President Joe Biden could cancel student loans while ending the student loan payment pause.
Here’s what you need to know — and what it means for your student loans,
Here’s a scenario that hasn’t been widely considered. It’s possible that Biden could extend the student loan payment pause and won’t cancel student loans. This scenario is one potential outcome, and would provide student loan borrowers with an unprecedented sixth extension of student loan relief. However, despite lobbying from congressional Democrats, student loan borrowers wouldn’t get any student loan cancellation. Here’s another scenario that has received less attention:
- Biden could end the student loan payment pause;
- Student loan payments restart after May 1, 2022; and
- Biden cancels up to $10,000 of student loans.
(Biden should decide student loan payment pause and student loan cancellation today)
Biden could end the student loan payment pause
Biden could end the student loan payment pause by not extending student loan relief. (Biden drops student loan cancellation from budget). Since March 2020, student loan borrowers have not been required to pay any federal student loan payments, federal student loan interest rates have been temporarily set to 0% with no new interest accrual, and collection of student loans in default have been halted. Since Biden has become president, federal student loan borrowers haven’t been required to pay a single dollar of federal student loan payments. Since March 2020, student loan borrowers collectively saved more than $120 billion as a result of the student loan payment pause. Progressive Democrats and hundreds of civic and non-profit organizations want Biden to extend the student loan payment pause. They believe that student loan borrowers need continued student loan relief in the wake of the Covid-19 pandemic and the prospect of an uncertain economy. Several Republicans have urged Biden to end the student loan payment pause immediately. They argue that the cost of student loan relief is prohibitive for the federal government, and that this student loan relief is “reckless.”
(A new proposal would extend student loan payment pause and cancel student loans).
Student loan payments could restart after May 1, 2022
If Biden doesn’t extend the student loan payment pause, then student loan borrowers should expect student loan payments to restart after May 1. Plus, interest rates on federal student loans will reset from 0% from the temporary payment pause to a borrower’s regular interest rate from before the Covid-19 pandemic. Most federal student loans have a fixed interest rate, which means borrowers won’t be impacted by the Federal Reserve raising interest rates. However, when student loan payments restart, student loan interest will start to accrue again on your federal student loans.
(Student loan cancellation and the student loan payment pause are confusing. Here’s what to know).
Biden cancels $10,000 of student loans
While Biden could end the student loan payment pause, he could cancel up to $10,000 of student loans for certain student loan borrowers. (Last week, Biden said he would cancel $6.2 billion of student loans). This wouldn’t be wide-scale student loan cancellation in the traditional sense, meaning most or all student loan borrowers would get student loan forgiveness. Rather, as one student loan company CEO recently argued, Biden could cancel student loans for student loan borrowers who are struggling financially. While “struggling financially” would need to be defined, the definition could include, for example, low-income earners, student loan borrowers who are unemployed, or student loan borrowers in student loan delinquency or student loan default. There are still logistical and legal questions regarding Biden’s authority to enact such student loan cancellation. Alternatively, Biden could propose such student loan cancellation and ask the US Department of Education and Congress to consider the details. This may not be a perfect solution for some student loan borrowers and legislators who want Biden to enact up to $50,000 of student loan cancellation. That said, it could end uncertainty about student loan cancellation, while also targeting student loan relief for student loan borrowers who need it most. Biden has canceled $17 billion of student loans since becoming president.
(Here’s who won’t qualify for $6.2 billion of student loan cancellation)
Student loans: next steps
There are various near-term combinations that Biden could consider regarding the student loan payment pause and student loan cancellation. Progressive Democrats want an extension of the student loan payment pause and immediate student loan cancellation of up to $50,000. Several Republicans want to end the student loan payment pause and most Republicans oppose wide-scale student loan cancellation. Biden has extended student loan payment pause three times already. A long-term supporter of $10,000 of student loan forgiveness, Biden could end the student loan payment pause, but still target student loan cancellation for student loan borrowers most in need.
Student loan payments are scheduled to restart soon. Here are some smart ways to pay off your student loans:
Student Loans: Related Reading
Here’s who won’t qualify for $6.2 billion of student loan cancellation
New proposal would extend student loan payment pause and cancel student loans
Biden could extend the student loan payment pause forever
Student loan refinancing rates just got ridiculously cheap
Credit: www.forbes.com /