The upcoming battle over US student debt cancellation

December 12th, 2020

Awake Goy

Donald Trump has finally said that he will leave the White House, but troubles in the United States will be far from over when Joe Biden is sworn in as president on 20 January 2021. Facing a global economic crisis and with half a million deaths from Covid-19 projected by 1 April, Biden’s administration will have to act quickly and decisively to provide relief to the American people.

What the administration is able to accomplish in 2021 largely depends upon which party controls the U.S. Senate. Unless Democrats win both seats up for grabs in the Georgia runoff elections on 5 January, Republicans will be able to block Congress from passing federal aid for the foreseeable future – but not student debt cancellation.

On the first day of his administration, Biden can issue an executive order to immediately cancel 92% of student debt, even if Republicans retain control of the Senate. At a time when Americans desperately need help, Biden has the legal authority to liberate 42 million people and their families from the burden of student debt with the stroke of a pen.

Nearly a year into the pandemic, student debt cancellation may not be the most urgently needed relief, but it is one of the most effective and immediate economic stimuli Biden’s administration can deliver. If he chooses not to enact it, or cancels only an insignificant amount, student debtors are getting organized to go on strike.

The “dark winter” ahead for the U.S.

As Americans enter the holiday season, the U.S. is experiencing high unemployment rates, widespread food insecurity, and the uncontrolled spread of Covid-19 in nearly all fifty states. The U.S. Centers for Disease Control and Prevention has forecast that some 60,000 people may die from the virus before Christmas.

Despite the ongoing hardships of the accelerating pandemic, important federal assistance passed by Congress during the first wave of the pandemic is set to expire at the end of this year. Millions will lose extended unemployment benefits, and a massive wave of evictions may force many out of their homes. If Congress does not act swiftly to pass additional relief before the end of this session, help may not arrive until early next year and the consequences will be disastrous.

Congress must pass a bill to fund the government before 11 December to avoid a shutdown and some aid may be tied to these negotiations, but the Republican-controlled Senate is not expected to pass anything nearly as substantial as the aid passed in March.

What Joe Biden owes to student debtors

For years, the Debt Collective union has advocated for the president to cancel all federal student debt by executive order, circumventing Congress. Of the $1.7 trillion of outstanding student debt, $1.54 trillion (about 92%) is from federal student loans, and $131 billion is from private student loans. The secretary of education, Betsy DeVos, has extended President Trump’s executive order pausing payments, collections and interest on federal student loans until 31 January, giving debtors much-needed protection and Biden’s administration plenty of time to act.

According to research by the Project on Predatory Student Lending in collaboration with the Debt Collective, Biden can issue an executive order on his first day in office instructing the Department of Education to suspend collection of the debt using its authority to “compromise, waive, or release” its claims over student debtors, which was granted to the Department by Congress in the Higher Education Act of 1965.

Student debt cancellation has gone from being a demand of activists at Occupy Wall Street (some of whom went on to form the Debt Collective), to the political mainstream in 2020, as evidenced by support from Senators Chuck Schumer and Elizabeth Warren and a recent open letter signed by more than 235 organizations, Joe Biden has said he supports legislation to cancel some (but not all) student debt through legislation, but not by executive order.

Even if Biden does not pursue debt cancellation, he will almost certainly extend the suspension by executive order before the end of January. However, given that the damage from Covid-19 may last years or even decades, it is possible that the suspension could continue for most of 2021. One expert has concluded that only 11% of federal borrowers are currently repaying their loans, and until the economic impacts of the pandemic are mitigated, defaults could increase by 10% or more when the suspension ends. Continuing the suspension would certainly help the vast majority of borrowers keep their heads above water, but it would not change their overall financial situations, and thus provide little in the way of economic stimulus.

The authors of research by the Levy Institute concluded that cancelling all federal and private student debt could “boost real GDP by an average of $86 billion to $108 billion per year” and create “roughly 1.2 million to 1.5 million new jobs per year”. Though this research does not explicitly address the scenario in which all federal student debt is cancelled but private student debt remains, the authors acknowledge that federal debt constitutes “the vast majority of student loans outstanding”, and it is reasonable to expect that liberating all federal student borrowers from their debts would produce significant economic stimulus.

In the event that Democrats do control the Senate in 2021, legislation to cancel all student debt and make public college tuition-free, such as the College For All Act introduced last year by Representative Ilhan Omar and Senator Bernie Sanders, could potentially reach Joe Biden’s desk. But would he sign it?

Biden seems unlikely to support total cancellation; his role in creating the student debt crisis stretches back to the 1970s, culminating in his infamous 2005 bankruptcy legislation that virtually ended bankruptcy protections for student loans. Since that legislation, nearly $1.4 trillion has been loaned out to student borrowers, the vast majority of which is unlikely to ever be paid off, and unable to be discharged in bankruptcy.

If Congress can’t or won’t pass legislation cancelling student debt, and if Joe Biden does not pause or cancel federal student debt by executive order, conditions for borrowers will only get worse as the pandemic continues to ravage the country, and organized student debtors are getting ready to strike with their debts.

If Biden’s administration won’t take action, organized student debtors will

If Biden opts not to cancel student debt, or only cancels an insignificant portion of it, his administration may be confronted by more active resistance from debtors. The Debt Collective writes in its new book ‘Can’t Pay, Won’t Pay’, “the fact that a simple mechanism exists to erase debts is not enough. It will take a movement to push public officials to actually use the authority they possess.” And accordingly, The Debt Collective is organizing a student debt strike.

‘Can’t Pay, Won’t Pay’ is a quick, accessible read that not only provides a contemporary framework for understanding debt in our society (particularly in the context of the pandemic), but also presents “the case for economic disobedience and debt abolition”. Their idea of debt resistance takes the form of a debtors’ union. “Mass indebtedness presents an opening for a new form of resistance to capitalist exploitation.” One notable advantage of debtor organizing is that, unlike labor union organizing, “there have not been decades of class war aimed to suppress the tactic”.

Connecting the struggles of student debt strikers such as Pamela Hunt, a single mother who owes over $200,000 in student loans, to international debt resistance against the International Monetary Fund and the World Bank, this book lays the groundwork for a truly global revolution in which the bonds of debt can become the basis for solidarity. The aim of such a revolution? “Rewrite the social contract” to imagine a world in which all people have what the Debt Collective calls “reparative public goods”: “By prioritizing redress and repair, we can win free and universal education, housing, and healthcare. No one should have to go into debt to meet their basic needs.”

As the pandemic worsens, the Debt Collective’s ideas are becoming more relevant as they break into the political mainstream. Covid-19 has laid bare both how precarious the conditions of the indebted working class are, but also how easily and arbitrarily financial burdens like debts or rent can be paused or cancelled entirely, if those in power are motivated to do so.

The conditions for a mass student debt strike are here: repayment is suspended for now, but sooner or later Biden’s administration will be forced to make the choice between cancelling student debt, or bringing on a massive wave of defaults. If Biden refuses to cancel their debts before repayment resumes, millions of debtors may reach the conclusion in the title of the Debt Collective’s book – that they cannot repay their student loans, so they might as well not.