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Elizabeth Warren’s ambitious plan to bypass Congress and erase America’s student debt, explained

Can Warren wipe away student debt for 42 million Americans without approval from Congress?

Julian Castro Joins Elizabeth Warren On The Campaign Trail In Iowa
Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks to guests during a campaign stop at Fisher Elementary School on January 12, 2020, in Marshalltown, Iowa.
Scott Olson/Getty Images

If Sen. Elizabeth Warren wins the presidency, she’s promised her administration would use executive authority to wipe away the vast majority of America’s student debt — without Congress.

Rather than going to Congress to pass a new higher education law, Warren says in a plan released Tuesday that she’s found a way for her administration to wipe away up to $50,000 in debt for 95 percent of student loan borrowers in the United States, about 42 million people, by using provisions of the Higher Education Act, which gives the education secretary the “authority to begin to compromise and modify federal student loans.”

It’s hard to calculate exactly how much debt this would wipe out, but Warren has been clear she wants to alleviate much of America’s $1.6 trillion student debt burden. Of this total, the federal government holds the vast majority, about $1.5 trillion.

This spring, she proposed a plan — and an accompanying bill over the summer — to invest in debt-free college for students attending two- or four-year public institutions and cancel up to $50,000 in student debt for every person with household income under $100,000. That bill came with a hefty price tag: $1.25 trillion over 10 years, which Warren plans to pay for with the ultramillionaire tax she introduced in January.

Now, she’s vowing to do half of that plan without approval from Congress — the first Democrat in the 2020 field with such a proposal.

Exploring the power of the executive branch fits into Warren’s larger theory of governing. Before she became a US senator, Warren oversaw the creation of the Consumer Financial Protection Bureau. As Vox’s Emily Stewart has written, that experience showed Warren as someone who knew the power that lay in federal agencies and the federal rulemaking process to get things done without the legislative branch.

Her latest plan is a tacit recognition that even if she or another Democrat is elected president in November, the likelihood of bold progressive ideas getting passed into law will depend greatly on the political makeup of the House and Senate. Warren has already laid out a list of executive actions she’d take early on in her presidency, including lowering prescription drug prices and prohibiting drilling on public lands.

“The steps I have outlined here will require clearing a lot of red tape to make sure borrowers get the relief to which they are entitled,” Warren wrote in her plan.

Warren isn’t the first to claim that a president could unilaterally wipe out federal student debt. The idea has been percolating in activist and progressive circles. In 2015, two lawyers from the National Consumer Law Center urged the Obama administration to use the power to cancel student debt from for-profit colleges.

Last year, the Debt Collective, which has bought up millions of dollars in student loan debt and medical debt and advocates for broad debt cancellation, published a memo urging the Education Department to settle with student debtors or stop collecting payments entirely. Luke Herrine, a PhD student at Yale University and a former legal director for the group, published a white paper arguing for broad debt cancellation through executive action.

Some higher education experts said it was worth exploring the Education Department’s potential powers, while others expressed skepticism the plan could pass legal muster.

“I think often policymakers have often overlooked the substantial tools and abilities the Department of Education has, so I think it’s encouraging to see a broader exploration of what can be done there,” Ben Miller, the vice president for postsecondary education at the Center for American Progress, told Vox.

Others said the plan could face significant pushback, given its major use of executive authority and its unprecedented cancellation of student debt.

“I don’t think any member of Congress believes that’s what’s in the law, Democrats or Republicans,” said American Enterprise Institute fellow Jason Delisle, who specializes in student loan research. “If the president or secretary of education can do that, then you can issue a loan today and forgive it tomorrow, effectively turning it into a grant program, which is clearly not what Congress authorized.”

Still, Warren’s proposal could also serve to shift the debate about what measures are possible to tackle America’s $1.6 trillion student debt crisis — especially if other candidates propose similar plans.

“Even if Warren doesn’t get the nomination, it changes the environment in which student debt operates,” Herrine said.

Warren’s executive authority proposal, explained

Warren’s plan relies on a little-known provision of the 1965 Higher Education Act known as the “compromise and settlement” authority.

This essentially gives the education secretary broad power to waive, release, or modify a borrower’s federal student loans. It’s sometimes used on a case-by-case basis in situations of “hopeless debt,” such as when a borrower repeatedly isn’t making loan payments and the federal government is spending more money trying to collect the loan than it’s receiving in payment. But Warren’s interpretation of the power to wipe away the majority of student debt is far broader than how it’s currently used.

Her argument is that if the Education Department has the power to collect all this debt, it also has the power to stop doing so. Herrine argues that, much like the US attorney general or any prosecutor has the absolute discretion to bring or dismiss criminal charges, the US education secretary also has absolute discretion to collect student debt for 42 million Americans or cancel it.

“It’s really just the same thing — there’s nothing unique about criminal prosecution,” Herrine told Vox in an interview. “The secretary would have that discretion and authority, rather than having to go back to Congress or appeal to the attorney general to do some of that work for them. There’s nothing on the face of the statute that limits how or for what those authorities can be used.”

Warren’s campaign cited legal experts at Harvard Law School who concluded the same thing: “The power to create debt is generally understood to include the power to cancel it,” said a letter written by Eileen Connor, director of the Legal Services Center of Harvard Law School; attorney Deanne Loonin; and Toby Merrill, the director of the school’s Project on Predatory Student Lending. The Project on Predatory Lending also collaborated with the Debt Collective on its 2019 memo asking the Education Department to settle or stop collecting student debt payments.

The key question here is whether Congress envisioned the Higher Education Act to be used to give the education secretary such broad power in canceling more than $1 trillion worth of student debt.

This broad executive action could be challenged in court, but because the existing law grants the secretary “absolute” discretion to modify loans, multiple experts told Vox it could be difficult for outside parties to sue. Loan servicers themselves might be in the best position to file a suit.

“I don’t necessarily know who has standing to do this,” Delisle said, adding, “You’d have to issue regulations to do this; I don’t think you could do this by executive orders. You’d have to go through a rulemaking process, which takes a while. My guess is at that point the whole thing would become challenged.”

America has a massive amount of student debt. Canceling all of it could have a big economic impact.

Student debt is a problem affecting about 45 million Americans, and the burden of debt is only growing.

“The burdens of student debt are not distributed equally across all Americans: our country’s student debt crisis is hitting Black and Latinx communities especially hard,” Warren wrote in her plan. “Half of Black borrowers and a third of Latinx borrowers default on their loans within 20 years.”

America’s collective $1.6 trillion student debt now equals about 7 percent of the country’s GDP. An October paper by Moody’s Investor Service laid it out in stark terms: Student loan debt has more than doubled over the past decade, and it is “growing at a faster rate than any other category of household debt.” The Moody’s report argued that canceling loans could be an economic boost, depending on the scale of debt cancellation.

“In the near term, we would expect student loan debt cancellation to yield a tax-cut-like stimulus to economic activity, contributing a modest increase in household consumption and investment,” the Moody’s report states.

That could mean a “redirection of that money spent potentially on housing, a car, large-ticket items where they could take out a loan to finance that rather than the student loan,” said Bill Foster, a vice president with Moody’s and an author of the report, in an interview with Vox. Debt holders “might be more inclined to start a family or buy a house. It could lead to household creation, and when people start families, people spend more.”

Foster noted it’s hard to know the exact scope of this without knowing how much debt would be forgiven. The change could also stand to benefit higher-income households more than lower-income ones, because higher-income households statistically hold higher levels of student debt.

Just as canceling the entirety of America’s student loan debt could be an economic boost, it could also raise the federal deficit. Universal student loan debt cancellation would result in about “0.4% of GDP in annual forfeited revenue as the government foregoes debt service collection on forgiven loans,” according to the Moody’s report.

“The wider the fiscal deficit every year ... that starts to create more problems down the road for future generations,” Foster said, adding the deficit could increase even more, to around 0.6 percent of GDP, if private loans were factored into the equation in addition to public loans from the Education Department.

Of course, the government could make up that hole in revenue with a new tax — but that would take buy-in from Congress to pass.