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Student Loan Cancellation Could Be a Disaster for Biden, Borrowers

Members of Congress are calling for President Biden to forgive up to $50,000 in federal student debt. For borrowers, the upside is obvious, but there is also a huge downside.

Written By: Michael P. Lux, Esq.

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Student loan cancellation, or forgiveness-for-all, has the potential to change millions of American lives for the better.

Cancellation also has the potential to provide a considerable boost to the economy. Less debt means more small business creation and more job growth.

While the arguments for debt forgiveness are strong, there are many potential risks to an executive order forgiving student loans.

The Extended and Confusing Court Battle on Student Loan Cancellation

Some legal scholars argue that the President has the authority to cancel student loans via executive order. Others claim that only Congress can offer forgiveness for all.

The reality is that the President’s authority is unknown. We won’t know for sure until the issue is addressed in federal court.

The legal uncertainty complicates any moves on forgiveness. If Biden announces forgiveness for all, the move would get a ton of media attention and enthusiasm from borrowers. It also would mean a lawsuit in opposition was on the way.

The subsequent litigation could take years to resolve. How does the Department of Education handle loans during that time? Would borrowers make payments if they were required? What happens to borrowers if Biden loses the lawsuit?

There is a reason that Biden supports cancellation, but only through Congress. The alternative is chaos.

If Biden announces forgiveness and then loses in court months or years later, it could devastate borrowers. Imagine if you started a business or bought a house because you were free of your debt. Restoring debt after attempted cancellation would be financially disastrous for many.

A Note from the Sherpa: As a student loan borrower myself, I’m very much in favor of federal debt cancellation. This article is not written in opposition to student loan forgiveness. Instead, it is written as a warning so that lawmakers can avoid potential mistakes.

Student Loan Forgiveness Could Make College More Expensive

For decades, colleges have shown a willingness to increase prices. Student loan cancellation would open the door for more increases.

Colleges don’t set tuition prices based upon the value of a degree. If they did, a computer science degree would cost far more than a philosophy degree. Instead, many schools charge tuition based on what students are willing to pay.

If you were a high school senior and read about how everyone had their student loans forgiven, would you worry about signing up for student loans? Would you be more likely to spend more money to go to college?

The economics here are simple. If students are less worried about student loans, they will be comfortable borrowing more. If students are willing to borrow more, colleges can charge more.

Today’s student loan crisis could pale compared to the student loan crisis of the future if we don’t address the cost of college at the same time.

Avoiding a Student Loan Cancellation Mess

The solutions to these issues are straightforward but difficult to achieve.

First, Congress should authorize the President to cancel student debt as necessary. While there is an argument that this authority already exists, explicit legislation would remove any room for debate. Congressional action could eliminate the danger of forgiveness getting tied up in the court system.

Second, the price of college must get addressed. One round of forgiveness would make students even more carefree about borrowing and incentivize colleges to charge more. We can’t afford another student loan crisis.

Is Student Loan Forgiveness for all Irresponsible?

Given the potential for confusion from litigation and the risk to future students, there is undoubtedly a risk to canceling student loans.

However, politicians in DC have a long track record of focusing only on the problems of the present and not worrying about the future.

In this case, the student loan crisis is severe, and we are suffering the consequences of inaction. President Biden’s desire to address this issue with Congress is commendable. However, once it is clear that Congress won’t take action, Biden should seriously consider an executive order.

Borrowers are struggling right now. Trying and failing is preferable to not even trying.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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