There is good news for student loan borrowers.
Here’s what you need to know – And what this means for your student loans.
The biggest takeaway from President Joe Biden’s surprising decision to extend student loan relief by another 90 days not necessarily what you think, Yes, as of May 1, 2022, student loan borrowers will not have to make any federal student loan payments. Yes, student loan borrowers will have no new interest on their federal student loans. Yes, there will be no collection of student loans in default through wages or Social Security checks. However, there is another huge benefit for student loan borrowers that is less visible. let’s explore.
Student loan cancellation: $15 billion for borrowers
Student loan relief due to the COVID-19 pandemic, which Congress first passed through the CARES Act stimulus package in March 2020, has another hidden benefit for more than 40 million student loan borrowers: student loan cancellation. (Student loans have been put on hold, but here are 6 things to do now). With the extension of student loan relief, no new interest will accrue on federal student loans. The U.S. Department of Education estimates that student loan borrowers will collectively save $5 billion a month in interest costs. With a three-month moratorium of student loan payment breaks, which equates to $15 billion of total student loan cancellations. This is in addition to the $110 billion student loan cancellations that student loan borrowers will receive from March 2020 to January 31, 2022, the date after which Biden’s second extension of student loan relief was due to end. (Here’s who’s eligible for student loan forgiveness right now).
Student loan relief hides student loan cancellation
In addition to the $5 billion a month in interest savings, student loan borrowers will be able to achieve student loan forgiveness faster by making fewer mandatory federal student loan payments. (Here’s how to get student loan forgiveness during the Biden administration). During each month of temporary student loan forbearance, student loan borrowers will receive “credits” for student loan payments — even if they haven’t made one. So, for example, paying student loans to meet public service loan forgiveness and income-driven repayment requirements will count toward student loan payments. Overall, federal student loan borrowers may qualify for federal student loan payments of more than two years, even if they haven’t made any payments. In the case of public service loan forgiveness, this is 20% of the total payment required to receive student loan forgiveness. (More student loan relief may be coming).
Is It Really Student Loan Cancellation?
Some may not label this type of student loan forgiveness as “real” student loan cancellation. (Biden extended student loan relief, but advocates really want to cancel student loans). They recognize interest savings or nonpayment counts. However, he argues that it differs from direct, broad-scale student loan cancellation. While this is not mass student loan cancellation in the traditional sense, it will save student loan borrowers substantial money towards their student loans. (Is student loan cancellation next?) Remember, the $125 billion student loan cancellation as a result of Covid-19 student loan relief is in addition to the $12.7 billion student loan cancellations Biden had done over the past year. That targeted student loan cancellation offers student loan forgiveness to public servants, student loan borrowers with total and permanent disability, and student loan borrowers misled by their college or university.
Student loan relief won’t last forever. Make sure you have a game plan for student loan repayment before student loan relief ends. Here are some popular ways to pay off student loans faster:
Student Loans: Related Reading
Is Student Loan Canceling Next?
Student Loans Have Been Withheld, But Here Are 6 Things To Do Now
Do This While Waiting for Student Loan Forgiveness
Biden Extends Student Loan Relief, But Advocates Really Want To Cancel Student Loans