President Joe Biden could cancel student loans while ending the student loan payment hiatus.
Here’s what you need to know — and what it means for your student loans.
Here is a scenario that has not been widely considered. Biden may extend the student loan payment break and not cancel student loans. This scenario is a potential outcome and would provide student borrowers with an unprecedented sixth extension of student loan relief. However, despite lobbying by congressional Democrats, student borrowers would not get any student loan forgiveness. Here is another scenario that has received less attention:
- Biden could end student loan payment pause;
- Student loan repayments resume after May 1, 2022; and
- Biden forgives up to $10,000 in student loans.
(Biden is expected to decide today to suspend student loan payments and cancel the student loan)
Biden could end student loan payment hiatus
Biden could end the student loan payment pause by not extending student loan relief. (Biden removes the student loan cancellation from the budget). As of March 2020, student borrowers are no longer required to make federal student loan payments, interest rates on federal student loans have been temporarily set at 0% with no further interest accrual, and student loan collections in default has been interrupted. Since Biden became president, federal student loan borrowers have not been required to pay a single dollar in federal student loan repayments. Since March 2020, student borrowers have saved collectively more than 120 billion dollars following suspension of student loan payments. Progressive Democrats and hundreds of civic and nonprofit organizations want Biden to extend the student loan payment break. They believe student borrowers need continued student loan relief in the wake of the Covid-19 pandemic and the prospect of an uncertain economy. Several Republicans have urged Biden to immediately end the student loan payment pause. They argue that the cost of student loan relief is prohibitive to the federal government and that such student loan relief is “reckless.”
(A new proposal would extend the student loan payment break and cancel student loans).
Student loan repayments could resume after May 1, 2022
If Biden does not extend the student loan payment pause, student loan borrowers should expect student loan payments to resume after May 1. rate before the Covid-19 pandemic. Most federal student loans have a fixed interest rate, which means borrowers won’t be affected by interest rate increases from the Federal Reserve. However, when student loan payments start again, student loan interest will begin to accrue on your federal student loans again.
(Student loan cancellation and student loan payment suspension are confusing. Here’s what to know).
Biden cancels $10,000 in student loans
While Biden could end the student loan payment pause, he could forgive up to $10,000 in student loans for some student borrowers. (Last week, Biden announced he would forgive $6.2 billion in student loans.) This would not be large-scale student loan forgiveness in the traditional sense, meaning that most or all student borrowers would get student loan forgiveness. Instead, as a student loan company CEO recently argued, Biden could cancel student loans for student borrowers who are in financial difficulty. Although it is necessary to define “in financial difficulty”, the definition could include, for example, people with low incomes, student borrowers who are unemployed, or student borrowers in default or default. There are still logistical and legal questions regarding Biden’s authority to enact such student loan forgiveness. Alternatively, Biden could propose such a student loan forgiveness and ask the U.S. Department of Education and Congress to review the details. That may not be a perfect solution for some student borrowers and lawmakers who want Biden to enact up to $50,000 in student loan forgiveness. That said, it could end the uncertainty surrounding student loan forgiveness, while also targeting student loan relief for those student borrowers who need it most. Biden has canceled $17 billion in student loans since becoming president.
(Here’s who won’t qualify for $6.2 billion in student loan forgiveness)
Student loans: next steps
There are various short-term combinations Biden could consider regarding student loan payment suspension and student loan forgiveness. Progressive Democrats want an extension of the student loan payment pause and immediate student loan forgiveness of up to $50,000. Several Republicans want to end the student loan payment pause, and most Republicans oppose large-scale student loan cancellation. What could Biden do next? Everyone has an opinion. However, one option that has received less attention is this: Biden could end the student loan payment pause, but still target student loan forgiveness for student borrowers who need it most. Biden could choose to extend the payment break and cancel student loans (or choose to do neither). However, ending the student loan payment pause and canceling student loans for needy student borrowers is an option the president could consider.
Student loan repayments are expected to resume soon. Here are some smart ways to pay off your student loans: