January 11, 2021

How To Handle Biden’s Disappointing Student Loan Forgiveness Plan

How To Handle Biden's Disappointing Student Loan Forgiveness Plan


Politicians love to make sweeping promises when it comes to forgiving all student loan debt, but their claims aren’t necessarily rooted in reality. In fact, the most recent proposals for student loan debt forgiveness would only wipe away a portion of debt for millions who qualify. 

Specifically, President Biden’s plan could erase as little as $10,000 in student loan debt per borrower (if any at all). And even the most robust suggested amount we have heard of, which was outlined in a press release from Senate Democratic Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA), only asked for $50,000 in immediate forgiveness. 

But, what if you have more debt than that? 

Unfortunately, millions of borrowers find themselves in this position. 

In fact, 2.5 million borrowers currently have $60,000 to $80,000 in student debt, 1.3 million borrowers have $80,000 to $100,000 in student debt, and 2.2 million borrowers have between $100,000 and $200,000 in student debt. Amazingly, 800,000 borrowers even have more than $200,000 in student loan debt to pay off.

When Student Loan Forgiveness Isn’t Enough

We all know any student loan forgiveness plan will have to pass some hurdles to become the law of the land, and that it’s likely no forgiveness will come to fruition at all. Still, there is definitely a possibility it could happen, and that’s especially true since Democrats gained control of the Senate.

Either way, students with a lot of student loan debt should be planning ahead whether they get forgiveness or not. 

For starters, borrowers should continue doing what they have done all along — keeping up with payments on their private student loans. While federal student loans still don’t require any payments and won’t accrue any interest through January 31, 2021, borrowers should focus on making on-time payments on all their federal student loans after that. 

Other than that, all anyone can do is wait. While student loan forgiveness is definitely on the next administration’s agenda, any plan could take months or even years to take shape. Plan on making payments as usual during that time.

Other Tips To Deal With Massive Student Loan Debt

If you’re someone who has a significant amount of student loan debt, you should also know about alternatives that may help you pay down debt faster or make payments more affordable.

If student loan forgiveness is going to come up short (or if it never happens at all), you should consider the following options for your loans:

Income-Driven Repayment Plans

If you owe a lot of money on your federal student loans and you need a more affordable monthly payment, look into income-driven repayment plans like Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income Contingent Repayment (ICR).  

These plans let you pay just a percentage of your discretionary income for 20 to 25 years before forgiving your debt completely. And if your income is low enough, your payment on an income-driven plan could even be $0.

Look At Existing Loan Forgiveness Options

While income-driven repayment plans are open to most borrowers with federal student loans, there are other student loan forgiveness plans that can work for individuals in specific career fields. For example, Public Service Loan Forgiveness (PSLF) can help you have all your remaining loan balances forgiven if you work in an eligible public service position and make payments on an income-driven repayment plan for 10 years. 

Other types of plans that offer forgiveness are available for teachers, nurses, lawyers, military members, and plenty of other professions. Some are offered through the federal government, while others are offered through individual states, colleges and universities, and private institutions.

Pick A New Repayment Plan

According to Ashley Morgan, a debt and bankruptcy attorney in northern Virginia, worried borrowers can also change up their repayment plan to a new option that lets them pay less every month. Federal student loan payments are automatically based on a standard ten-year repayment plan, yet there are many payment options for federal loans that spread out your payments over a longer timeline.

For example, an extended repayment plan lets you make payments on federal student loans for 25 years, and payments can be fixed or graduated.

Refinance Your Student Loans

Finally, Morgan notes that student loan refinancing is especially popular right now due to record low interest rates. With a loan platform like Credible, for example, student loan refinancing rates can be as low as 2.70% as of this writing. 

“This can often be a good option for private student loans or people who are certain they will be paying off their loans in a five to 10 year period,” she says.

However, you should know you normally need good or excellent credit (or a cosigner with good credit) to qualify for student loan refinancing with the best rates.

Further, Morgan and other experts caution borrowers about refinancing federal student loans since you will instantly lose the option to use an income-driven repayment plan as well as protections like deferment and forbearance. Refinancing with a private lender also means giving up the chance to pursue Public Service Loan Forgiveness (PSLF), which is only applicable to federal student loans.

The Bottom Line

When it comes to student loan debt, you’ll be better off if you refuse to become complacent. 

Financial attorney Leslie Tayne says that, even if the forbearance is extended or partial loan balances are forgiven, it’s an excellent idea to start preparing for the worst-case scenario now. This is especially true if you’re worried about keeping up with federal loan payments in 2021. 

“If you need to contact your loan servicer, the sooner, the better,” she says. According to Tayne, wait times are going to increase when payments resume since call centers will most certainly be bombarded with loan inquiries.

Tayne also says you should try not to get discouraged if you’ll be paying off student loans for a few decades, especially if you have a large balance to deal with. 

Paying off your loan balances may wind up being a marathon, even if you wish you had a sprint.



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