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When President Trump used his executive authority to pause the nearly $2 trillion in outstanding student loan payments and interest back in March 2020, there was no pushback from legal experts or uproar from Congress members, from neither Democrats nor Republicans. Of course, the sudden advent of a deadly, airborne viral pandemic signified a future so grim that partial student loan cancellation seemed uncontroversial, even for an unforgiving Trump administration. While former Education Secretary Betsy DeVos didn’t tout the temporary pause as partial debt cancellation, that’s actually what it was. Notably, both DeVos and the Trump White House pointed to the Higher Education Act as authority that made the payment pause legally acceptable. This is the same authority activists and progressive Democrats are urging Biden to use to deliver on his campaign promise of unilateral cancellation for all borrowers.
That’s why Speaker Nancy Pelosi’s claims earlier this week that President Biden didn’t have the power to cancel student debt by executive action were so jarring. “People think that the President of the United States has the power for debt forgiveness,” she said, adding “He does not. He can postpone, he can delay, but he does not have that power…. The President can’t do it. That’s not even a discussion. Not everybody realizes that.”
Legal experts, members of Congress, and actions taken by the Biden administration clearly belie the Speaker’s arguments. As Sen. Elizabeth Warren (D-Massachusetts) said on CNN later that night, “The president does have the power to cancel student loan debt. You know how I know that? Because President Obama did it. President Trump did it. And President Biden has already done it.” Indeed, the Biden administration extended the federal student loan payment moratorium into September, ensuring more debt cancellation via executive action as a result.
Let’s say you were enrolled in Public Service Loan Forgiveness or an Income-Driven Repayment plan during the moratorium. Non-payment counted toward your monthly qualifying payment timeline, meaning borrowers whose 10- or 20-year payment plan end dates fell under the 16-month pause became beneficiaries of debt cancellation through executive action.
“If you normally pay $400 a month in loans for qualifying PSLF payments, didn’t pay while the moratorium was placed, and received PSLF in July 2021, your accumulated monthly payments, or essentially $6,400 of debt, was canceled via the executive order suspension,” said Alexis Goldstein, Director of Financial Policy at the Open Markets Institute.
Beyond those enrolled in forgiveness programs, for 16 months now, the pause has unilaterally canceled interest for every borrower covered under the moratorium, allowing nearly 45 million Americans to pay significantly less over the same amount of time.
Pelosi is flat-out wrong when it comes to the limits of executive power on debt cancellation. She took the lazy route, long trodden by naysayer politicians: Proclaim the mechanism needed to deliver bold actions doesn’t really work instead of implementing morally just, politically popular proposals that uplift everyone. We see this playing out in realms beyond debt cancellation. For example, despite a massive victory in Georgia, Senate Democrats said the parliamentarian, an unelected nonpartisan that seemingly gained insurmountable influence over the quality and quantity of major legislation, now controls our fate on everything from a $15 minimum wage to the climate crisis. Of course, Biden says he would have “strongly supported” an extension of a crucial eviction moratorium, but due to a pesky opinion by Supreme Court Justice Brett Kavanaugh, not an actual ruling, the White House was forced to punt responsibility to Congress in the eleventh hour to apply the same moratorium Biden already extended through executive action.
According to Pelosi, when it comes to student debt, Biden’s executive authority legally justifies partial loan cancellation, just not more partial loan cancellation. Along with the theme of abrupt powerlessness, it’s evident that Pelosi and Biden have yet to truly engage with the fundamental arguments for eliminating the $1.8 trillion in student debt, particularly because they’ve both made the weakest possible arguments against it.
Pelosi dug even deeper with her nonsensical remark, questioning the policy wisdom of a student debt jubilee and undermining her Democratic colleagues’ push for cancellation in the process. “Suppose your … child just decided they at this time did not want to go to college, but you’re paying taxes to forgive somebody else’s obligations. You may not be happy about that,” Pelosi said.
This would be a strong point if one were opposed to every single public good. (Bye, bye libraries!) Thanks to economist Stephanie Kelton’s recent expansion on the framework of Modern Monetary Theory, which acknowledges the federal government doesn’t actually need our tax dollars to pay for vital programs, we don’t need to engage and ultimately reify Pelosi’s dangerous argument. As Kelton notes in her book The Deficit Myth, unlike households, the federal government cannot go broke because it issues the currency it spends. In other words, the real challenge isn’t raising funds, rather we’re in a political battle over how public money is spent, and on who — the wealthy or working people.
Ideology aside, arguments like Pelosi’s misrepresent how student debt cancellation works financially. The “cost” to the taxpayer comes on the front-end, when the loans are made. From there, it’s all a guessing game as to how much of the debt will be repaid by borrowers. The government often guesses wrong, and the Department issues re-estimates to correct, as they did in late 2020. Further, the government often employs utterly draconian collection techniques to squeeze payments out of defaulted borrowers who can’t afford it: garnishing wages; seizing Child Tax Credits, EITC, or tax refunds; or taking away social security benefits from seniors in default. (Seniors are the fastest-growing segment of student debtors. In 2015, 40,000 seniors had their Social Security garnished due to student loans.)
To add to the chaos of failed herculean attempts by the government to collect on ballooning student loans, several major loan service providers (Granite State, PHEAA, and Cornerstone) have recently announced they would end their contract collecting student debt for the government, leaving more than 10 million borrower accounts in the lurch and increasing pressure on Biden to extend the moratorium and cancel the debt altogether.
It’s actually cheaper for the government to write off this debt than it is to keep it on government books. In fact, debt cancellation would be one of the largest bottom-up economic stimulants in U.S. history, creating millions of jobs and boosting annual GDP by up to $108 billion per year for the next ten years. And because student debt is disproportionately held by women and students of color, the one-time executive action would narrow enormous gender and racial wealth gaps.
If racial equity and economic prosperity aren’t convincing enough for Pelosi, perhaps she should take a cue from the voters that put her in office. Just this week, San Francisco officials passed a bold resolution calling on Biden to cancel all federal student debt, joining a chorus of other major cities crying out for an economic stimulus and debtor liberation.
But Pelosi isn’t alone in her misunderstanding of how debt works, who holds it, or how it can be wielded. Biden too has made very poor arguments against cancellation, insinuating that canceling student debt would mostly benefit graduates who went to Ivy League universities, individuals who must be unworthy of debt cancellation because the institutions they attended are so elite that free attendance would be unfair, right? This was quickly refuted by activists who pointed out that just 0.3% of federal student loan borrowers are estimated to have attended Ivy Leagues, that 98% of Harvard undergrads have no student loans at all, and that if we really wanted to address Biden’s newfound concerns about the rich getting richer, we could simply impose a wealth tax.
While Biden’s recent remarks on student debt have all been debunked or met with outrage, his dismal record on student loans and borrower protections goes back decades. In 2005, Biden was one of the 18 Democratic senators who broke ranks and cast a vote for a Republican-led bill that stripped bankruptcy protections from private student loans, giving birth to a mammoth predatory industry that caused “enormous financial problems for working families.” In the 1970s, Biden backed the Middle Income Student Assistance Act, eliminating income restrictions on federal loans to expand eligibility to everyone. In 1980, Biden voted to extend loan eligibility to students with no parental financial support, leading to the first explosion of default rates.
Biden’s history as a foot soldier for corporate lenders and their lobbyists is more than troubling. However, the fact that in 2020 he campaigned on unilateral debt cancellation and reversing the legislation he championed decades ago highlights the power of debtor organizing and the severity of our nation’s student debt crisis. Biden campaigned on the “immediate” cancellation of at least $10,000 of student debt per borrower as crucial COVID-19 relief. He later committed to much more, including full cancellation for students who went to public colleges or HBCUs earning under $125,000.
In April, the White House Chief of Staff Ron Klain said Biden would make a decision on student debt cancellation after instructing the Department of Justice to draft a memo on Biden’s legal authority. The White House has not provided an update on when the memo would be released, despite Klain’s initial timeline of a “few weeks,” leaving the verdict out on whether Biden will keep his campaign promise.
It’s unlikely that Biden will cancel student debt out of the goodness of his heart, and it’s doubtful that a memo determining his authority to eliminate debt at broad-scale will be the final feather that weighs the ideological scale in our favor. What we’ll need is strong debtor organizing to push us over the edge — collective financial leverage so powerful it mimics the conditions that allowed for even a Trump administration to cancel debt. The Debt Collective, a debtors’ union and member organization I’m a part of that went as far as to write an executive order for Biden, is planning a Washington, D.C., action in September as the moratorium is slated to end. For those who want to push for full student debt cancellation and free college, joining that action would be a great place to get started.