Forgiving Student Debt by Executive Action Is Illegal, Trump Lawyers Say

Trump administration lawyers have concluded that it might be illegal to forgive all or a number of Americans’ student debt through an executive action—as congressional Democrats have urged the incoming Biden administration to do—arguing that such a move would require Congress to pass a law.

Education Department lawyers lay out their reasoning during a memo dated Tuesday to Betsy DeVos, who resigned last week as education secretary. the interior agency memo, reviewed by The Wall Street Journal, was signed by a political appointee and isn’t binding.

Congressional Democrats and progressive groups have urged President-elect Joe Biden to forgive most or all of the $1.6 trillion in federal student debt unilaterally in his first 100 days in office. They argue that existing law authorizes the chief branch to forgive student debt with none action from Congress.

“We believe the Secretary doesn’t have the statutory authority to cancel, compromise, discharge, or forgive, on a blanket or mass basis, principal balances of student loans, and/or to materially modify the repayment amounts or terms thereof,” Reed Rubinstein, the Education Department’s principal deputy general counsel, wrote within the memo to Mrs. DeVos. Mr. Rubinstein’s tenure will end along side those of other appointees when the new administration takes office Jan. 20.

Not everyone with student loans has benefited from the temporary relief within the CARES Act. Nearly 20% of federal loans don’t qualify for the present payment pause and interest waiver – namely Perkins loans and most Federal Family Education Loan Program or FFEL loans – nor do private loans. And while there are still options for borrowers with those sorts of loans, like income based repayment plans or forbearance, interest will still accrue albeit they’re not making payments.

Trump Student Loan Forgiveness
Numerous student loan borrowers are questioning how Donald Trump’s methods for dealing with the student loan crisis will change them going forward. In addition, borrowers are also questioning how his decision for Secretary of Education, Betsy DeVos, will require to manage federal student loans in the prospect. While being an outspoken advocate in many areas of study, she has yet to speak the demanding issue of student loans.

Both of these are critical questions that may eventually be taking early answers. Sadly, those statements are scary for a huge number of student loan borrowers. Statements as of May 2017 are that Trump and DeVos’ initial education budget will seek to pass the Public Service Loan Forgiveness program which could require student loan borrowers billions of dollars. Trump and DeVos will be expected seek to eliminate over $700 million in Perkins Loans and massively decrease the amount of work-study programs.

How Trumps New Tax Cuts and Jobs Act Makes a Difference Students & Borrowers
On 12/22/2017, the Tax Cuts & Jobs Act was enacted into law. In the 429 page document, there are changes made to existing laws that would significantly change current students, those with student loans, along with parents who have dependents on their taxes currently in school.

Student Loan Discharges No Longer Taxable Income
Section 11031 of the Tax Cuts & Jobs Act fixed student loan discharges by total & permanent disability(TPD) from being added to the borrower’s gross income. Under the new rule, discharge student loans are no longer seen as taxable income if using for disability discharge. This is a hugely advantageous change for disabled borrowers who want to utilize for discharge on their federal student loans. Before many borrowers elected not to apply for discharge and remained in an income-based repayment plan.

Disabled borrowers were hesitant to have their student loans discharged since they would see a massive tax bill expected at the end of the year, which was in many cases uncontrollable. This move made by the Trump administration comes as a tremendous support to disabled federal student loan borrowers.

Interest Deduction
One big move done in the Tax Cuts & Jobs Act is that case deductions for student loans are exterminating starting in 2018. If you are making under $65,000/yr as a single, or $130,000/yr if you are married and filing combined, you are qualified for an interest deduction on your student loans of up to $2,500. IRS records reveal that in 2015 there were 13.4m people who insisted that deduction and the common deduction was $1,100. That would change to a decreased tax liability of $275, for someone in the 25% tax bracket. It’s not a large amount, but for a struggling person out of college working to make ends meet.


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