Andrew Harnik/AP Photo
Calling on President Biden to take executive action to cancel student debt at a February news conference,
The extension of the eviction moratorium benefited from an outside game, with Rep. Cori Bush (D-MO) leading a sit-in on the Capitol steps. The extension of the student loan payment pause, which was announced on Friday, had much more to do with an inside game, led by Squad member Rep. Ayanna Pressley (D-MA) and Sens. Elizabeth Warren (D-MA) and Chuck Schumer (D-NY). Press conferences, hearings, letters, and lobbying from these three bolstered activist efforts to prevent the resumption of payments at the end of September.
That would have created a severe economic headwind. The pause on student loan payments has not been discussed in the same breath as stimulus payments or extended unemployment assistance, but it has as much to do, if not more, with the positive state of the economy and the personal savings rate. Around 42 million federal borrowers have made no payments on their student loans for the past 17 months, and the Education Department’s announcement will hold them off for another five. With an average payment of $393 per month, that will come to an effective benefit of $363 billion by next January, close to the same value as the one-time checks sent to 171 million in the American Rescue Plan.
The student loan pause is targeted to those carrying the loans, and by January, they will have received an average savings of $8,646. This has allowed some borrowers to pay their loans off in full: about 2.5 million, according to loan servicer data. It has also given time for borrowers to figure out the loan forgiveness and modified repayment programs they were eligible to access. Plus, thriving demand for goods and services during the pandemic also has much to do with this pause, as student debtors have more money in their pockets.
That’s why it would have been such a hardship to wind it down in September. With close to 6 million more Americans out of work than there were before the coronavirus struck the U.S. in March 2020, pulling tens of billions out of the economy every month would have dampened demand and hurt the kind of discretionary spending on restaurants and travel that has taken the most time to come back from the recession.
While many members of Congress exulted at the extension of the payment pause and asked Biden to go further by moving on cancellation, House Speaker Nancy Pelosi has talked herself into a corner on this issue.
The quieter reason why the Biden administration decided to extend the payment pause is that two major student loan servicers that handle nearly 10 million accounts have quit the business in the past couple months. The pause will give the Education Department more time to transfer those accounts, as well as fix numerous other inadequacies with the student loan system, such as providing relief for defrauded and disabled borrowers, as well as those in public service careers who are eligible for loan forgiveness.
Much like the eviction moratorium, the administration signaled that this latest extension of the payment pause would be the last. “This final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment,” said Education Secretary Miguel Cardona in his announcement.
Some have carped that extending the pause merely kicks the can down the road. There has been a material benefit, however. Because interest rates have been reset to zero during this period, borrowers have already saved $72 billion in interest as of July, with more to come.
Perhaps the biggest real benefit to the payment pause, however, was to prove the concept that the Education Department has the authority to change the terms of student loan payments at their discretion. If the Department can pause payments for 22 months using the powers given to it in the Higher Education Act, then it can also cancel student debt using those exact same powers.
The administration has said that the Education Department and the Justice Department are reviewing executive authorities to cancel student debt. They need only review the order extending the payment pause. There is no difference whatsoever between the two. The Debt Collective, an activist coalition, has gone so far as to write the executive order, which identifies precisely the “compromise and settlement” authorities in the U.S. Code available to the executive branch to extinguish these debt obligations.
While many members of Congress exulted at the extension of the payment pause and asked Biden to go further by moving on cancellation, House Speaker Nancy Pelosi has talked herself into a corner on this issue. She approved of the payment pause, but on July 28, Pelosi unequivocally stated that Biden lacks the authority to cancel student debt, arguing that “the president can only postpone, delay, but not forgive.”
Pelosi spokesperson Drew Hammill stated that her answer “was based on her staff’s analysis of the president’s authorities,” and that if the president finds a different authority, she would support it. But it has been speculated that Pelosi came up with this notion from her longtime confidants and financial supporters Steven and Mary Swig, whose organization Freedom to Prosper argued the same thing in a two-page brief to Congress.
The brief asserts that the Education Department, by canceling student debt, would be violating the Antideficiency Act, which prohibits the executive branch from spending money Congress hasn’t appropriated. It’s a strange leap to argue this, but it’s also wrong, as Sen. Warren laid out in her own brief. Congress, through the Federal Credit Reporting Act, “already appropriated the money for federal student loans … the cost is fully realized upfront at the time of lending,” Warren’s brief notes. Plus, Congress delegates to the Secretary of Education the discretion to manage the student loan program.
But the most common-sense reason to presume that student debt cancellation is legal is that it uses the exact same authority being used to pause payments. The same portion of the U.S. Code that allows the modification of “time of payment of any installment” also allows the ability to “compromise, waive, or release” any claim on payments. Arguing that one is legal and not the other leads Pelosi into absurd cul-de-sacs. Does she believe that Education Department could pause payments for 100,000 years but not forgive the debt?
Some have argued that canceling student debt would reward wealthy, cosmopolitan college graduates at the expense of poorer Americans. That perspective neglects the true burden of student debt. For example, households with Black college graduates have seen a plunge in net worth since the 1990s, and it’s almost entirely explained by increases in student debt. Over 84 percent of Black households with someone in their 30s with a college education have student debt, compared to 53 percent of similar white households. Student debt has exacerbated racial wealth disparities. And when you extend to households with debt that did not graduate, you bring in large numbers of poorer households that would benefit from cancellation. Student debt cancellation would in fact be progressive, not a windfall for rich college grads. And it would finally force a reckoning for policymakers to overhaul the way we finance higher education in America.
We now have five months for the Biden administration to make a decision on cancellation. They have the economic motive, policy opportunity, and moral means to make it happen. The government’s already using the authority to cancel, and has been for nearly two years. Tens of millions of debtors are waiting.
