On April 28, President Joe Biden made his first address to Congress. In his speech, he revealed a proposal for additional federal spending of $1.8 trillion, including investment in education. But there was no Biden student loan forgiveness mentioned.
Student loan debt is a significant issue that has affected about 45 million U.S. citizens. And each of these borrowed carries an average debt of almost $33,000.
On Biden’s first day as president, he extended the suspension of principal and interest payments on federal student loans until October 1. The plan was to provide temporary relief for people with student loans during the COVID-19 pandemic.
In March, Biden forgave $1 billion in student debts for students defrauded by for-profit schools. The president previously asked Miguel Cardona, the Education Secretary, to legally cancel federal student loan debts.
Congress Divided Opinions on Biden Student Loan Forgiveness
Congress didn’t have a unanimous decision on whether student loans should be forgiven. And even if they agreed, by how much? Some Democrats said they wanted up to $50,000 of student loan cancellation.
However, most Republicans disagreed with that, and the president stated that $10,000 for each loan borrower was his target. Students with private student loans were excluded.
In May, the federal government passed the American Rescue Plan Act of 2021. In this act, student loan debts that are canceled will be tax-free through 2025. That will temporarily ensure that borrowers who get their student loans forgiven won’t be burdened with massive unforeseen tax bills.
Some experts dispute that general loan forgiveness would have several benefits such as:
- Help underemployed or unemployed U.S. citizens get back on their feet,
- Stimulate the economy, and,
- Subdue racial disparities
However, others suggest that it’s a short-term solution that doesn’t solve the primary underlying problems in the U.S. higher education system. Furthermore, some even totally disagree with forgiving student loan debts in general.
Here’s what we know so far about Biden student loan forgiveness. We’ll also show you what you can do right now, regardless of what happens in the white house.
Can You Count On Biden Student Loan Forgiveness?
There are numerous speculations and rumors about federal student loan forgiveness. So it’s better to seek student loan experts of what they think. And that’s what we did; some people say there’ll be general student loan forgiveness. Others say they will be surprised if there’s even loan forgiveness.
But they all agreed on one thing: you shouldn’t rely on the likelihood that there will be a student loan forgiveness anytime soon. In other words, don’t develop your strategy around this likelihood. If the student loan forgiveness occurs, that would be great. You take it as a gift.
Here is five student loan experts’ take on what could happen next for Biden student loan forgiveness.
1. There will be no forgiveness but a reform.
According to the CEO of College Investor, Robert Farrington, the $10,000 loan forgiveness is good for loan borrowers. However, it’s a bad policy unless something is done to fix the system. So he thinks it will not work out.
From Farrington’s analysis, Congress will likely pass a reform package targeted at current federal loan programs and higher education costs. For example, Public Student Loan Forgiveness (PSLF), income-driven repayment plans, and Congress may integrate student loan forgiveness.
According to Farrington, if Biden goes in for a reform package using an executive order, it won’t happen immediately. It will be tied up with litigation and lawsuits, which will cause its delay. However, Congress somehow manages to pass a bill that permits student loan forgiveness. Farrington believes it’ll happen right away.
2. Don’t count on the $10,000. It won’t be great.
Regardless of the relief that student borrowers received last year, there’ll be some loan forgiveness. But how much will be forgiven? According to Laurel Taylor, loan borrowers can receive $10,000 in loan forgiveness. However, she’s cautious if there’ll be any more forgiveness after that.
Just $10,000 in student loan forgiveness would eliminate about 16 million people’s student loans. According to Taylor, that would make a massive difference, particularly for those likely in default.
However, Taylor suggests that no student borrower should not rely on that possibility. That’s because it might not happen any time soon or maybe not at all. Biden is determining if he has the executive power to make such a decision.
But the bottom line, according to Taylor, is that there’s lots of confusion.
3. There will be a revamp of existing federal programs.
Adam Minsky, a lawyer, specializing in student loans, believes that there will be a mixture of massive student loan debt solutions. And it may or may not involve student loan forgiveness.
There’s no foreseeable way of every individual’s loan debt being wiped out totally. There may be some loan forgiveness combination of a specific amount, including some requirements attached to it. That way, there’ll be limitations on who qualifies for loan cancellation based on those requirements.
Minsky, however, thinks there will be an intense concentration on revamping and correcting several existing federal student loan programs. Some programs such as income-driven repayment programs and Public Service Loan Forgiveness could get revised.
These existing forgiveness programs have well-documented issues and can end in loan forgiveness for numerous borrowers.
4. Don’t expect loan borrowers for everyone.
As Farrington said, Leslie Tayne doesn’t believe there’ll be a Biden student loan forgiveness for all borrowers. According to Tayne, more significant problems at play with higher education need to be solved.
Tayne thinks that it’s something you need to keep an eye on and pay attention to. But you shouldn’t live by it. If you have the chance and ability to pay back your student loans, then you should pay them back as financial responsibility.
If the president or Congress decides to pass a student loan forgiveness proposal, it’ll more likely be targeted at specific groups. So you should not expect widespread loan forgiveness anytime soon. Of course, you could be part of the particular groups if the proposal is passed.
However, it’s better to take full responsibility to pay off your debt because you can’t be sure that you’ll qualify.
5. If any Loan Forgiveness happens, it’ll be later this year.
As explained in previous points, student loan forgiveness remains a divisive issue. We may see minor loan forgiveness. For example, a $10,000 loan forgiveness proposal would have less aggressiveness, and it would be more targeted.
Biden wants to target the student loan relief to three groups of borrowers:
- Consumers with high debt and low incomes,
- Public service workers, and
- Borrowers affected by the pandemic
If there is some Biden student loan forgiveness, it won’t happen until the forbearance period ends, which is later this year.
What Might Happen In The Future?
When it comes to wide student loan forgiveness soon, it lies in the legal review results. The fact that it’s taking some time suggests it will not be straightforward as some people assume. If the review result was based solely on authority, then the decision could be taken quickly.
Things may get complicated if the president doesn’t have the executive authority to enact student loan forgiveness without Congress. If Congress doesn’t agree to a bipartisan resolution regarding loan forgiveness, they’ll begin a comprehensive budget reconciliation bill to know how much funds are available.
As far as student loan forgiveness soon is concerned, everything will boil down to the legal review results. From there, the Biden administration would be able to give a precise timeline.
What You Can Do About Biden Student Loan Forgiveness Now
We can’t be sure unless Biden signs a bill or an executive. That’s why the student loan experts say that you should hope that it works, but plan for the worst-case scenario in terms of your student loans.
Whatever happens with the student loan forgiveness legislation, here’s how you can manage your loans in the current situation
Develop A New Plan Now
Due to the COVID-19, most federal student loan payments have been suspended through September 30, 2021. But we recommend that you start developing a plan now for when the loan payments resume.
Loan servicers may be overwhelmed, especially in October. And that’s due to the about 40 million loan borrowers that will start repayments simultaneously.
Private student loans don’t qualify for the COVID-19 payment suspension. But there are ways to make the management of your private student loans less stressful. If you have a private student loan, we advise that you get ahead of your financial situation by contacting your loan servicer to modify or refinance your student loan.
The interest rates are at historic lows. So now is the perfect time to refinance your private loans before it goes up again.
Below are the five steps you should take when putting a plan together for your student loans.
1. Make sure you have up-to-date information on your account. Always lookout for any new information on your forbearance period and student loans from your loan lender. Ensure that your email address is correct on your online portal. That way, you can get any new relevant memos.
2. Research repayment plans. If you have federal student loans, talk to your loan servicer for any other options for a repayment plan which you may be eligible for. This can considerably lower or get rid of your monthly payment for a specific duration.
3. Review your student loan terms. Check and check again for the pay-off dates and grace periods for each student loan debt. Double-checking can help you find out some things you might have missed previously.
4. Know the specific amount of student loan you owe. It’s essential to create a master list of every student loan you have. And that includes the remaining balances, loan servicers, interest rates, and minimum payments each month. That can help you know who to ask for help like consolidation, exploring forgiveness, enlisting in another repayment plan, or requesting a deferment.
5. Develop a budget. Making a budget is the best chance for you to make a significant change when your payments start again. Consider any modification to your income and find out if you have to cut spending in specific areas to make your budget fruitful.
Tackle Your Student Debt From High To Low-Interest Rate
If you have other debts like personal loans or credit cards, it’s best to deal with them before you loan debts. However, if your finances are good, you have a stable income, and you want to get rid of your student loans, first tackle loans with a high rate.
The reason is that you don’t have to make payments right now across all your student loans. So you can tackle the loans that will be highly expensive throughout the loan life. Also, every loan payment you make goes toward the principal.
So if you have three to six months of savings, for example, now is the best time to pay off your loans. We’ve never had a payment suspension before, and we can depend on it happening now. Whatever happens with the Biden student loan forgiveness, this is the time to take your chance.
Build Your Savings
Depending on your financial circumstances, now may not be the time to pay off your student loan debt aggressively. For example, if you’ve been part of the federal loan deferment program enacted in the CARES Act, that’s a good thing. It’s advisable to stay on course until it comes to a close at the end of the year.
You can use this time to push more funds into your retirement plan or build your emergency fund until the student loan forbearance duration ends. If you don’t have three to six months of savings, you can use this opportunity to start saving.
We recommend that you keep checking for any updates to the Biden student loan forgiveness. However, that shouldn’t stop you from making your payments if your finances are stable. Also, as long as you have federal student loans, you have loan forgiveness options available. You can opt for the Public Service Loan Forgiveness, Teacher Loan Forgiveness, income-driven repayment plans, etc. If you don’t know which step to take, we recommend speaking to a student loan expert to help you out. You can also call 800-881-0687, and our experts will help you out.