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Student Loan Forgiveness: What Could Go Wrong

When it comes to student loan forgiveness, here’s what could go wrong.

Here’s what you need to know — and what it means for your student loans.

Student Loans

President Joe Biden could be days away from canceling student loans for more than 40 million Americans. This could be life-changing news for student loan borrowers following the Covid-19 pandemic and continued economic uncertainty. What could possibly go wrong? Here are 5 things that could wreak complete havoc on wide-scale student loan forgiveness.

1. Biden could choose not to cancel student loans

First, Biden could choose not to enact wide-scale student loan forgiveness. That may be the last thing you want to hear, but it must be considered a possibility. There’s been speculation that Biden will cancel $10,000 of student loan forgiveness. Leaked internal documents from the U.S. Department of Education confirmed historic student loan relief, including $10,000 of student loan forgiveness for all federal student loan borrowers earning up to $150,000 of income. However, Biden could decide to forgo broad student loan forgiveness for several reasons. For example, Biden could fear wide-scale student loan cancellation would increase inflation, which is already at a 40-year high. Alternatively, Biden could be concerned about the cost to the federal government. Finally, Biden could feel that more student loan relief is unwarranted after nearly 30 months of the student loan payment pause.

2. Biden doesn’t have the legal authority to cancel student loans

Second, Biden may not have the legal authority to cancel student loans. While 3 deadines for student loans are approaching, Biden could be prohibited from using executive power to cancel student loan debt for millions of Americans. Progressive Democrats in Congress say Biden has broad legal authority in the Higher Education Act of 1964. According to Sen. Elizabeth Warren (D-MA), this landmark legislation grants the president the power to cancel unlimited student loans for an unlimited amount of student loan borrowers. Others, including Biden, have questioned the president’s legal authority on student loan forgiveness. For example, Congress didn’t explicitly grant this unfettered authority in the legislative text. Congress, not the executive branch, has the power of purse. Student loan cancellation is a form of spending, one argument goes. Therefore, the president doesn’t have legal authority —without prior congressional authorization — to decide unilaterally how the federal government spends money.

3. You don’t qualify for student loans

Third, Biden could enact wide-scale student loan cancellation. If Biden cancels student loans, here’s what could happen next. However, Biden student loan forgiveness doesn’t mean you qualify for student loan forgiveness. There are multiple ways for Biden to implement broad student loan cancellation by tailoring student loan relief to specific borrower constituencies. For example, Biden could exclude certain federal student loans (such as FFELP, Perkins and Parent PLUS Loans). Alternatively, Biden could impose an income threshold, which could exclude student loan borrowers with higher income. Biden’s decision on student loans also could be impacted by this new, blockbuster plan for student loan forgiveness.

4. Student loan cancellation is less than you think

Fourth, student loan cancellation could be less than you think. For example, some student loan borrowers still hope for $50,000 of student loan forgiveness. However, Biden could deliver $10,000 of student loan forgiveness, which is substantially less but consistent with his campaign platform. Alternatively, you may expect $10,000 of student loan forgiveness, but Biden decides to cancel $5,000 of student loans instead. Importantly, wide-scale student loan cancellation doesn’t mean you will get a check for $10,000 from the federal government. Rather, if there is $10,000 of student loan relief, your student loan balance would be lowered by $10,000, saving you a few hundred dollars each month in student loan payments.

5. No student loan cancellation and student loan payments restart

Fifth, student loan borrowers could face a nightmare scenario: no student loan cancellation and student loan payments could restart. Student loan borrowers have enjoyed continuous student loan relief since March 2020. However, Biden could end the student loan payment pause and wide-scale student loan cancellation. The student loan payment pause ends within days. Biden said he would decide on broad student loan cancellation before the expiration of the student loan moratorium on August 31, 2022. That said, the Biden administration hasn’t provided specific guidance on either the student loan payment pause or wide-scale student loan forgiveness. With no clear indication the pause will be extended, student loan borrowers should prepare now for the restart of student loan payments on September 1. Here are some of the smartest ways to pay off student loans faster:

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