President Joe Biden is days away from potentially canceling student loans for more than 40 million student loan borrowers.
Here’s what you need to know — and what it means for your student loans.
Biden is days away from one of the most impactful decisions of his presidency — whether to enact wide-scale student loan cancellation for millions of student loan borrowers. The president confirmed that he would announce his decision on student loan forgiveness before the expiration of the student loan payment pause on August 31, 2022. With only days remaining until the end of historic student loan relief, student loan borrowers should expect an answer from Biden imminently.
Student loan forgiveness: what to expect
Student loan borrowers are wondering what to expect from student loan forgiveness. Importantly, the White House has said Biden hasn’t decided on wide-scale student loan forgiveness. He could cancel student loans for millions of borrowers, or Biden could choose not to enact student loan cancellation. If Biden cancels student loans, here’s what to expect based on internal documents on student loan forgiveness from the U.S. Department of Education (which are subject to change):
- $10,000 of student loan cancellation for federal student loans;
- all federal student loans would qualify for student loan relief, including Direct Loans; FFELP Loans, Perkins Loans, Parent PLUS Loans and Grad PLUS Loans;
- income threshold of $150,000 for individual student loan borrowers and $250,000 for families; and
- student loan cancellation in as early as 45 days for student loan borrowers whose income is on file with the U.S. Department of Education.
Progressive Democrats in Congress still want Biden to cancel $50,000 of student loans. However, Biden has never committed to cancel more than $10,000 of student loans. That said, these student loan borrowers could qualify for student loan forgiveness.
How Biden could cancel student loans
Leaked documents from the U.S. Department of Education include a proposal for student loan cancellation. However, the Education Department needs Biden’s approval to implement its proposed plan for student loan forgiveness. Biden wants to expand access to student loan forgiveness, simplify rules for student loan forgiveness, create a new plan for student loans, and make major changes to student loan forgiveness. One path to approval is through an executive order. As Sen. Chuck Schumer (D-NY) has quipped, Biden could approve broad student loan forgiveness with “the stroke of a pen.” Alternatively, Biden could use the rulemaking process for student loans through the Education Department. Whichever approach Biden selects, the president will seek to protect his decision from legal challenges that could thwart the implementation of broad student loan cancellation.
Blockbuster plan for student loan forgiveness
While Biden has yet to offer a detailed plan on broad student loan forgiveness, three Republicans in Congress have proposed a blockbuster, comprehensive plan to cancel student loans. Republicans have accused Biden of canceling $400 billion of student loans, and they want to end wide-scale student loan forgiveness and the student loan payment pause. Their proposed legislation would prohibit wide-scale student loan cancellation, end the Public Service Loan Forgiveness program and eliminate capitalized student loan interest. In contrast to Democrats, the Republican plan would change student loan repayment to be capped at repayment of a borrower’s principal student loan balance plus 10 years of student loan interest. Republicans also want to simply income-driven repayment by introducing a new, single plan similar to Income-Based Repayment. While Biden could oppose several facets of this proposed legislation, he could incorporate some features such as eliminating student loan interest capitalization and simplifying income-driven repayment.
Student loans: next steps
Will your student loans get canceled? The Biden administration hasn’t officially confirmed whether Biden will enact broad student loan forgiveness. The student loan payment pause ends in days. Will Biden extend student loan relief? Biden has remained silent regarding the prospect of a seventh extension of the student loan moratorium. Student loan borrowers hope the answer to both questions is yes, so they can avoid a nightmare scenario of no student loan cancellation and no extension of the student loan payment pause. Speculators assume Biden will extend student loan relief, and potentially cancel student loans, to rally Democrats for the midterm election. However, the Biden administration has remained silent on both policies. Without any guidance, student loan borrowers should prepare for the restart of federal student loan payments beginning on September 1, 2022. Here are some of the best ways to pay off student loans and save money:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)
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