We’re going to learn a lot about what will happen with student loan debt in the coming two months. Right now there are more questions than answers.
For instance, there is considerable uncertainty as to whether federal student loan payments for 33 million Americans, paused by the CARES Act back in March, will resume (as currently scheduled) in January, absent action by President Trump or Congress.
Then there’s the question of whether President-elect Joe Biden will take the advice of Sens. Elizabeth Warren (D-MA) and Chuck Schumer (D-NY) and cancel a large portion of student debt without Congress by issuing an Executive Order.
In an op-ed piece in the Nov. 11 Washington Post, Warren repeated her call for Biden, once inaugurated as President, to “cancel billions of dollars in student loan debt, giving tens of millions of Americans an immediate financial boost and helping to close the racial wealth gap,” calling it “the single most effective executive action available to provide massive consumer-driver stimulus.”
Warren and Schumer outlined a plan in September arguing the president had authority to cancel student debt by directing the education secretary to do so.
“I have a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished,” Senate Minority Leader Schumer told The Ink newsletter earlier this month. “And we believe that Joe Biden can do that with the pen as opposed to legislation.”
Schumer said such a move could form part of an “FDR-style” first 100 days in office for Biden, who has yet to indicate whether he is seriously considering the idea.
Biden has outlined, in “The Biden Plan for Education Beyond High School,” the creation of a new, “simple program which offers $10,000 of undergraduate or graduate student debt relief for every year of national or community service, up to five years. Individuals working in schools, government, and other non-profit settings will be automatically enrolled in this forgiveness program; up to five years of prior national or community service will also qualify.”
Unless the Democrats pull an upset and win a pair of runoff Senate races in Georgia in January (therefore flipping control of the Senate from Republicans to Democrats), Biden may have difficulty achieving a lot of what was on his platform—including raising taxes on the wealthy and corporations—particularly given current Senate Majority Leader Mitch McConnell’s penchant for stymieing Democratic bills.
Appetite for relief apparent
There appears to be a hearty appetite for addressing the student loan debt crisis, where outstanding loan debt has increased by more than 16% since 2017 to $1.68 trillion as of Q3 2020. It is now the second-biggest form of household debt in the country, behind only mortgage debt.
An October survey by The Pew Charitable Trusts found that 81% agree that the government should make it easier for borrowers to repay student loans. That includes 90% of Democrats and 68% of Republicans who said they see a role for the government in addressing problems in the student loan repayment system.
That same survey found that 58% of borrowers who said their payments had been paused during the pandemic say they would face difficulty if they were required to resume making those payments in the next month.
Avoiding the January “cliff”
Getting back to the January 2021 expiration of the CARES Act provision pausing student loan payments, there remains the possibility that President Trump will extend the provision—as he did in August by Executive Order, and hinted at the time that he would likely extend it again “most likely right after Dec. 1,”—but his appetite for that these days is unknown. Or Congress could take care of it during the coming lame duck session, possibly as part of another wide-ranging stimulus package which Biden pushed for Monday during a news conference from Delaware.
Biden called on Congress to pass a Coronavirus relief package similar to the Heroes Act legislation the House approved months ago, saying immediate relief can and should be delivered quickly as the economy is “teetering on the edge” headed into a “very dark winter” months before coronavirus vaccines could become widely available.
[Editor’s Note: This story has been updated to include additional comments below made by President Elect Joe Biden on Monday.]
During the Monday news conference, Biden sidestepped a question about whether he would use an executive order to forgive student debt, but reiterated support for the House stimulus bill, which would extend the suspension of payments through Sept. 2021 and cancel some student debt.
“Legislation from the Democratic House calls for an immediate $10,000 forgiveness of student loans,” Biden said Monday. “It’s holding people up. They’re in real trouble. They’re having to make choices between paying their student loan and paying the rent, those kinds of decisions. It should be done immediately.”
It should also be noted that the bipartisan “Securing a Strong Retirement Act of 2020,” also called SECURE 2.0, that was recently introduced in the House, includes a provision that would allow individuals to pay down a student loan instead of contributing to a 401k plan and still receive an employer match in their retirement plan.
That bill has at least a small chance at getting passed during the lame duck session before the end of the year, as it could get tacked on to a larger spending bill much like the SECURE Act at the end of 2019.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
