memo, the legal analysis will likely determine whether you get student loan cancellation.
From a legal perspective, the case for student loan cancellation doesn’t look good for these 4 reasons:
1. The law doesn’t say the president can unilaterally cancel $1 trillion of student loans
A proposal to cancel up to $50,000 of student loan debt, for example, could cost up to $1 trillion. If Congress really intended for the president to have unilateral authority to cancel everyone’s student loan debt, Congress would have explicitly stated it. In 1965, Congress may not have imagined student loan debt would grow to $1.7 trillion. At the same time, Congress is not traditionally in the business of giving up its power —particularly something has large as spending $1 trillion — to other branches of government. To show clear legal support for student loan cancellation, the Education Department would have to show that Congress in 1965 intended to relinquish all responsibility for federal student loans and granted unlimited authority to the Education Department to cancel student loans at will.
The legal basis for wide-scale student loan cancellation, according to supporters of student loan cancellation, is Section 432A of the Higher Education Act of 1965. According to that legislation, the Education Department has authority “to modify, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” The language is somewhat ambiguous. First, a plain text reading could support wide-scale student loan forgiveness. The legislation, as supporters say, doesn’t mention any explicit limitations. A second reading would conclude that while the Education Department can cancel student loans, Congress granted a limited authortiy based on equitable considerations or other essential financial relief. It’s unlikely that Congress simply granted unlimited authority for the exeecutive branch to cancel unlimited student loan debt. Practically, it’s common knowledge that the Education Department can cancel student loans on a case-by-case basis. For example, Biden has cancelled at least $2.3 billion of student loans since becoming president. (You can find out here if you qualify for this student loan cancellation). The question will be whether this authority is limited or absolute. In other words, does the legislation allow the Education Department to cancel everyone’s student loan debt?
2. Student loan cancellation requires an explicit authorization from Congress
Biden wants to cancel student loans 3 ways. That said, he may not have the power to do so. That’s why as a presidential candidate and as president Biden has called on Congress to enact student loan cancellation. Why? Under the Property Clause and the Appropriation Clause of the U.S. Constitution, the executive branch can’t forgive debt that is owed to the federal government without a statutory grant from Congress. That means Congress must grant specific authority to the executive branch before the president or Education Department acts to cancel student loans en masse. Only Congress has the power to dispose of federal property, unless Congress explicitly places that authority with an administrative agency. Supporters of student loan cancellation would need to argue that while the executive branch doesn’t have the authority to enact student loan cancellation, the Higher Education Act of 1965 grants some exception because Congress granted such a right through legislation nearly 60 years ago. Or, they could pass legislation that grants such unilateral authority to the president.
3. Student loan cancellation may require a new appropriation
In addition to authorization to cancel student loans, Congress may need to make an explicit appropriation for student loan cancellation. Congress appropriated money for federal student loans, but didn’t create a new appropriation for the forgiveness of those same student loans. If the Education Department now finds it has authority to cancel student loans, a court could require the Education Department to prove that Congress intended for all student loans to be eligible for complete student loan forgiveness. Importantly, a court could deny student loan cancellation if the court finds the Education Department sought to “infer appropriations from ambiguous statutory text.” (The ambiguous text would be the Higher Education Act of 1965).
4. Education Department has rules that limit wide-scale student loan cancellation
In 1966, one year after the Higher Education Act, Congress created the Federal Claims Collection Act (FCCA), which governs debt collection practices of the federal government, including for borrowers who are struggling financially. The FCCA allows for “compromise” authority in certain circumstances, but doesn’t grant unlimited authority to the Education Department, for example, to simply cancel student loans on a wide-scale basis. In 2016, during the Obama administration, the Education Department amended and incorporated the FCCA standards into its student loan programs. Given this precedent, it may be challenging for the Education Department now to ignore its internal rules that govern student loan programs. That said, the Education Department could change its rules or define the scope of these limitations.
Student loan forgiveness: next steps
There are two main paths to student loan cancellation. For the executive branch, student loan cancellation is no longer about policy; it’s about the law. If Biden proceeds to cancel student loans unilaterally, you can expect that wide-scale student loan forgiveness could be tied up in courts for months, if not years. If any legal challenge reached the U.S. Supreme Court, it’s unlikely the Court, as current composed, would support wide-scale student loan cancellation. In Congress, student loan cancellation is very much a policy issue. Despite their differences, however, all three principals in this debate — Biden, Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) — agree that there should be at least some wide-scale student loan cancellation. The key differences are the amount of student loan cancellation and who has the power to forgive student loans. If Biden doesn’t cancel student loans, it’s critical to understand this: for student loan cancellation to happen, Congress will need to pass legislation that more members of Congress can support.
Make sure you know your next steps for student loan repayment. Consider these potential options, all of which have no fees:
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