Senators Chuck Schumer (D-NY) and Elizabeth Warren (D-MA) want President Joe Biden to forgive $50,000 in federal student loans per borrower. They claim that he can do that unilaterally through executive order.
President Biden has promised to forgive $10,000 in student loan debt per borrower, but wants Congress to pass legislation to implement it.
The $1.9 trillion COVID-19 relief plan proposed by President Biden doesn’t include any student loan forgiveness.
Legislation to forgive student loans is unlikely to occur before the top of the summer, since payments on federal student loans are paused until September 30, 2021.
Can The President Cancel All Federal Student Loans?
The President doesn’t have the legal authority to forgive student loans on his own. Only Congress has the facility of the purse. Executive action are often used only it’s been specifically authorized by Congress.
The executive branch cannot spend money that has not been appropriated by Congress, per 31 USC 1301 and Article I, Section 7, Clause 7 of the U.S. Constitution.
The claims that the President has the authority to forgive student loans are supported a misreading of the upper Education Act of 1965 at 20 USC 1082(a)(6). That section of the upper Education Act of 1965 provides the U.S.
Secretary of Education with the authority to:
In other words, when Congress authorizes a loan forgiveness program, like Public Service Loan Forgiveness, Teacher Loan Forgiveness or the entire and Permanent Disability Discharge, the U.S. Secretary of Education has the authority to forgive student loans as authorized under the terms of those loan forgiveness programs.
Without authorization by Congress of a selected loan forgiveness program, the President doesn’t have the authority to forgive student loan debt.
As the U.S. Supreme Court ruled in Whitman v. American Trucking Assns., Inc., (531 USC 457, 2001), Congress doesn’t “hide elephants in mouseholes.”
In addition, the “this part” language refers to Part B of Title IV of the upper Education Act of 1965, which applies only to loans made under the Federal Family Education Loan (FFEL) program.
There is similar language partially E at 20 USC 1087hh for the Federal Perkins Loan program. there’s no similar language for Part D for the William D. Ford Federal loan (Direct Loan) program.
The “parallel terms clause” within the education Act of 1965 at 20 USC 1087e(a)(1) (also, 20 USC 1087a(b)(2)) requires loan program loans to possess an equivalent terms and conditions as FFEL program loans. But this doesn’t apply to the waiver authority because waiver authority isn’t a part of the terms and conditions of the loans.
More Legal Obstacles
In addition, the regulations at 31 CFR 902.2 specify the four situations during which a debt could also be compromised.
The borrower is unable to repay the debt within an inexpensive period of your time . [31 CFR 902.2(a)(1)]
The federal is unable to gather the debt within an inexpensive period of your time through “enforced collection proceedings,” like wage garnishment and Treasury offset. [31 CFR 902.2(a)(2)]
The cost of collecting the debt exceeds the quantity which will be collected. [31 CFR 902.2(a)(3)]
There is significant doubt on whether the govt can win a lawsuit against the borrower. [31 CFR 902.2(a)(4)]
So, albeit the President could use an executive order to forgive student loan debt, which he cannot, these regulations will prevent the President from forgiving the scholar loan debt of borrowers who are ready to repay their student loans within an inexpensive period of your time .
Federal agencies also are required by the regulations at 31 CFR 901.1(a) to “aggressively collect all debts.”
What About The Payment Pause And Interest Waiver?
Didn’t President Trump use this waiver authority to implement the payment pause and interest waiver, setting a precedent that would be leveraged to forgive federal student loans?
The executive memorandum didn’t specify which waivers and modifications should be wont to implement the payment pause and interest waiver.
The definition of the economic hardship deferment at 20 USC 1085(o)(1)(B) allows the U.S. Secretary of Education to define new eligibility criteria.
But, this isn’t necessarily sufficient, since 20 USC 1085(o)(2) requires the U.S. Secretary of Education to “consider the borrower’s income and debt-to-income ratio as primary factors” when establishing new eligibility criteria.
The regulations at 34 CFR 685.205(b)(8) provide a far better solution, since the regulations allow the U.S. Secretary of Education to supply administrative forbearance due to “a national military mobilization or other local or national emergency.” However, neither the forbearances nor the economic hardship deferment allow an interest waiver.
To implement an interest waiver after the expiration of the CARES Act’s payment pause, the U.S. Secretary of Education must believe the waiver authority within the HEROES Act of 2003 [20 USC 1098bb].
This waiver authority allows the U.S. Secretary of Education to waive or modify any provision of Title IV of the upper Education Act of 1965 in reference to a war or other operation or national emergency “as could also be necessary to make sure that affected individuals aren’t placed during a worse position financially in reference to that financial assistance due to their status as affected individuals.”
The waiver authority provided by the HEROES Act of 2003 is sufficient to implement the payment pause and interest waiver, but to not forgive student loans.
Forgiving student loans goes beyond what’s necessary to make sure that borrowers are within the same position financially after the national emergency as before the national emergency.
In addition, the chief memorandum specified that “This memorandum shall be implemented according to applicable law and subject to the supply of appropriations.” Congress has not appropriated funds for broad student loan forgiveness.
Can The President Waive The Taxes On Student Loan Forgiveness?
The IRS considers the cancellation of debt to be taxable income to the borrower. this is often required by the interior Revenue Code of 1986 at 26 USC 61(a)(11). It’s as if someone gave the borrower money to pay off the debt. Borrowers will receive an IRS Form 1099-C when their debt is cancelled.
Certain sorts of student loan forgiveness and discharge are excluded from income thanks to specific laws enacted by Congress.
Federal student loan forgiveness for working during a particular occupation is tax free under 26 USC 108(f)(1) when that loan forgiveness is provided by the scholar loan program.
Death and disability discharges of student loans are tax-free through 2025 under 26 USC 108(f)(5).
Employer-paid student loan repayment assistance programs (LRAPs) also are tax-free through 2025 under 26 USC 127(c)(1)(B), as amended by the Consolidated Appropriations Act, 2021.
Other sorts of student loan forgiveness, however, are taxable. for instance , the forgiveness of the remaining debt after 20 or 25 years in an Income-Driven Repayment (IDR) plan is taxable under current law.
However, the IRS can forgive the tax debt of borrowers who are insolvent, where total debt exceeds total assets [26 USC 108(a)(1)(B) and (d)(3)]. The insolvency exclusion from income is restricted to the quantity of insolvency [26 USC 108(a)(3)]. Borrowers who are in an Income-Driven Repayment plan for 2 or more decades are likely to be insolvent, but there are not any guarantees that the debt are going to be forgiven. Nevertheless, the IRS used similar reasoning to form the borrower defense to repayment discharge tax-free.
If broad student loan forgiveness is restricted to borrowers who are experiencing economic distress, the President could ask the IRS to forgive the taxes on the loan forgiveness, arguing that the borrowers are likely to be insolvent.
Otherwise, the scholar loan forgiveness are going to be taxable unless Congress passes a selected law authorizing an exclusion from income for the loan forgiveness.
Does Student Loan Forgiveness Qualify As A Disaster Relief Payment?
Qualified disaster relief payments are excluded from income under 26 USC 139. COVID-19 qualifies as a national disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act,
But there are only two sorts of qualified disaster relief payments which may apply, if you check out them sideways:
Amounts paid to or for the advantage of a private “to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a results of a professional disaster.” [26 USC 139(b)(1)]
Amounts paid to or for the advantage of a private “if such amount is paid by a Federal, State, or government , or agency or instrumentality thereof, in reference to a professional disaster so as to market the overall welfare.” [26 USC 139(b)(4)]
But student loans aren’t an expense incurred as a results of the COVID-19 pandemic and student loan forgiveness is unrelated to the pandemic.