Well, you may not get that student loan forgiveness after all.
Here’s what you need to know.
Student Loan Forgiveness
The HEROES Act – the $3 trillion new stimulus spending bill proposed by House Democrats – includes multiple benefits, including a second stimulus check for $1,200 for each individual for each individual ($2,400 for married couples) and $1,200 for each dependent (with a maximum of three dependents). The HEROES Act originally included a student loan forgiveness proposal to cancel $10,000 of student loan debt as well as fixes to the Public Service Loan Forgiveness program. Through an amendment, House Democrats have now reduced the student loan forgiveness proposal.
Through an amendment to the HEROES Act introduced by Rep. Nita Lowey (D-NY), there are several changes to the student loan forgiveness proposal:
Private Student Loans: Student Loan Forgiveness
Among other changes, the amendment now requires at least one of the following to qualify for private student loan forgiveness of $10,000:
- Distressed Borrowers: Student loan forgiveness for private student loans won’t apply to every borrower. Rather, only “economically distressed borrowers” can benefit.
- Economically Distressed: This now means that if a private student loan borrower had a federal student loan, that borrower would have a monthly payment of $0 through an income-contingent repayment plan (ICR) or income-based repayment plan (IBR).
- Default on Student Loans: The borrower was in default on a private student loan. This is typically 270 days past due.
- Delinquent Payment: The borrowers was at least 90 days past due.
- Forbearance or Deferment: The borrower has private student loans in forbearance or deferment for financial or other reasons.
Originally, the HEROES Act would have given $10,000 of private student loan forgiveness for every borrower up to your private student loan balance (but not more).
Federal Student Loans: Student Loan Forgiveness
Among other changes, the amendment now requires at least one of the following to qualify for federal student loan forgiveness of $10,000:
- $0 Monthly Payment: To receive student loan forgiveness, a borrower of federal student loans must have a $0 monthly payment through an income-contingent repayment (ICR) plan or an income-based repayment (IBR) plan. A $0 monthly payment is based on your discretionary income, family size and state of residence, for example.
- Default: The borrower defaulted on their federal student loans. This means that a borrower has not made a federal student loan payment in at least 270 days.
- Delinquent Payment: The borrower is at least 90 days past due on federal student loan payments.
- Deferment: A borrower deferred their federal student loans due to an economic hardship or due to cancer treatment.
- Forbearance: A borrower has their federal student loans in forbearance.
Originally, the HEROES Act would have given you $10,000 of student loan forgiveness. This is similar to proposal from Senate Democrats that would provide $10,000 of student loan forgiveness, but much smaller than a House Democrats proposal that called for $30,000 of student loan forgiveness.
Student Loan Forgiveness: Why The Change?
There are several reasons why these changes were to the student loan forgiveness proposal. Here are the two most likely reasons:
- “Dead On Arrival”: Republicans and the president have called the HEROES Act “dead on arrival,” meaning it has no chance of becoming law in its current form. By reducing the student loan forgiveness benefit, House Democrats would limit spending and provide less overall student loan debt relief.
- Help Distressed Borrowers: Despite popular belief, borrowers who default at the highest rate are not the ones with the largest student loan balances. Rather, they are typically borrowers who owe less than $10,000, or in some cases, less than $5,000. By limiting the definition of eligible student loan borrowers to receive student loan forgiveness, House Democrats would help those, in particular, who are facing the largest financial struggle. However, in the process, millions of other student loan borrowers would not be able to participate.
Does this mean the HEROES Act will now become law?
No. The amendment will reduce the number of student borrowers who would be eligible for student loan forgiveness. This means that potentially millions of student loan borrowers would not receive student loan forgiveness, if the HEROES Act becomes law. While this amendment will reduce overall spending, it’s likely not enough to persuade Congress to pass the HEROES Act in its current form. Could there be a second stimulus check or other economic benefits in a new stimulus bill? Yes, but the new stimulus package may look different than the HEROES Act looks today.
Student Loan Repayment Options
What’s the best way to pay off student loans faster? Start with these four options, all of which have no fees: