At President Joe Biden’s house student loan policies is the idea of canceling student loans. Biden wants to tackle student loan cancellation from two angles: one-time relief canceling $ 10,000 in debt for all federal student loan borrowers and a permanent cancellation option of $ 10,000 per year for borrowers engaged in national or community services.
Biden’s proposals have yet to reach Congress, but the idea of canceling student loans has been popular among several Congressional Democrats. That said, there are some important caveats with canceling student loans. Here is what you need to know.
What canceling a student loan won’t do
Current discussions of a student loan cancellation plan do not include a plan to get rid of all student debt now and forever. It has many limitations and restrictions and will not solve all student borrower debt problems.
It will not cancel all debts
It’s easy to assume that canceling a student loan means eliminating all student debt, but it won’t. In 2020, the amount of student debt stood at over $ 1.5 trillion, which would be a hefty bill for the government to pay.
Biden discussed the cancellation of $ 10,000 in student loan debt per borrower, while others, like Sen. Chuck Schumer, pushed for forgiveness $ 50,000 in student debt per borrower. If you are in the tens of thousands of dollars in debt, you may still have student loans owing, even if the cancellation measures are passed.
It won’t help past or future borrowers
Biden’s proposal to pay $ 10,000 for all borrowers would be part of the pandemic relief measures. This partial forgiveness would be offered all at once. It would not apply to those who have already paid off their student debt, nor would it offer forgiveness to future borrowers.
A similar situation is true for the current $ 10,000 pardon for borrowers participating in the public service – most likely, this pardon would not apply retroactively.
It may not apply to all current borrowers
Not all borrowers will be eligible for forgiveness of their student loan. On the one hand, private student loans are not included in any of the current proposals, and are unlikely to be in the future. Additionally, there may be an income threshold for forgiveness – meaning that if you earn more than a certain amount, you might not qualify.
It won’t change the price of college
While Biden has discussed the need for cheaper or free college education, there are currently no plans in place for an initiative like this. We’re more likely to see a plan go through Congress that waives some of the student loan debt rather than one that makes college education cheaper, so borrowers will continue to take on debt even if the forgiveness is accepted.
How to manage your student loans without forgiveness
It’s hard to say what will happen with student loans in the future, as Biden has said he will not be enacting a student loan forgiveness plan by executive order and wants Congress to pass the plan. The feasibility of such a plan is still uncertain, but there are a few things you can do to manage your student loans in the meantime.
Apply for a student loan repayment if you qualify
Borrowers with loans from institutions that have engaged in default may be able to have their loans canceled. On March 18, 2021, the US Department of Education streamlined the process for borrowers in this situation to receive assistance with so-called “defending the borrower against repayment. Under the previous administration, many borrowers who qualified for the provision did not obtain the promised loan release.
If this applies to you, you should receive a notification from the Ministry of Education within the next few weeks. You can learn more about eligibility for this type of loan forgiveness at Federal Student Aid website.
Take advantage of the interest-free period
Most federal student loans are currently exempt from interest charges and required payments. These conditions will remain in force at least until September 30, 2021.
If you can, use the interest-free period as an opportunity to move forward with your student loans. Pay as much as you can now before interest starts accumulating again, or spend the money you would pay on other debt, including private student loans.
Request a different repayment plan
While federal student loan borrowers are automatically enrolled in the standard 10-year repayment plan, you have other options if you have difficulty with monthly payments, including income-based repayment plans. These plans use your income and the size of your family to create a student loan repayment plan for you. After 20 or 25 years (depending on which plan you choose), the rest of your student loans will be canceled.
There are also student loan forgiveness plans for borrowers in certain careers. These plans included forgiveness of student loans for teachers and Public Student Loan Forgiveness (PSLF) plans. Consider applying to one of these programs if you are a teacher or have a career in the public service.
Also note that any student loan debt canceled by December 31, 2025 not to be considered taxable income. This change is part of the American Rescue Plan and includes debt forgiven through any federal student loan forgiveness program.
Refinance your loans
Federal and private student loans can be refinanced by private lenders. While refinancing your federal loans will cause you to lose the current 0% interest period, it might be a good idea to refinance your private loans. Refinance your private student loans could help you get a lower interest rate or a longer repayment period, which would lower your monthly payment.
Use the stay or abstention
If you’re having trouble repaying your student loan, consider asking stay or abstention with your lender. Both allow you to forgo making payments on your student loans, although interest may continue to accrue. Most federal loans are automatically forborne until September 30, 2021, but forbearance options for private loans vary by lender.