Joe Biden wants to cancel student loans, but this must happen first.
Here’s what you need to know.
President-elect Biden reaffirmed yesterday his commitment to cancel $10,000 of student loans for student loan borrowers. That may sound like good news—and it may be— to Americans’ 45 million student loan borrowers who collectively owe $1.7 trillion of student loan debt. However, before you to celebrate student loan forgiveness, Congress first has to answer two very important questions:
How much student loan cancellation do I get?
Issue #1: how much student loan forgiveness
It’s clear that Biden wants Congress to cancel $10,000 of student loans. Importantly, Biden has said he thinks Congress, not the president, is the appropriate branch of government that has authority to cancel student loans. As a result, Biden says he will not be cancelling student loan debt through an executive order. If Congress cancels student loans, the first question is this: “How much student loan cancelation do I get?”
Currently, the answer is unclear. Congress has proposed multiple amounts of student loan forgiveness, ranging from $10,000 to $50,000 (and higher). The latest proposal from Sen. Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-NY) includes a plan to cancel $50,000 of student loans. That may not sound like a large delta, but it’s unclear how far Warren, Schumer and others in Congress will debate how much student loan forgiveness you may get. Biden has unwavered in his commitment to cancel $10,000 of student loans. Democrats may control the Senate and House, but that doesn’t automatically mean you’ll get student loan forgiveness. Effectively, Congress (which passes legislation) and Biden (who, as president, signs legislation) generally must agree on the amount of student loan forgiveness. it’s unlikely that Biden will support $50,000 of student loan debt cancellation. Congress could override any presidential veto, but Congress won’t have the necessary votes to override any legislation on student loans given the current composition of the U.S. Senate. Therefore, before you get any student loan cancellation, Congress and the president collectively need to finalize the total amount of student loan forgiveness.
Who qualifies for student loan forgiveness?
Issue 2: who gets student loan forgiveness
It has become increasingly clear that not everyone will get student loan forgiveness. That may be surprising to some because many have referred to student loan forgiveness in this exact way—that “everyone will get student loan cancellation” or “every borrower will get $10,000 of student loan forgiveness.” So, the big question is who qualifies to get student loan cancellation (and who won’t). For example, here are some ways that Congress could limit who qualifies:
Federal student loans vs. private student loans
The expectation is that only borrowers with federal student loans would be eligible to get student loan forgiveness. That said, the original Heroes Act—the stimulus package that House Democrats passed this year—initially included student loan forgiveness for private student loan borrowers.
Certain types of federal student loans
It’s possible that not every type of federal student loan will qualify for student loan forgiveness. For example, student loan forgiveness could be limited to those federal student loan owned by the U.S. Department of Education. If so, this means that borrowers with FFELP Loans or Perkins Loans potentially could be out of luck. If Congress includes student loans that the Education Department doesn’t own, then Congress may have to pay off student loans owned by financial institutions and investments, which may be complex than paying off the major student loan servicers.
Congress may impose an income limitation to cancel student loans. For example, Schumer and Warren’s proposal limits student loan forgiveness for borrowers who earn less than $125,000. The Heroes Act also limited student loan forgiveness only for borrowers who are “struggling economically.” Congress could choose either of these income limitations as they finalize a singular plan to cancel student loans.
Student Loan Cancellation
If you’re expecting student loan cancellation in the near-term, you may need to wait longer. There may be many potential changes for your student loans in 2021. Currently, however, Congress doesn’t have a universal plan for student loan forgiveness. Even if Democrats control Congress, that doesn’t make student loan forgiveness a foregone conclusion. Congress will likely debate how much student loan forgiveness and who qualifies. Progressive Democrats in Congress will push for higher amounts of student loan forgiveness for more student loan borrowers. Moderate Democrats may align with Biden’s plan. Republicans in the House and Senate likely will oppose student loan forgiveness. So, what does this mean for your student loans? The answer: Congress may not cancel student loans in the near-term. On January 20, 2021, Biden has said he will pause federal student loan payments beyond January 31, 2021. However, student loan forgiveness may take longer. Congress also has prioritized other policy goals like $2,000 stimulus checks, state and local aid and battling the Covid-19 pandemic. This may necessitate another stimulus package, which may not include any student loan forgiveness. Plus, student loan forgiveness was dropped from the last stimulus package so who’s to say it will be included in the next one?
How to pay off student loans faster
What’s the best way to pay off student loans? Student loan forgiveness may not be a foregone conclusion in the near-term. While Democrats control the White House and Congress, there may be differences in who qualifies and how much of your student loans get cancelled. This could delay student loan forgiveness. That’s why it’s important to understand your options for student loan repayment now. Start with these three options, all of which have no fees: