How does America address an unprecedented economic crisis amid a presidential transition?
In 2008, the Obama administration prepared to inherit a country in the throes of economic catastrophe. President George W. Bush announced an $80 billion bailout and said that the “government has a responsibility to safeguard the broader health and stability of our economy.”
Bush explained that not helping auto manufacturers would “lead the next president to confront the demise of a major American industry in his first days in office.” The incoming Obama administration picked up where the Bush administration left off.
The United States now finds itself in yet another economic calamity, and student loans appear to be a viable target for economic recovery – one that targets millennials who are still recovering from the last recession.
This could be President Trump’s capstone on injecting cash into a struggling economy.
The Trump administration has led the charge on student loan relief before Congress acted. On March 20, a week before the Coronavirus Aid, Relief, and Economic Security Act was passed, the administration took steps to suspend student loan payments and set interest rates to zero percent.
Secretary of Education Betsy DeVos said, “I commend President Trump for his quick action on this issue, and I hope it provides meaningful help and peace of mind to those in need.”
In anticipation of the September expiration of the CARES Act’s student loan relief, on August 8 the Trump administration extended the relief through December 31.
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With no sign of additional relief from Congress, on December 4 the Trump administration extended student debt relief through the end of January 2021 — 11 days into the Biden-Harris administration — to prevent a gap between presidential terms that would leave students without relief.
The administration’s unilateral actions to eliminate student loan obligations have been praised. If the Trump administration seeks to signal its continued support of the economy while the world waits for a vaccine, it may consider S. Res. 711, which “calls on the President of the United States to take executive action to broadly cancel up to $50,000 in Federal student loan debt.”
The authority for the Trump administration’s student loan relief measures can be found in section 432(a) of the Higher Education Act of 1965. There, Congress granted authority to the executive branch to exercise its judgment on student loan relief.
Just as the administration provided student loan relief without Congressional approval on March 20, August 8, and December 4, it can do it again. And the relief can indeed be much broader.
The Tax Cuts and Jobs Act has been criticized for section 67(g), which eliminated some student loan deductions for working students through 2025.
Rep. John Lewis, D-Ga., said in the concluding remarks in the House report underlying the TCJA, H.R. Rep. No. 115- 495: “As students of all ages struggle to compete in a 21st Century workforce and face increased burden of debt, the education tax provisions of this bill create an additional and perhaps insurmountable hurdle; it exacerbates an already dire situation. As graduate students in Metro Atlanta and across the country began to review H.R. 1, they learned the tax changes would only exacerbate their financial woes.”
There is no doubt the TCJA has faced criticism for favoring investors over the working class. Canceling student loan debt could help achieve economic incentives Trump has been looking to provide.
In many ways the relief would have the effect of both economic stimulus checks as well as payroll tax relief, especially since he would be able to simultaneously free up funds for spending and ensure the relief wouldn’t give rise to taxable income.
While this could assist Joe Biden’s incoming administration’s economic relief efforts, this certainly wouldn’t be the first time a president endeavored to assist the efforts of an incoming president during a transition.
Biden, when he was vice president, helped broker the American Recovery and Reinvestment Act (ARRA). It was signed into law February 17, 2009, to help the country recover from the Great Recession and help the U.S. housing market. The ARRA made a tax credit of up to $8,000 available to first-time homebuyers purchasing a residence for up to $800,000. A taxpayer could have modified adjusted gross income up to $125,000, or $225,000 for joint filers, before a phaseout kicked in, allowing a partial credit up to $245,000, or close to $300,000 today, adjusting for inflation. The real estate markets rebounded, and much credit was given to the ARRA’s economic incentive, even as it certainly helped wealthier individuals.
Educational institutions are now a major focus, with COVID-19 and distancing requirements increasing the costs of providing in-person instruction, which is reflected in increased tuition. If allowed to continue, student loan debt will continue to burden the economy at unprecedented levels.
Trump’s decision to provide additional economic relief could aid the incoming administration with an unprecedented economic crisis and assist students and workers whose families couldn’t afford postsecondary education. Such student loan relief would be consistent with his prior actions of stepping in when Congress hasn’t.
The December 4 gesture of providing student loan relief into the Biden-Harris administration could be a sign of things to come. It certainly signals the potential for collaboration.