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President Joe Biden (Photo by SAUL LOEB / AFP via Getty Images)
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Joe Biden to suspend student loan payments for eight months.
Here’s what you need to know and what this may mean for your student loans and the chances of your student loan being canceled.
Student loans
Biden, who becomes the 46th president today, will today suspend your federal student loan payments through an executive order. While many expected a three-month hiatus, Biden will extend the student loan payment hiatus for eight months until September 30, 2021. This is one of the many changes to your student loans in 2021, and it means that:
- No federal student loan payments are due
- No new interest will accrue on your federal student loans
- No defaulted student loan will be collected
Congress created this student loan relief under the Cares Act (the $ 2.2 trillion stimulus package) in March. President Donald Trump has twice extended this student loan relief. First, Trump extended this student loan relief from September 30, 2020 to December 31, 2021 (a three-month extension). Second, Trump extended this student loan relief until January 1, 2021 (a one month extension). Rather than extend in three-month increments, Biden opted on the first day of his presidency to extend that student loan relief eight months in advance. September 30, 2021 is the same date House Democrats initially asked to extend this student loan relief in their stimulus package, the Heroes Act.
It is important to note that this temporary student loan abstention is optional. If you need a break from paying your federal student loans, this student loan relief will help you through most of 2021. However, if you want to pay off student loans in the ordinary course or make one-time payments, you can always pay off your student loans to reduce your principal balance and save money on interest.
What it means for student loan cancellation
Will your student loans be canceled? Senator Elizabeth Warren (D-MA) and Senator Chuck Schumer (D-NY) have pleaded for Biden to cancel student loans by executive order on the first day of his presidency. It’s not going to happen. First, the Department of Education issued a non-binding memo that warns that a president cannot unilaterally cancel student loans for every student loan borrower through an executive order. Biden wants to immediately cancel student loans. However, he wants Congress to come up with legislation – either stand-alone legislation or as part of the new stimulus package. Congress cut student loans from the latest stimulus package, and Biden did not include the cancellation of student loans in his proposed $ 1.9 trillion stimulus package. Here are some potential ways to interpret today’s student loan relief announcement and what that might mean for student loan cancellation:
1. The cancellation of the student loan will not take place now
Today’s announcement to postpone student loan payments for eight months may indicate that Congress or Biden will not cancel short-term student loans. Now Congress and Biden have an eight-month window to consider a student loan forgiveness. Congress could focus first on a new stimulus package and other priority policies. Then, later this year, Congress might consider canceling student loans. In the meantime, Biden has provided student loan relief to millions of borrowers. While not the same as canceling a student loan, the longer window gives the Biden administration time to distribute more Covid-19 vaccines and stimulate the economy. After that eight-month period, the economy could recover and Congress could determine that student loan cancellation is not needed as urgently, especially if the Covid-19 pandemic subsides. Alternatively, after eight months the economy might not recover, Biden might extend student loan relief again, and Congress might then decide to cancel student loans.
2. Student loan cancellation is unrelated to this student loan payment break
It is also conceivable that today’s student loan relief has no connection with the pause in student loan payments. In this scenario, consider suspending student loans and canceling student loans on two parallel tracks. Biden, as president, suspends student loans by executive order. Biden chose eight months because he believes there is enough time for borrowers to refrain from paying off student loans as America recovers from the Covid-19 pandemic. At the same time, Congress is considering canceling student loans. Remember, Biden wants to write off student loans in three ways. Schumer said student loans are a priority in the first 100 days of the Biden administration. Therefore, it is possible for Congress to cancel student loans even if payments are suspended. Or, Congress ultimately decides not to cancel student loans. The main thing in this scenario is that the payment break and the cancellation of the student loan are completely independent.
3. Congress cancels student loans through legislation
A third possibility is that the student loan payment pause is one part of Biden’s student loan strategy and the student loan cancellation is the other. In this scenario, you can think of the payment break as the first step and the student loan cancellation as the second step. In this case, one option is that Congress can write off student loans in the new stimulus package. While Biden hasn’t included the student loan cancellation in his proposed stimulus package, Congress has the final say. Therefore, Congress could decide to include the cancellation of student loans with stimulus checks and unemployment insurance. Or, Congress could decide to strike down student loans in new legislation. In either case, it’s unclear who is eligible for student loan cancellation and how much student loan cancellation there will be. There have been several proposals for canceling student loans (canceling $ 10,000 in student debt versus $ 50,000 in student loans, for example). It is also unclear whether there will be income limitations, unemployment, financial hardship, or other qualifications, which could make it likely that fewer student loan borrowers will ultimately be eligible for their cancellation. student loan.
How to pay off student loans faster
What’s the best way to pay off student loans? Today’s temporary forbearance from student loans is good news for tens of millions of student loan borrowers. Many borrowers will simply delay paying student loans as a result of the Covid-19 pandemic. Others who have more financial resources will see this payment break as an opportunity to pay off their student loans faster. Since no new interest accumulates, borrowers can pay off their student loans faster by reducing their student loan principal balance. That’s why it’s important to understand your student loan repayment options now, especially if student loan cancellation doesn’t happen. Start with these three options, all free:
