Senate Majority Leader Chuck Schumer, D-N.Y., spoke Saturday after the Senate passed pandemic response legislation that included a tax break for federal student loan debt relief. (AP Photo/J. Scott Applewhite)
Key players in both parties said the enactment of the proposed tax exclusion for beneficiaries of any potential cancellation of federal student loan debt would set the stage for a fight between the parties. There are competing proposals aimed at helping borrowers who number 44 million and are dealing with more than $1.5 trillion in student loan debts, based on a study by the Federal Reserve Bank of New York.
While Democrats argue for a blend of debt forgiveness and tax breaks to help workers with student loans, Republicans have called for an emphasis on incentives designed to encourage full debt repayment. Both parties have also disagreed over other items in the pandemic response package, including a tax hike for multinationals, incentives for undocumented workers with individual taxpayer identification numbers and a temporary expansion for one year of the child tax credit, with periodic advance payments.
Sen. Chris Coons, D-Del., a close ally of Biden, said the administration was sure to put a priority on the president's campaign pledge for $10,000 in student loan forgiveness. But he said there could be delays before the administration makes tough choices on whether to move toward a higher target of up to $50,000 in student loan debt forgiveness per borrower set by some liberals, and whether to deliver such aid via executive action or legislation.
He said the administration's strategy for helping student loan borrowers may need more time for vetting ideas and for negotiations. Measures to help student loan borrowers could be on the table for possible inclusion in a potential fiscal 2022 reconciliation bill for Biden's emerging Build Back Better blueprint for economic recovery or in other, regular-order legislation.
"There are some things the administration can do to both forgive and relieve debt. But we've got to look at more immediate relief issues today," Coons told Law360.
As the administration weighs different options, Senate Majority Leader Chuck Schumer, D-N.Y., said he hoped it would expedite a decision to cancel or write down student loan debts so that younger workers can take full advantage of the tax break contained in the pandemic response plan.
"It shows that we can do taxes to focus on student loans. It probably lets the White House know how much we care about this," Schumer told Law360.
"I would rather the president do this on his own," he said, referring to cancellation of a share of federal student loan debt.
A White House spokesman did not reply to a request for comment on the administration's plans.
While Schumer has promoted a resolution with 15 co-sponsors calling for executive action to cancel up to $50,000 in federal student debt per borrower, other Senate Democrats said they were undecided. For example, Sen. Joe Manchin, D-W.Va., who helped block a deal on Biden's proposal for a $15 hourly minimum wage, said he had no stance, for now, on specific ideas for student loan relief.
"I am going to look at it. I want to help the students," Manchin told Law360.
It remains unclear whether the administration would try to settle an intraparty split over the scope of student loan relief by taking executive action, or punt the decision to Congress. A filibuster-proof reconciliation bill with student loan debt cancellation would require support from all 50 members of the Democratic caucus plus a potential tie-breaking vote by Vice President Kamala Harris.
In the House, Ways and Means Committee Chairman Richard Neal, D-Mass., said he leaned in favor of Biden's original plan to provide $10,000 in loan forgiveness and made clear it could be provided in legislation, if necessary.
"My view on that is close to President Biden's $10,000 number," Neal told Law360.
He pointed to the House's passage last year of a similar proposal for $10,000 in student loan debt forgiveness that was projected by the Congressional Budget Office to cost $45 billion over 10 years — plus $15 billion for a tax exemption for such aid — in a pandemic response plan that died in the Senate.
As Democrats try to work out differences on student loan debt relief, Neal said they would continue to vet tax proposals aimed at helping borrowers deal with debts and counter fallout from COVID-19, the respiratory disease caused by the novel coronavirus.
For their part, some Republicans in both chambers have called for focusing on measures aimed at encouraging those with student loans to pay them off.
Sen. John Cornyn, R-Texas, a member of the Senate Finance Committee and a former GOP whip, said he and other Republicans were concerned the tax break in the pandemic response bill would apply to all student loan borrowers, including young professionals with the ability to repay debts.
"Forgiving student loan debt for people that have the wherewithal to pay it back and are contractually obligated to do so is a bad idea," Cornyn told Law360.
Despite the deep partisan divide on student loan debt cancellation, Sen. Rick Scott, R-Fla., chairman of the National Republican Senatorial Committee, said he was open to proposals to encourage borrowers to use their own financial resources to pay off student loans.
"I'm OK as long as they are using their own money," Scott told Law360.
Several lawmakers in both parties said they were exploring ways to expand other incentives to help student loan borrowers.
For example, Rep. David Cicilline, D-R.I., said he planned to push a proposal to raise the cap on deductions for student loan interest payments to $7,500 from $2,500. The plan also would raise the cap on modified adjusted gross income to $100,000, up from about $85,000, to qualify for deductions.
But Sen. Rand Paul, R-Ky., said he hoped to revive a more ambitious proposal to simply erase the cap on deductions for student loan interest payments.
"It would make college tax-deductible," Paul told Law360.
Senate Minority Whip John Thune, R-S.D., and Sen. Mark Warner, D-Va., said there could be a bipartisan push to build on a provision in the Consolidated Appropriations Act to continue through 2025 a temporary expansion of the allowance for tax-exempt educational assistance by employers, to allow payments of up to $5,250 on principal and interest of student loans.
Thune and Warner, who are members of the Finance Committee, said they both were exploring whether to raise the cap on an employer's student loan payments on behalf of an employee, which first was enacted in March as a temporary one-year incentive in the Coronavirus Aid, Relief and Economic Security Act.
"In this day and age, with what it costs to go to college, I would be open to that," Thune told Law360.
As both parties examine different ideas for helping student loan borrowers, Rep. Brendan Boyle, D-Pa., a Ways and Means member, urged Democrats to develop a pragmatic plan with measures that can draw broad support. He predicted student loan relief would be delivered by executive action to avert Senate hurdles and said that move should be promoted in tandem with other worker incentives designed to win broad support and counter GOP efforts to "brand us as elitist."
"It would be wise of us to marry this to some larger proposal to also help workers, who don't have the benefit of a higher education," Boyle told Law360.
--Editing by Robert Rudinger and Neil Cohen.
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