Senators Chuck Schumer (D-NY) and Elizabeth Warren (D-Mass) are calling on President Joe Biden to forgive the $50,000 per borrower federal student loan.they Claim that he could do this unilaterally through an executive order.
President Biden tried to use executive power to forgive student loan debt of $10,000 per borrower, but failed in the Supreme Court. He now wants to use a different clause to alleviate his debt, but essentially faces the same problem.
With federal student loan payments suspended until August 30, 2023 at the latest, a bill to forgive student loans is unlikely to become law before the end of the summer.
Editor’s note: This article has been updated to reflect the latest Supreme Court ruling. Some dates in this article have been updated to reflect that his current student loan moratorium has been extended to August 30th. Student loan interest will begin accruing in September 2023, with the first payment due in October 2023. Click here for details.
Can the president cancel all federal student loans?
president isn’t it You have the legal authority to discharge student loans yourself. Only Congress has power over the purse. Administrative measures can only be used if specifically authorized by Congress.
The Executive Branch cannot spend funds not appropriated by Congress. Compliant with 31 USC 1301 and later
(Deficiency Prevention Act (PL 97-258)) and Article 1.7.7 of the U.S. Constitution.
The claim that the president has the power to forgive student loans is based on a misreading of the Higher Education Act of 1965. 20 USC 1082(a)(6). This section of the Higher Education Act of 1965 gives the U.S. Secretary of Education the power to:
“…modify, compromise, waive or waive any right, title, claim, lien or demand; but Acquired, including shares or redemption rights. “
But that citation is ignored out of context. The preamble to that article of the Higher Education Act 1965 limits this power to operation within the statute.
“In the performance of and with respect to the functions, powers and duties conferred upon him by this part, the Secretary may:”
In other words, when Congress approves loan forgiveness programs such as civil service loan forgiveness, teacher loan forgiveness, or full and permanent disability immunity, the U.S. Secretary of Education has the authority to forgive approved student loans under the terms of these loans. hold. forgiveness program.
Without congressional approval of a specific loan forgiveness program, the president has no authority to forgive student loan debt. As the U.S. Supreme Court has ruled, Whitman v. American Truck Association., (531 USC 457, 2001), Congress does not “hide elephants in rat holes.”
Further, the phrase “this part” refers to Part B of Title 4 of the Higher Education Act of 1965 and applies only to loans made under the Federal Family Education Loan (FFEL) Program.
Similar language is found in 20 USC 1087hh in Part E of the Federal Perkins Loan Program. There is no similar language in Part D of the William D. Ford Federal Direct Loan (Direct Loan) Program.
The “parallel terms clause” at 20 USC 1087e(a)(1) (also 20 USC 1087a(b)(2)) in the Higher Education Act of 1965 required the same terms as FFEL for direct loan program loans. I’m here. program loan. However, this does not apply to waiver powers as they are not part of the loan terms and conditions.
The statutory wording of the powers of immunity in the Higher Education Act 1965 does not use the word “notwithstanding”. This means that other legal or regulatory provisions regarding waivers must apply, including the regulations described in the next section. As a result, alternatives to student loan forgiveness are likely to face the same fate as Mr. Biden’s original plan in the Supreme Court.
Further legal obstacles
In addition, the regulations at 31 CFR 902.2 specify four situations in which a liability may be breached.
So even if the president could use an executive order to forgive student loan debt, he can’t, so these regulations allow the president to repay student loans within a reasonable period of time. You will not be able to forgive the borrower’s student loan debt.
Federal agencies are also required by regulation in 31 CFR 901.1(a) to: “We will actively collect all debts.”
What about suspension of payments and interest waivers?
Didn’t President Trump use this forgiveness power to impose payment suspensions and interest forgiveness, setting a precedent that could be used to forgive federal student loans?
In fact, he didn’t. Officer Memorandum of August 8, 2020 reference:
“…appropriate waivers and amendments to the requirements and conditions for deferring financial hardship set forth in Section 455(f)(2)(D) of the Higher Education Act of 1965 (Amended), 20 USC 1087e( f)(2) )(D), and granting borrowers grace as necessary to continue the moratorium on payments and full interest forgiveness on student loans held by the Department of Education through December 31, 2020; .”
The Enforcement Memorandum does not specify what exemptions or modifications must be applied to implement the suspension of payments and interest forgiveness.
The definition of deferred financial hardship in 20 USC 1085(o)(1)(B) allows the U.S. Secretary of Education to define new eligibility criteria. However, this is not always sufficient, as 20 USC 1085(o)(2) requires the U.S. Secretary of Education to: “Consider the borrower’s income and the debt-to-income ratio as the main factors.” When establishing new eligibility criteria.
The regulation of 34 CFR 685.205(b)(8) provides a better solution because it allows the U.S. Secretary of Education to grant administrative leniency for the following reasons: “National military mobilization or other local or national emergency.” However, neither the moratorium nor the deferral of financial hardship permits interest waivers.
To implement interest waivers after the CARES Act moratorium expires, the U.S. Secretary of Education must rely on U.S. waiver powers. Hero Act 2003 [20 USC 1098bb]. This waiver authority allows the U.S. Secretary of Education to waive or vary the provisions of Title 4 of the Higher Education Act of 1965 in connection with war or other military operations or national emergencies. “As it may be necessary to ensure that an affected individual is not put in a financially disadvantaged position with respect to financial assistance because of their status as an affected individual.”
The waiver powers provided by the HEROES Act of 2003 are sufficient to enforce suspension of payments and forgiveness of interest, but do not authorize student loans.
Student loan forgiveness goes beyond what is necessary to ensure that borrowers are in the same financial position after the national emergency as they were before the national emergency.
Furthermore, the Enforcement Memorandum clearly states that “this Memorandum of Understanding shall be implemented in accordance with applicable law and subject to the availability of budgets.” Congress is not funding broad student loan forgiveness.
Can the President Waive the Taxes Associated with Student Loan Forgiveness?
Editor’s note: On March 11, 2021, President Biden signed the American Recovery Act into law. The legislation made all loan forgiveness tax exempt at the federal level until December 31, 2025 for all loan types and programs. This includes both federal and private loans.
The IRS considers debt cancellation to be taxable income for the borrower. this is, Internal Revenue Code of 1986, 26 USC 61(a)(11).. It’s as if someone gave money to a borrower to pay off a debt. Borrowers will receive an IRS Form 1099-C when the debt is written off.
Certain laws enacted by Congress exclude certain types of student loan forgiveness and forgiveness from income.
However, other types of student loan forgiveness are subject to taxation. For example, the forgiveness of remaining debt after his 20 or 25 years in an Income Driven Repayment (IDR) plan would be taxable under current law.
However, the IRS can waive the tax liability of insolvent borrowers whose total liabilities exceed their total assets. [26 USC 108(a)(1)(B) and (d)(3)].Income deduction in bankruptcy is limited to bankruptcy amount [26 USC 108(a)(3)]. Borrowers with income-driven repayment plans over 20 years are more likely to go bankrupt, but there is no guarantee that their debts will be forgiven. Nevertheless, the IRS used similar arguments to exempt the borrower’s defense of forgiveness.
If broad student loan forgiveness is limited to borrowers in financial distress, the president could ask the IRS to waive the tax on the loan forgiveness as the borrowers are likely to go bankrupt. .
Otherwise, student loan forgiveness will be taxable unless Congress passes specific legislation allowing an exclusion from income for loan forgiveness.
Are Student Loan Forgiveness Acceptable Payments for Disaster Relief?
Eligible Disaster Relief Funds are excluded from income pursuant to 26 USC 139. COVID-19 has been certified as a national disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
But if you look at it from the side, there are only two types of eligible disaster relief benefits that may apply.
However, student loans are not an expense that arises as a result of the COVID-19 pandemic, and student loan forgiveness is irrelevant to the pandemic.
If you’re curious about how President Biden has so far exempted student loans through executive authority, check out this guide: When the President Can Automatically Forgive Student Loans.
Some argue that the president may simply extend the suspension of student loan payments indefinitely. It’s possible, but unlikely. Here’s why. Can the president extend the student loan suspension forever?
Finally, while there may be ways for the government to create a broad student loan forgiveness program, the steps to take to do so are nuanced (not by executive order). See here: How to potentially implement broader student loan forgiveness.