What student loan forgiveness means for your student loans
Here’s what large-scale student loan forgiveness means for your student loans.
Here’s what you need to know.
President Joe Biden could announce his decision on large-scale student loan forgiveness at any time. Regardless of the president’s decision, more than 40 million student borrowers will be affected. Biden has said he will decide on student loan forgiveness before the student loan payment break ends on August 31, 2022. Let’s explore what student loan forgiveness might mean for you. Here are 4 things to know about large-scale student loan forgiveness.
1. Student Loan Forgiveness Could Be Life Changing
For some student borrowers, large-scale student loan cancellation could be life changing. For example, if the president cancels $50,000 in student loans for every borrower, approximately 36 million student borrowers would have all of their federal student loans forgiven. Progressive Democrats lobbied the president to enact a large-scale $50,000 student loan forgiveness. However, Biden is unlikely to cancel that amount of student loans. The president has always supported $10,000 in student loan forgiveness. That said, $10,000 student loan forgiveness can also be life changing for borrowers. Despite popular belief, student borrowers with lower student loan balances — like less than $10,000 — often struggle financially and have higher default rates. By canceling $10,000 in student loans, Biden could provide a financial lifeline to these student borrowers.
2. Student Loan Cancellation: Don’t Expect a $10,000 Check
If Biden enacts a full-scale student loan forgiveness, don’t expect a check for $10,000. Why? Unlike a Covid-19 pandemic stimulus check, the student loan forgiveness would be a reduction in the principal balance of your student loan. This means that you will not receive a physical check for the amount of any student loan forgiveness. For example, you will not receive a check if you have $100,000 in student loans and get $10,000 in student loan forgiveness. Instead, the US Department of Education would automatically reduce your student loan principal balance to $90,000. You will therefore not 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 all student borrowers. According to documents leaked by the US Department of Education, student loan forgiveness could be limited to specific borrowers. For example, large-scale student loan forgiveness could only be limited to federal borrowers. This means that borrowers with private loans will not qualify. That said, a plan proposed by 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 the large-scale student loan forgiveness if you earn income above these thresholds.
4. Don’t expect larger-scale student loan forgiveness
If Biden enacts large-scale student loan cancellation, don’t expect the president to again cancel student loans for every student borrower. Therefore, expect large-scale student loan cancellation to be a one-time event. That said, Biden will continue to implement targeted student loan forgiveness through programs like defending borrowers from repayment and forgiveness of public service loans. This week, Biden canceled $3.9 billion in student loans for 208,000. In the coming days, Biden will announce whether he will extend the student loan payment break for the seventh time. Even if Biden extends student loan relief, remember that the student loan payment pause won’t last forever. This is why developing a student loan repayment game plan is essential. Here are some of the best ways to get out of student loan debt and save money: