Here’s what he’ll consider if President Joe Biden decides to cancel student loans.
Here’s what you need to know.
Biden is under direct pressure to cancel student loans on a wider scale for more than 40 million student loan borrowers. Progressive members of Congress and student loan advocates want the president to use an executive order to grant one-time student loan forgiveness of up to $50,000 for federal student loan borrowers. To date, Biden has not supported $50,000 of student loan cancellation or broad-scale student loan forgiveness by executive order. Biden, however, has urged Congress to pass legislation that would cancel student loans of up to $10,000. (Here are 5 big changes to student loans in 2022).
If Biden decides to act on a broad-scale student loan forgiveness, he can evaluate at least 7 things to reach a final decision:
- student loan cancellation cost
- state of the american economy
- status of covid-19 pandemic
- Impact on student loan borrowers if there is no student loan forgiveness
- student loan cancellation
- Other Ways to Provide Student Loan Relief
- impact on midterm elections
1. Total Cost of Canceling Student Loans
In considering any potentially wide-scale student loan cancellations, the top cost would be for the Biden administration. There are many proposals for student loan borrowers to cancel student loans. The total cost depends on several factors, which may include the number of student loan borrowers, how much student loan debt is canceled, and what limits, if any, apply. In any of these scenarios, large-scale student loan cancellation could cost hundreds of billions of dollars and potentially $1 trillion. (Student loans are on hold, but here are 6 things to do now).
Total Student Loan Cancellation: $1.5 Trillion Cost
Bernie Sanders (I-VT) has proposed the cancellation of all private and federal student loan debt. If Biden canceled all federal student loan debt — which is highly unlikely to happen — the total cost would be about $1.5 trillion.
Student loan cancellation costs $50,000: $1.0 trillion
Senate Majority Leaders Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) have proposed canceling student loans of up to $50,000 for federal student loan borrowers who earn up to $125,000 a year. (Here’s who qualifies for student loan forgiveness right now). The US Department of Education estimates that it will completely cancel student loans for 36 million borrowers. If Biden did implement this proposal, which is highly unlikely, the total cost could be nearly $1 trillion.
$10,000 student loan cancellation: $400 billion cost
Biden’s plan to cancel student loans of up to $10,000 could cost about $400 billion.
Alternatively, if Biden enacted student loan cancellation, he could choose a different amount of student loan forgiveness and limit the number of student loan borrowers who qualify.
2. Student Loan Forgiveness: The State of the US Economy
Biden will evaluate the health of the US economy before making any decision on massive student loan forgiveness. The Biden administration has been arguing for months that the economy is recovering. That said, Biden’s Build Back Better legislative agenda has stalled in Congress, but it remains a key component to helping economic growth. If Biden cancels student loans on a wider scale, it could be seen as conflicting with his economic message. On one hand, student loan cancellation will be given to help student loan borrowers who are struggling financially. The economy, on the other hand, is improving, which would suggest that no more student loan relief will be needed. (More student loan relief may be coming).
3. Student Loan Waiver: COVID-19 Pandemic Situation
Before implementing any student loan cancellations, Biden will also consider the progress of the Covid-19 pandemic, including the impact of the Covid-19 pandemic. The COVID-19 pandemic affects student loan borrowers in many ways, both from a health and economic perspective. With daily Covid-19 cases exceeding 1 million, Biden will consider whether cases peak and whether Covid-19 will continue to impact student loan borrowers’ ability to pay off their student loans.
4. Impact on Student Loan Takers in the absence of student loan forgiveness
Is Student Loan Canceling Next? Maybe, but Biden will also consider what will happen if widespread student loan forgiveness doesn’t happen. Some say there will be significant student loan default. For example, citing a recent study, Warren cautions that 89% of student loan borrowers are not financially prepared to resume student loan payments. (Biden extended student loan relief, but advocates really want to cancel student loans). Warren also states that millions of student loan borrowers could default on their student loans if student loan debt is not canceled. In his announcement to extend student loan relief for the third time, Biden encouraged student loan borrowers to do these three things. These strategies show that the president is encouraging student loan borrowers to pursue student loan repayment strategies beyond restarting student loan payments and canceling student loans. (Student loans have been put on hold, but here are 6 things to do now).
5. Cancellation of Student Loans by Today
While progressives have criticized Biden for not implementing student loan cancellation on a broad scale, Biden has canceled more student loans than any president in US history. (Here’s how to get student loan forgiveness during the Biden administration). Since becoming president last year, Biden has canceled $12.7 billion in student loans. This includes student loan cancellations for public servants, student loan borrowers with total and permanent disability, and student loan borrowers who were misled by their college or university under the borrower defense under a repayment rule. (Student loan borrowers will now get $15 billion in student loan cancellation). While Biden has focused on targeted student loan cancellation, he will weigh this approach when considering student loan cancellation on a broader scale. While progressives would argue that there is no limit to the amount of student loan cancellation that Biden can enforce, Biden will likely balance the amount of federal spending through pre- and ongoing student loan cancellations.
6. Other Ways to Provide Student Loan Relief
Instead of mass canceling student loans, Biden may be looking at other ways to offer student loan relief. First, though less likely, Biden could extend student loan relief beyond May 1, 2022. Second, Biden could encourage more student loan borrowers who are struggling financially to enroll in an income-driven repayment plan. Third, Biden may make more resources available through the US Department of Education to help student loan borrowers transition to federal student loan repayments. Fourth, Biden could create a grace period for student loan borrowers when student loan payments resume, with special consideration for student loan borrowers who are in student loan default or student loan delinquency.
7. Student Loan Forgiveness: Impact on Mid-Term Elections
Biden will also consider the impact of student loan forgiveness on the midterm election in November 2022. Biden has been in politics for nearly 50 years and understands elections and the political landscape very well. Progressives in Congress say enacting student loan forgiveness is necessary if Democrats want to win the midterm elections. He argues that failure to cancel student loans of up to $50,000 would mean Democrats would lose the midterm election. Others say student loan forgiveness may be the reason Democrats will lose the midterm elections. While student loan cancellation in Congress is popular among borrowers and progressives, wide-scale student loan cancellation is not universally popular with American voters or in Congress. Progressives support broad-scale student loan cancellation, but some moderate and independent voters – particularly in swing districts – may view broad-scale student loan cancellation as a sign of wealth redistribution and a lack of individual responsibility. No matter whether you support or oppose student loan forgiveness on a broad scale, Biden is sure to consider the political implications.
Student loan forgiveness won’t last forever. Student loan cancellation is not guaranteed. Therefore, make sure you understand your student loan repayment options. Here are some popular ways to pay off student loans:
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