These student loans are excluded from Biden’s loan forgiveness and assistance programs

The Biden administration has enacted billions of dollars in forgiveness, cancellation and other student loan grants in recent months. But a particular type of student loan has been set aside: private student loans.

Federal student loans versus private student loans

According to most estimates, there are approximately $ 1.8 trillion in outstanding student loan debt in the United States. The vast majority of this debt consists of federal student loans, which are loans issued directly or guaranteed by the federal government. But a significant portion of outstanding student loan debt consists of exclusively private student loans: about $ 136 billion, according to NerdWallet and MeasureOne.

As a general rule, federal student loans have many more options for repayment, settlement of defaults, and loan forgiveness. For example, income-based repayment programs, loan rehabilitation programs, public service loan forgiveness, and school administrative discharges are generally only available for federal student loans, as provided by the federal law. Private student loans are usually governed solely by the terms and conditions of the underlying promissory note of the loan, which usually does not provide many options to the borrower.

Biden student loan forgiveness and relief initiatives

In recent months, the Biden administration has used executive action to provide widespread and specific help to student loan borrowers:

• In June, Biden extended relief to borrowers who had only been granted a partial loan forgiveness through the Defense for Borrower Repayment program, which was set to cancel federal student loan debt for borrowers defrauded by their schools. This relief will result in $ 500 million in student debt cancellation for 18,000 borrowers.
• On August 6, the Biden administration announced an extension of the current pause in federal student loan payments, interest, and collections until January 31, 2022. That relief was initially due to expire in September.
• On August 9, the Department of Education announced a series of public hearings marking the initial phase of a process to review key forgiveness and repayment programs for federal student loans.
• On August 19, the Biden administration announced that it would automatically collect $ 5.8 billion in federal student loan debt for more than 300,000 disabled borrowers through the Total and Permanent Disability Discharge (TPD) program.
• On August 20, the Department of Education announced that it would retroactively waive the interest of 47,000 current and former members of the military service who were entitled to, but were not granted, an exemption from interest for having served in dangerous combat zones.

These initiatives will help millions of student loan borrowers. But most of all, this relief is limited to federal only student loan borrowers. Borrowers with exclusively private student loans issued by a private lender and not guaranteed by the government are excluded from all this relief.

Why are private student loans excluded from Biden’s relief programs?

The answer is simple: Biden’s legal authority is limited to federal law and must act in accordance with existing federal statutes and the accompanying rules. Federal student loan programs are governed by laws such as the Higher Education Act and the HEROES Act of 2003, as well as the CARES Act that was enacted last year. But these statutes do not empower Biden to provide any relief to private student loan borrowers.

Even the widespread cancellation of student loans – which activists and organizations advocating for student loan borrowers have been urging President Biden to enact – would have similar limitations. Legal scholars advocating on behalf of borrowers have argued that the president has the legal authority to enact a broad student loan forgiveness. Biden himself has expressed reluctance and skepticism about doing so. But scholars have specifically pointed to the authority provided by the Higher Education Act and the HEROES Act; therefore, even if Biden decided to eliminate large-scale student loan debt, it would almost certainly have to be limited to federal student loans only.

What does this mean for private student loan borrowers?

Ultimately, it would require an act of Congress to significantly change the landscape of private student loan borrowers. Members of Congress have in the past proposed some private student loan relief bills. For example, a proposed stimulus bill in 2020 would have canceled up to $ 10,000 in private student loan debt for troubled borrowers. This year, Democrats in Congress have introduced bills that would provide private student loan disability discharges and a private student loan rehabilitation program, similar to programs offered to federal student loan borrowers.

But so far, those bills have gone nowhere. And even a bipartisan initiative to facilitate the collection of bankruptcy student loan debt, which could really be approved by Congress given its bipartisan support, limits bankruptcy reform to federal student loans only.

If there are no significant congressional actions, private student loan borrowers will continue to be left out of relief programs designed to alleviate student debt burdens.

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