If President Joe Biden cancels student loans, student loan cancellation could look like this.
Here’s what you need to know.
Student Loans
Biden has asked the U.S. Department of Education to conduct a legal review of the president’s authority to cancel student loan debt. The outcome of that review, which is not completed but is expected within weeks, could help shape Biden’s decision whether to enact wide-scale student loan forgiveness. There are two main paths to student loan forgiveness. Here’s what could be inside that recommendation and what it means for your student loans:
Who may qualify for student loan cancellation
Despite generic calls to “cancel all student loans,” not everyone will get student loan forgiveness. That may come as a surprise, but there is no mainstream proposal to cancel student loans for every borrower. Like stimulus checks, there likely will be limitations on eligibility on student loan forgiveness. There have been various proposals floated that could determine who qualifies for student loan cancellation, although these could change as both Biden and Congress consider the various policy, legal and political ramifications of wide-scale student loan forgiveness.
Which student loans could be cancelled
Do you qualify for student loan forgiveness? When Biden and Congress refer to “cancelling student loans,” they’re referring to federal student loans. Federal student loans comprise more than 90% of outstanding student loan debt. More specifically, they’re referring to student loans owned by the U.S. Department of Education. In contrast, private student loans may be owned by lenders, banks or third party investors, and therefore are not owned by the federal government. The leading proposal for student loan forgiveness in Congress, which Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) proposed, applies only to federal student loans. Could Biden decide to cancel both private and federal student loan debt? Yes. However, there is no indication that he is considering student loan cancellation beyond federal student loans. The next question is whether FFELP Loans and Perkins Loans could be cancelled too. Most of these student loans are not owned by the U.S. Department of Education. Most FFELP Loans are owned by financial institutions and third party investors, while Perkins Loans are issued by colleges and universities. If you have a FFELP or Perkins Loan, you could consolidate these student loans into a Direct Consolidation Loan. Contact your student loan servicer for details. A Direct Consolidation Loan would convert these student loans into a Direct student loan, which would be the most likely type of federal student loan to be forgiven.
Student loan cancellation could be limited by income
Opponents of student loan cancellation have argued that wide-scale student loan forgiveness, without a cutoff based on income, invariably could benefit wealthy student loan borrowers. This is another reason why everyone will not get their student loans cancelled. For example, Schumer and Warren want to limit student loan forgiveness to borrowers with an annual income up to $125,000. Biden wants student loan cancellation three ways, and has supported that same income threshold ($125,000) for other types of student loan forgiveness. However, Biden has not publicly endorsed a specific income threshold for wide-scale student loan forgiveness. The next issue will be whether that income threshold will be lowered. For example, stimulus checks in the latest stimulus package had an income threshold of $75,000 for each individual, which is $50,000 less than the proposed income threshold in Schumer and Warren’s legislative proposal.
How much student loan cancellation
Some members of Congress, such as Sen. Bernie Sanders (I-VT), have called for total student loan cancellation. This means that all $1.7 trillion of private and federal student loan debt would be cancelled. However, that won’t happen. The president doesn’t support it, and neither does Schumer or Speaker of the House Nancy Pelosi (D-CA). While Schumer and Warren support student loan cancellation up to $50,000, there’s no indication that Biden is actively considering student loan forgiveness of $50,000. Biden has supported cancelling $10,000 of student loans immediately, and has called on Congress to cancel student loan debt. Biden has said he doesn’t believe the president has unilateral authority to enact wide-scale student loan forgiveness by executive order.
Student loan cancellation: next steps
The memo from the U.S. Department of Education also will address other aspects of student loan forgiveness, including the president’s legal authority to cancel student loans unilaterally without further congressional authorization. The memo also could include recommendations regarding student loan cancellation, alternative ways to provide student loan relief in addition to student loan cancellation, and arguments for and against student loan debt cancellation. If Biden cancels student loans by executive order, the base case assumption is $10,000 of student loan forgiveness, based on his public comments as a presidential candidate and as president. Alternatively, there could be income-based student loan cancellation beyond $10,000. If he doesn’t have legal authority, then Congress would need to pass legislation. Currently, there are not enough votes to support legislation with up to $50,000 of student loan forgiveness, so legislators would need to propose an amended bill.
There’s no guarantee there will be wide-scale student loan cancellation. If there is, you may not qualify. Therefore, if you don’t get some student loan forgiveness, make sure you have a student loan game plan. Here are some potential options to consider to save money:
- Student loan refinancing (lower interest rate, lower monthly payment)
- Income-driven repayment plans (lower monthly payment for federal loans)
- Public service loan forgiveness (student loan forgiveness for federal loans)
Student Loans: Related Reading
Biden wants student loan cancellation 3 ways
If $50,000 of student loans are forgiven, this is what happens
Student loan cancellation could forgive student loans for 36 million
Student loan forgiveness means this for student loan cancellation
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April 26, 2021 at 11:00PM
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