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Is change on the horizon for student loans?

Student Loan Bills
Your loan debt probably already feels crushing. Discussions are underway to ease your burden, but their success is uncertain.

Gone are the days when you could work your way through college or law school or accrue nominal student debt while earning those degrees. More than 95 percent of respondents to the 2020 ABA Young Lawyers Division Law School Loan Debt Survey took out loans to attend law school. More than 80 percent of respondents graduated with $95,000-plus in debt, and more than half had $160,000 or more.

Debt loads like those can hold people back from buying a home or starting a family because they lack the financial means to do so.

Even at a time when Congress seems more polarized than ever, there’s bipartisan recognition of the reality of student debt loads and that they may be unsustainable. This recognition was brought to the fore at the outset of the COVID-19 pandemic and led to a bipartisan relief package in which Congress paused payments and waived interest on all federally held student loans. This borrower relief was later extended by both the Trump and Biden administrations.

With the COVID-19 pandemic still raging today and a new Democratic-controlled Congress and president, here are possibilities that may ease the burden of student debt.

Debt could be cancelled

There has been much talk about the need to cancel at least some portion of student debt for borrowers. While there’s disagreement over how much, if any, should be cancelled, having a president who has publicly expressed a desire to cancel $10,000 in federal student loans as part of a COVID relief package and a Congress that’s controlled by Democrats does shift the narrative. No longer is debt cancellation a nonstarter; it may now stand a real chance of happening.

Cancelling student debt, particularly at this current time of great financial uncertainty, could help struggling borrowers who are in default or delinquency or are otherwise having a hard time paying down their loan balance as part of their larger financial picture. That extra cash each month could be used to pay other bills, put into a savings account, or used to stimulate the economy in ways some borrowers are unable to do right now.

Even so, some critics argue that debt cancellation is a regressive policy that would benefit high-debt borrowers who also tend to have higher incomes.

Without Republican support for debt cancellation, and with very slim majorities in both the House and Senate, the Democratic caucus would have to stand together for debt-cancelling legislation to pass. However, there are two potential legislative avenues that could smooth passage in the near term—namely, a COVID relief bill or budget reconciliation.

Because COVID will take up much of Congress’ time and attention this year, a new COVID relief package would be the most immediate way to provide greater support to student loan borrowers, including through debt cancellation. COVID relief will become a must-pass piece of legislation, and members of Congress will surely attempt to include some borrower provisions in this bill. Whether those provisions end up being enacted, however, remains to be seen.

Democrats also have the chance to use budget reconciliation to make changes to certain programs that affect the budget, such as student loans. This procedure requires only a simple majority in the Senate, unlike other legislation that needs the higher threshold of 60 votes. Using budget reconciliation may be appealing to Democrats, but again, this would require all Democrats to vote in lockstep.

If debt cancellation can’t pass Congress, some proponents believe student loans can be cancelled by the executive branch. Others contend such a move wouldn’t be legal, and even President Joe Biden, shortly before he was sworn in as president, questioned whether he would have the authority to take that step.

Furthermore, Biden, who served in the Senate for 35 years, has expressed his desire to work with Congress on areas of bipartisan agreement rather than move his agenda largely through executive action, especially since Democrats do hold the majority, slim as it is. He has specifically said that any student-debt cancellation should come from Congress.

That said, if Congress is unable or unwilling to pass his agenda, Biden may decide that executive action is his only recourse.

Repayment might be paused

While Congress didn’t extend the student loan payment pause and interest waiver in its December COVID bill, they may choose to include it in their next relief package, which Democrats have made known is a priority. President Biden used his executive authority to extend the relief offered by the Coronavirus Aid, Relief, and Economic Security Act through Sept. 30, 2021.

But Congress may choose to push that end date out even further since it’s yet unknown how long the repercussions from COVID and the resulting job losses will impact Americans’ ability to meet their financial obligations.

Obviously, pausing payments and interest won’t provide the same kind of relief as full debt cancellation. But the hope is that it would put borrowers who have been laid off, are underemployed, or have voluntarily left the workforce to care for dependents or sick loved ones in a better financial position.

Repayment plans could shift

The five existing income-driven repayment plans, which tie federal student loan borrowers’ monthly loan payment amounts to their income and forgive any remaining balance after a set number of years, were created to help borrowers better manage their loan repayment obligations. This is a worthy intention.

However, the number and details of the plans create unnecessary complexity and often lead to confusion for borrowers. There’s bipartisan agreement that income-driven repayment plans should be better targeted and simplified to make it easier for struggling borrowers to enroll in and remain in these plans.

The Higher Education Act, which governs federal student aid programs, expired in 2013. A long-overdue reauthorization of the HEA is one way Congress could simplify income-driven repayment plans. However, the focus on COVID relief legislation and other higher priorities may push this reauthorization further down the Congressional to-do list.

Also, an HEA reauthorization would need 60 votes in the Senate to pass. Depending on what else is included in the bill, that may be hard to muster. A bill with costly policy changes may not garner a lot of support among Republicans and moderate Democrats who have concerns about the growing deficit, especially after spending trillions of dollars on COVID relief.

Forgiveness could be better

The Public Service Loan Forgiveness program, which was created with bipartisan support in 2007, allows borrowers who make 120 monthly payments while working full-time for the government or certain not-for-profit organizations to have the remaining balance of their federal Direct Loans forgiven. PSLF benefits communities across this country greatly and makes it possible for law school graduates to enter and stay in public service careers, which are typically compensated at a level that can make student loan repayment difficult.

However, despite the benefits, low approval rates and issues with implementation over the last several years have shown that there’s room for improvement.

Efficiencies could be created in the program, and the administrative and procedural burdens placed on these public servants could be lessened. Legislation was introduced last session that would make technical fixes to the PSLF program. Among other things, the fixes would require that better up-front information be given to borrowers about the program and borrowers be allowed to consolidate their loans without losing credit toward forgiveness. It would also expand eligibility to more federal loan types and to all loan repayment plans.

These changes could go a long way toward making PSLF a reality for more borrowers.

Like changes to income-driven repayment plans, fixing the PSLF program could occur during HEA reauthorization.

While there have been calls over the last several years by some members of Congress to eliminate the program or limit forgiveness, an HEA reauthorization led by Democrats could save PSLF. It could also bring much-needed improvements to ensure that the promise Congress made to public servants nearly 15 years ago is kept.

Whether we see sweeping changes to federal student loans over the next five years, tinkering around the edges, or the status quo is hard to predict. That’s especially true when gridlock seems to be the norm in Washington and policymakers have a slew of other priorities to address.

One thing is clear: Higher education has changed tremendously, not just over the last generation, but also in the last 12 months. Policy updates that meet the needs of today’s students is needed now more than ever.

Nancy Conneely As Director of Policy, Nancy is responsible for advancing AccessLex’s legislative, regulatory and administrative policy goals that further access, affordability and the value of legal education. She generates policy analysis, develops policy positions, and oversees the organization’s #MakeTheCase advocacy campaign.