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Will Biden Cancel Student Debt? Here’s What We Think

Students have been hopeful with the recent economic challenges around the world that the federal government might forgive their student loan debt. President Joe Biden has repeatedly stated his support for canceling $10,000 per borrower, and some Democrats have even pushed for up to $50,000 worth of forgiveness per borrower. Biden has extended student loan forbearance until May 1, 2022, which leaves millions of students wondering what’s going to happen then. Keep reading to learn what we think.

Is President Biden going to forgive student loans?

President Biden has expressed support for broad student loan forgiveness but has yet to voice a specific plan or amount. With his executive authority, he could cancel debt or ask Congress to pass a bill that would do so (depending on legal interpretation). And while members of Congress have urged him to cancel $50,000 in debt per borrower, he 1) hasn’t done it yet and 2) claims if he did, it wouldn’t be for more than $10,000 per borrower.

In the meantime, Biden has paused interest on student loans during the current forbearance, which is saving borrowers money. And while there are no current provisions in his 2022 budget proposal that include broad student loan forgiveness (????), here are some some instances he has proposed forgiveness for:

  • Students who attended a public college or university, as well as attendees of private historical Black colleges and universities
  • Students who used their loans for undergraduate tuition
  • Students earning less that $125,000 (his plan references this number, but doesn’t offer any further details)

With this current information, there is no concrete way to know if loans will be completely forgiven, or if forgiven amounts would be taxed, or if borrowers would have defaulted loans removed from their credit history. It’s not the answer we want to give, but it’s what we know so far. Keeping our fingers crossed, though!

Forgiving federal student loans

Forgiveness, also known as cancellation or discharge of your loan, means that you no longer have to repay some or all of the money you borrowed. There are different kinds of forgiveness, cancellations, and discharges depending on your circumstances.

Forgiving private student loans

Private student loan forgiveness doesn’t exist, unless you become permanently disabled or die. Apologies for our bluntness (and morbidness). There are ways you can help ease the heavy burden of your private student debt through refinancing, deferment or forbearance. Talk to your lender about all the different options.

Loan forbearance vs. forgiveness

We’ve thrown around the term “forbearance,” so let’s explain the difference between that and forgiveness. Forbearance is when your payments are postponed or you temporarily pay a smaller amount. You have the choice to pay interest as it accrues, or you can let it accrue and add it to your loan principal balance at the end of your forbearance period. If you don’t pay the interest, you run the risk of your loan balance being higher overall.

The current state of student loan forgiveness

As of January 2021, the Biden administration has extended targeted student loan relief to specific borrowers instead of giving broad forgiveness to all. The Department of Education has reported loan discharges of $9.5 billion as of August, which affects more than 563,000 borrowers. They have also offered emergency relief due to the pandemic, including a suspension of loan payments, 0% interest rate, and stopped collections on all defaulted loans. And as of October 2021, they announced major changes to all Public Service Loan Forgiveness that would allow for a limited waiver to make it easier for people to get into the program. Borrowers must consolidate their loans into a direct loan and turn in a PSLF form before October 31, 2022 to benefit from this limited waiver.

What would $10,000 in student loan forgiveness do?

If Biden granted complete student loan forgiveness, it would affect 45.3 million borrowers with a federal student loan debt of $1.54 trillion. His plan, however,–calling for only $10,000 per borrower–would equal $429 billion canceled. We’ve broken down exactly how this could affect borrowers based on the amount of debt they have.

  • 15 million borrowers with $10,000 or less of student debt: This would help more than a third of all borrowers see their balance drop to $0. According to the Institution for College Access and Success, 7.9 million in this group owe less than $5,000 in student loans, and 7.4 million owe between $5,000 and $10,000. 
  • 19 million borrowers with $40,000 or less of student debt: According to federal data, about 19 million borrowers owe between $10,000 and $40,000 in student loans. Therefore, $10,000 in forgiveness could help lower the total amount they have to repay overall or make their end date a little closer.
  • 11 million borrowers with $100,000 or less of student debt: Let’s do some math. If $10,000 of loans were forgiven, a borrower repaying $100,000 at 5% interest would pay off their loan in 15 months. This affects about 8 million people who owe the government between $40,000 and $100,000.

What borrowers can do to pay down student loan debt

With so much up in the air, the uncertainty of when and how you’re going to pay back your student loans can feel incredibly overwhelming. Especially during a global pandemic! We’ve outlined a few suggestions for all the scary questions like “what happens if I don’t pay back my student loans on time, or if I don’t pay them at all?” Or “how can I make these payments if my income has changed?” These are common and valid questions, and here are all the answers

Our opinion: widespread student loan debt forgiveness is unlikely

Given the facts we have so far, it’s very unlikely that President Biden will grant broad forgiveness for student loans. We hate to be the bearer of bad news, but there are other possible outcomes that could come from his proposal.

Other outcomes that are more likely to happen from Biden’s 2022 budget proposal:

Biden’s 2022 budget proposal offers some of the original plans he introduced during his campaign that would provide relief for current and future student borrowers. And while we wait for these to pass both in the House and the Senate to become law, here’s what the proposal includes:

  • Increases in the Pell Grant & American Families Plan
  • More affordable college tuition
  • New revisions to the current income driven-repayment plans and public service loan forgiveness

The bottom line: don’t wait to pay off your student loans!

With the end of the forbearance period looming, borrowers should begin to plan ahead to make sure they can restart payments after May 1st. If you’ve still been paying your student loans throughout the forbearance period, then continue to do so! And if you haven’t but can afford to restart, you might want to consider resuming payments to save money on future interest and help pay off your loans quicker. If your financial situation is unstable, start by at least setting aside your monthly student loan payment now to see how it will affect your budget. And worst case, start discussing income-driven repayment plans.

Abigail Masterson

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