After forgiving $39 billion in student loan debt for 800,000 borrowers, the President of the United States is at it again. This time, he wants to use the Higher Education Act (HEA) instead of the HEROES Act to cancel more student loans.
The HEROES Act was passed in 2003, and it provides the Secretary of Education with the authority to waive or modify any requirement or regulation applicable to the student financial assistance programs under Title IV of the HEA. This means that the Secretary can use the HEROES Act to provide relief to students who are affected by a war, other military operation, or national emergency.
The HEA, however, was passed in 1965, and it provides a broader range of financial aid programs for students. The HEA also gives the Secretary of Education the authority to "compromise, waive, or release" the department's claims against borrowers. This means that the Secretary can use the HEA to cancel student loans, even if the loans were not originated under the HEA.
As opposed to the HEROES Act, the Higher Education Act requires the Department of Education to go through the negotiated rulemaking process, in which the administration has to solicit public comment and hold hearings to receive feedback from stakeholders that will shape Biden’s final proposal, according to Business Insiders.
Those in favor of canceling student loans argue that it would boost the economy by freeing up borrowers to spend more money and that it would be a matter of social justice, as student loan debt disproportionately burdens low-income borrowers.
Again, the reality is that canceling more student loans will neither improve the economy, nor reduce the wealth gap. The government is already overleveraged, with a debt-to-GDP ratio of over 100%. Canceling student loans would add trillions of dollars to the government's debt, which would further increase the debt-to-GDP ratio. This would make the government more vulnerable to financial shocks, such as a recession or a stock market crash.
In addition, canceling student loans would reduce the government's revenue. The government collects interest payments on student loans, and canceling those loans would mean losing that revenue. This would make it more difficult for the government to fund its programs and services.
Finally, canceling student loans would be unfair to taxpayers who did not go to college or who have already paid off their student loans. These taxpayers would be essentially subsidizing the education of others.
The truth is that canceling student loans will be a windfall for high-income borrowers, who are likely to have student loans themselves; it would encourage colleges to raise tuition even further, knowing that the government would eventually forgive the loans, which will be an issue for future borrowers; and it would set a precedent for future government bailouts of other types of debt.