Here’s what wide-scale student loan forgiveness means for your student loans.
Here’s what you need to know.
President Joe Biden could announce his decision on wide-scale student loan forgiveness any day. No matter what the president decides, more than 40 million student loan borrowers will be impacted. Biden said he would decide on student loan forgiveness before the student loan payment pause ends on August 31, 2022. Let’s explore what student loan forgiveness could mean for you. Here are 4 things to know about wide-scale student loan forgiveness.
1. Student loan forgiveness could be life-changing
For some student loan borrowers, wide-scale student loan cancellation could be life-changing. For example, if the president cancels $50,000 of student loans for each borrower, approximately 36 million student loan borrowers would have all their federal student loans canceled. Progressive Democrats have been lobbying the president to enact wide-scale student loan forgiveness of $50,000. However, Biden likely won’t cancel that amount of student loans. The president has consistently supported $10,000 of student loan forgiveness. That said, $10,000 of student loan cancellation can be life-changing for borrowers too. Despite popular belief, student loan borrowers with lower student loan balances — such as less than $10,000 — often struggle financially and have higher student loan default rates. By canceling $10,000 of student loans, Biden could deliver a financial lifeline to these student loan borrowers.
2. Student loan cancellation: don’t expect a $10,000 check
If Biden enacts wide-scale student loan forgiveness, don’t expect a $10,000 check. Why? Unlike a stimulus check from the Covid-19 pandemic, student loan forgiveness would be a reduction in your principal student loan balance. This means you won’t receive a physical check for the amount of any student loan forgiveness. For example, you won’t receive a check if you have $100,000 of student loans and get $10,000 of student loan forgiveness. Instead, the U.S. Department of Education would automatically reduce your student loan principal balance to $90,000. So, you won’t receive a lump-sum payment. Instead, you would have a lower monthly student loan payment based on your new, lower student loan balance.
3. Student loan forgiveness: you may not qualify
Student loan forgiveness may not be available to every student loan borrower. According to leaked documents from the U.S. Department of Education, student loan forgiveness could be limited to specific borrowers. For example, wide-scale student loan forgiveness could only be limited to federal student loan borrowers. This means that borrowers with private loans won’t qualify. That said, a proposed plan from Biden’s Education Department would include borrowers with Direct Loans, FFELP Loans, Perkins Loans, Parent PLUS Loans and Grad PLUS Loans. The Biden administration is considering an income limit of $150,000 for individuals and $250,000 for families. You could be excluded from wide-scale student loan forgiveness if you earn more income than these thresholds.
4. Don’t expect more wide-scale student loan forgiveness
If Biden enacts wide-scale student loan cancellation, don’t expect the president to cancel student loans for every student loan borrower again. Therefore, expect wide-scale student loan cancellation to be a one-time event. That said, Biden will continue to enact targeted student loan forgiveness through programs such as borrower defense to repayment and public service loan forgiveness. This week, Biden canceled $3.9 billion of student loans for 208,000. In the coming days, Biden will announce whether he will extend the student loan payment pause for the seventh time. Even if Biden extends student loan relief, remember that the student loan payment pause won’t last forever. That’s why developing a game plan for student loan repayment is critical. Here are some of the best ways to get out of student loan debt and save money:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)