The latest major announcement on student loan forgiveness has 5 key takeaways.
Here’s what you need to know — and what it means for your student loans.
The Biden administration made a major announcement Tuesday that will help millions of student loan borrowers get student loan forgiveness and student loan relief. Here are the 5 biggest takeaways:
1. Millions of student loan borrowers will continue to get student loan forgiveness
President Joe Biden isn’t done cancelling student loans. It’s clear from this major announcement that Biden is committed to fixing a broken student loan repayment system. This includes increasing the amount of student loan cancellation and fixing administrative errors that have hurt student loan borrowers. (Biden will cancel student loans or extend student loan pause before August 31). The result is that more student loan borrowers will have access to student loan forgiveness. Plus, student loan forgiveness should happen sooner and more efficiently for borrowers with reduced bureaucratic roadblocks. This includes more automatic student loan forgiveness through data sharing with other federal agencies, reduced paperwork and easing of rules to be eligible for student loan forgiveness.
2. Student loan forgiveness after 20 years will become the norm
If you’re still paying student loans after 20 years, the Biden administration wants you to know that help is on the way. Student loans aren’t meant to be a financial death sentence. (Student loan cancellation and the student loan payment pause are confusing. Here’s what to know). Therefore, the Biden administration is focused on enrolling more student loan borrowers in income-driven repayment. With income-driven repayment plans such as IBR, PAYE, REPAYE and ICR, student loan borrowers pay their federal student loans based on their family size and discretionary income. As such, borrowers could pay as low as $0 a month. After 20 years, student loan borrowers can get student loan forgiveness for their college student loans. (That said, here’s who won’t qualify for $6.2 billion of student loan cancellation).
3. Avoid student loan forbearance
If your student loan servicer advised you to enroll in student loan forbearance, you may want to think twice. (Student loan relief: how to qualify for a “fresh start” on your student loans). Some student loan servicers have directed student loan borrowers to choose student loan forbearance over an income-driven repayment plan. As a result, these student loan borrowers have experienced higher student loan interest and higher total student loan balances. The Consumer Financial Protection Bureau (CFPB) and state attorneys general have sued student loan servicers for improperly steering borrowers into forbearance. As a result, borrowers in continued forbearance may have a higher likelihood of student loan delinquency or student loan default. In contrast, income-driven repayment offers borrowers who are struggling financially as low as $0 a month in student loan repayment. (If Biden cancels student loans, it likely happens before November).
4. More student loan payments will count toward student loan forgiveness
The U.S. Department of Education wants to make it easier for you to qualify for student loan forgiveness. (Biden still considering wide-scale student loan cancellation). As such, your past student loan payments that previously may have been disqualified for student loan forgiveness may now be eligible. Federal Student Aid will do a one-time revision for all Direct Student Loans and federally-managed FFELP loans. For example, any months in which student loan borrowers made federal student loan payments will now count toward income-driven repayment, regardless of student loan repayment plan. Similarly, any federal student loan payments made prior to student loan consolidation also will count. By counting previously ineligible student loan payments, borrowers can now get public service loan forgiveness and student loan forgiveness through income-driven repayment sooner.
5. No mention of student loan cancellation raises eyebrows
There was one major thing missing from this major announcement: any mention of wide-scale student loan cancellation. (Biden dropped student loan cancellation from his annual budget). The announcement included Biden’s accomplishments on student loan forgiveness and his proposal to double the size of Pell Grants. However, the Biden administration remained silent on any plans for wide-scale student loan cancellation. (Student loan cancellation may look different than you think). Instead, the Biden administration continues to focus on targeted student loan relief.
It’s clear that Biden is focused on improving student loan repayment, increasing access to student loan forgiveness, and directing more student loan relief for millions of student loan borrowers. For student loan borrowers who won’t qualify, however, it’s essential to know that student loan payments are scheduled to restart beginning on September 1, 2022. Here are some of the most popular ways to pay off student loans:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)