These student loans are excluded from Biden’s forgiveness and loan relief programs – here’s why
The Biden administration has promulgated billions of dollars in student loan discounts, cancellations and other relief in recent months. But one particular type of student loan has been systematically overlooked: private student loans.
Federal student loans vs private student loans
By most estimates, there is about $ 1.8 trillion in outstanding student debt in the United States. The vast majority of this debt consists of federal student loans, which are loans issued directly or guaranteed by the federal government. But a significant portion of outstanding student debt consists of purely private student loans – around $ 136 billion, according to NerdWallet and MeasureOne.
Generally, federal student loans offer many more options for repayment, resolution of defaults, and loan cancellation. For example, income-tested repayment programs, loan rehabilitation programs, public service loan forgiveness, and school-based administrative waivers are generally only available for federal student loans, as required by law. federal. Private student loans are usually only governed by the terms and conditions of the underlying loan promissory note, which usually does not provide the borrower with many options.
Biden student loan forgiveness and relief initiatives
Over the past several months, the Biden administration has used executive action to provide both widespread and targeted relief to student loan borrowers:
- In June, Biden extended relief to borrowers who had only obtained partial loan forgiveness under the Borrower Against Repayment Defense program, which was created to write off federal student loan debt for students. borrowers defrauded by their schools. This relief will result in the cancellation of $ 500 million in student debt for 18,000 borrowers.
- On August 6, the Biden administration announced an extension of the current break on payments, interest, and collections on federal student loans until January 31, 2022. This relief was originally scheduled to expire in September.
- On August 9, the Department of Education announced a series of public hearings that mark the initial phase of a process to overhaul key federal student loan exemption and repayment programs.
- On August 19, the Biden administration announced that it would automatically pay off $ 5.8 billion in federal student loan debt for more than 300,000 borrowers with disabilities under the Total and Permanent Disability (TPD) release program. .
- On August 20, the Department of Education announced that it would retroactively waive interest on 47,000 current and former active-duty service members who were entitled to an interest waiver, but not granted, due to their service in dangerous combat zones.
These initiatives will bring relief to millions of student loan borrowers. Most importantly, this relief is limited to federal student loan borrowers only. Borrowers with purely private student loans that have been issued by a private lender and are unsecured by the government are excluded from all of these reliefs.
Why are private student loans excluded from Biden relief programs?
The answer is simple: Biden’s legal authority is limited to federal law, and he must act under existing federal laws and the regulations that accompany them. Federal student loan programs are governed by laws such as the Higher Education Act and the HEROES Act of 2003, as well as the CARES Act which was enacted last year. But those laws don’t allow Biden to provide relief to private student loan borrowers.
Even a widespread student loan cancellation – which student loan borrower activists and advocacy organizations have urged President Biden to adopt – would have similar limits. Lawyers defending the interests of borrowers have argued that the president has the legal power to enact a broad exemption on student loans. Biden himself has expressed his reluctance and skepticism about it. But the researchers specifically highlighted the authority provided by the Higher Education Act and the HEROES Act; thus, even if Biden did decide to write off student loan debt on a large scale, it should almost certainly be limited to federal student loans only.
What does this mean for private student loan borrowers?
It would ultimately take a law of Congress to significantly change the landscape of private student loan borrowers. Members of Congress have proposed private student loan relief bills in the past. For example, a stimulus bill in 2020 would have canceled up to $ 10,000 in private student loan debt for financially troubled borrowers. This year, Democrats in Congress introduced bills providing for private student loan disability releases and a private student loan rehabilitation program, similar to programs offered to federal student loan borrowers.
But so far these bills have gone nowhere. And even a bipartisan initiative to make it easier to pay off student debt in bankruptcy, which could actually pass Congress given its bipartisan support, limits bankruptcy reform to federal student loans only.
In the absence of meaningful congressional action, private student loan borrowers will continue to be excluded from relief programs designed to ease the burden of student debt.
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