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Student Debt Cancellation Backgrounder

Aug. 5 2021 — 8:02p.m.

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FOR: INTERESTED PARTIES F R e m— n u M RE: The Path to Achievable Student Debt Cancellation — — DATE: November 2020 —~TO PROSPER — Introduction: Student Debt Cancellation Backgrounder This memo has been prepared by Freedom to Prosper (FTP), an organization that advocates the cancelling of all outstanding student loan debt in the United States. For more information on student debt or the cancellation process, on or off-record, please contact Kate Maeder at 310-989-4299, or kate @freedomtoprosper.org. FTP experts and affiliates are also available for print and media interviews. Student Debt: A Brief History Student loans were created in the 1950s as part of the National Defense Education Act, in what might be called an experiment in social engineering. Policymakers concerned about competition with the Soviet Union wanted to increase students’ math and sciences capabilities. For that, the country needed more educators. So, lawmakers offered loans to college students, with the opportunity to have half the loan canceled after 10 years if they became teachers. The experiment failed. Despite multiple studies, researchers have not been able to prove that the student loan program led to more teachers. But the student debt took on a life of its own. Over the years, individual students were encouraged to take out tens — sometimes hundreds —of thousands of dollars in loans with the false promise they would be able to pay those loans back with higher wages. For many borrowers, that's not true. Now, more than 46 million Americans and their families owe approximately $1.7 trillion in student loans. Many have defaulted or are in arrears. Millions of others are struggling with the debt burden. Movement to Cancel Student Debt In 2014 and 2015, Mary and Steven Swig became fellows and then senior fellows at the Advanced Leadership Initiative at Harvard University. There, they introduced universal student debt cancellation as their project, which quickly attracted interest and support from top legal authorities and elected leaders. Steven and Mary also sponsored and commissioned the Levy Economics Institute report, “The Macroeconomic Effects of Student Debt Cancellation,” which serves as the academic foundation for the student debt cancellation movement. And they founded Freedom to Prosper, a national organization, to build coalitions in the movement for student debt cancellation. Student Debt Cancellation Will Boost GDP, State and Local Economies Complete student debt cancellation —the cancellation of all outstanding public and private student loans — will put money back in the pockets of borrowers and spur our economy. MILLicH wew TERS Studies show full cancellation will create 1.2 - 1.5 million jobs per year, A BT WORBLEA YO 1018 ) o e Ao NEW 900 U TEAR lead to more small business creation, increase the number of college degrees, help reduce the racial wealth gap, and increase credit scores so * more people can buy homes and make other investments in their futures. F R E —— n u M 1 [email protected] — — www.FreedomtoProsper.org — TO PROSPER —

The Levy Report finds that student debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year — over $1 trillion over ten years.'* No, The President Cannot Cancel Student Debt with a Pen Stroke Recently, there has been heightened fervor around Senators Warren and Schumer’s proposal that President-elect Joe Biden could cancel student debt “with the pen as opposed to legislation.” Unfortunately, that cannot happen. Attorneys on Capitol Hill say that the Executive Branch does not have congressional authority to cancel student debt. (The Executive could postpone repayment indefinitely, but postponement does not relieve borrowers of their debt.) Why? The Antideficiency Act, passed by Congress in 1982, prohibits Executive Branch officials from spending money Congress hasn’t appropriated. Broad student debt cancellation would trigger The Antideficiency Act, because the Department of Education would be spending funds that have not been appropriated. That is why we will ultimately need a legislative solution. NOTE: Some have argued that the Biden Administration could take an approach similar to that taken by the U.S. Department of Education when it extended a rule allowing the cancellation of federal student loans made after a borrower was provided with inaccurate or fraudulent information by the postsecondary institution. This was known as the “borrower defense to repayment rule.” The circumstances were very different in that case, however. That rule was based on a specific statutory provision set out by Congress in the Higher Education Act of 1965 (as amended) implemented following procedures prescribed by that Act and the Administrative Procedures Act. In addition, that rule’s cost of less than $2 billion is vastly smaller than the $1.7 trillion cost of full cancellation. * Clearly, we applaud the goal behind the Warren/Schumer proposal. It is laudable, and deferred repayment would be a helpful interim step. Ultimately, however, Congress will need to provide a long￾term solution. A Path in Congress: There is a Legislative Solution How could Congress end the student debt crisis? It could pass a law cancelling all outstanding federal student debt and repaying all private student loans. A bill such as Rep. Ilhan Omar’s HR 3448 would do exactly this.® Congress can and should give more than 46 million borrowers, together with their families and their communities, the freedom to prosper by cancelling all student debt. 1 “Report: The Macroeconomic Effects of Student Debt Cancellation.” Levy Economics Institute, February 2018. http://www levinstitute.org/publications/the-macroeconomic-effects-of-student-debt-cancellation 2 “Early Millennials: The Sophomore Class of 2002 a Decade Later.” U.S. Department of Education National Center for Education Statistics, June 2017. https://nces.ed.gov/pubs2017/2017437 .pdf 3 “Echoes of Rising Tuition in Students’ Borrowing, Educational Attainment, and Homeownership in Post-Recession America.” Federal Reserve Bank of New York, July 2017. https://www.newyorkfed.org/research/staff_reports/sr820 4“Antideficiency Act Resources.” U.S. Government Accountability Office. https://www.gao.gov/legal/appropriations-law￾decisions/resources 5 “H.R.3448 - Student Debt Cancellation Act of 2019.” Congress.gov. https://www.congress.gov/bill/116th-congress/house￾bill/3448 F R E —— n u M 2 [email protected] — — www.FreedomtoProsper.org — TO PROSPER —

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