Do you have questions about Joe Biden’s plan to cancel student loans?
Here’s what you need to know.
Will you get student loan forgiveness? When will you get student loan forgiveness? These may be some of the questions you have if your student loans get cancelled. Here are the answers to the 10 most popular questions about President-Elect Joe Biden’s plan to cancel student loans:
1. When will I get student loan forgiveness?
There’s no specific date by which you will get student loan forgiveness. President-elect Biden has called on Congress to cancel student loans immediately. That said, Congress won’t cancel student loans during this congressional term. Why? Republicans control the U.S. Senate and don’t support wide-scale student loan cancellation. The outcome of two run-off elections for the U.S. Senate from Georgia will determine the composition of the next Congress. If Republicans maintain control of the U.S. Senate, the path to cancel student loans in Congress becomes much less likely. If Democrats gain control of the U.S. Senate, the path for student loan forgiveness becomes easier. However, there is no guarantee that Senate Democrats ultimately will cancel student loans, or how much student loan debt would be cancelled. Other Democrats like Sen. Elizabeth Warren (D-MA) have asked Biden to cancel student loans on his first day in office, which is January 20, 2021.
2. How much student loan forgiveness will you get?
Many student loan borrowers ask “How much student loan forgiveness will I get?” The amount of student loan forgiveness hasn’t been finalized. Biden wants to cancel up to $10,000 of student loans for each student loan borrower due to the Covid-19 pandemic. Warren and Senate Minority Leader Chuck Schumer (D-NY) want Biden to cancel $50,000 of student loans for every borrower. Other proposals have called for $30,000 of student loan cancellation. It’s possible that any of these proposals could be adopted, but if Democrats want any chance at bipartisan agreement to cancel student loans, a small amount would be more likely to pass (if Republicans would even consider student loan cancellation, which is unlikely). Of all the proposals, therefore, $10,000 is likely the more realistic amount of potential student loan forgiveness.
3. Will I qualify for student loan forgiveness?
It’s possible that if there is a plan to cancel student loans that you may not qualify. That may come as a surprise. However, the trend has been to apply student loan forgiveness to borrowers who are most in need. It’s too soon to tell who would qualify, but there are some initial indications. For example, this week, Schumer said his and Warren’s proposal to cancel student loans only would be available if you earn this much income. Therefore, not everyone would be eligible to have their student loans cancelled. Similarly, Biden has said he would support a stimulus package like the Heroes Act, which House Democrats passed earlier this year. However, the Heroes Act only would cancel private student loans of up to $10,000 for borrowers who are “economically distressed.” This implies that student loan forgiveness only could be available to borrowers who are struggling financially. Along these lines, opponents of wide-scale student loan cancellation think any student loan forgiveness should be targeted to those who are unemployed or otherwise who have been directly impacted by the Covid-19 pandemic.
4. Will the president cancel student loans through executive order?
Warren and Schumer want Biden to cancel student loans through an executive order. They believe it may be difficult for Congress to approve a bipartisan plan to cancel student loan debt. Therefore, they want Biden to circumvent Congress and unilaterally cancel student loans. Warren and Schumer believe that the Higher Education Act of 1965 also grants the president (through the U.S. Secretary of Education) the unilateral right to cancel student loan debt. However, Biden has not supported this proposal and said Congress should pass legislation to cancel student loans.
5. Will student loan forgiveness be tax-free?
Biden’s plan to cancel student loans would be tax-free to the borrower. For example, if you receive $10,000 of student loan forgiveness, you would not owe income tax on the $10,000 of student loan forgiveness under Biden’s plan. In comparison, current income-driven repayment plans would cancel your remaining federal student loan debt after 20 or 25 years of monthly student loan payments. However, this student loan forgiveness is considered taxable to the borrower.
6. Will there be a tax credit or cash payment for borrowers who already paid off student loans?
Opponents of widescale student loan forgiveness say there are many reasons not to cancel student loans. For example, any proposed student loan cancellation would happen on a single day. That means anyone who paid off their student loans in full before that one day would be excluded from any student loan debt cancellation. Many wonder whether these former student loan borrowers would receive any tax credit or cash payment. Opponents of this policy say the federal government can’t retroactively compensate borrowers who no longer have student loans. However, many of these borrowers sacrificed buying a home, worked two jobs or stopped saving for retirement so they could pay off student loans. This is not to say that those who could qualify for widescale student loan forgiveness haven’t done the same thing, but it’s a question of fairness whether any former borrower who recently paid off student loans should be reasonably compensated. Further, there are tens of millions of other adult Americans who never went to college or earned a degree who also are struggling financially. Is it fair to cancel student loans for a relatively smaller part of the population and not provide economic stimulus to others who also may need financial reprieve?
7. Does Biden support other student loan forgiveness?
In addition to widescale student loan forgiveness, Biden also supports other student loan forgiveness. Biden would revamp the Public Service Loan Forgiveness, which he would continue in his administration. Specifically, Biden wants to provide federal student loan forgiveness of $50,000 after five years, rather than making borrowers wait at least 10 years of making monthly student loan payments to get student loan forgiveness. Biden would also cancel student loans for borrowers who attend a two-year or four-year public college or university and who earn less than $125,000 annually. This would also include private Historically Black Colleges and Universities (HBCUs) and Minority-Serving Institutions (MSIs)
8. How will this affect public service loan forgiveness?
If you are, or plan to, participate in the Public Service Loan Forgiveness program, you could be eligible to have your student loans cancelled. Therefore, widescale student loan cancellation shouldn’t impact you any differently because you are pursuing public service loan forgiveness. Under Biden’s plan, the Public Service Loan Forgiveness would still be available to student loan borrowers and offer federal student loan forgiveness, which would be in addition to any widescale student loan forgiveness.
9. Does Biden have other plans for student loans?
Biden has a full plan for student loans. This include a variety of initiatives, including student loan forgiveness, fixing income-driven repayment plans, making some college tuition-free, cancelling student loans in bankruptcy and other plans to provide financial relief to student loan borrowers.
10. What’s the best way to get student loan forgiveness?
Currently, the two best ways to get student loan forgiveness are through income-driven repayment plans and the Public Service Loan Forgiveness. Income-driven repayment plans are for federal student loans only and are best if you are struggling to pay off student loans. Your monthly payment will be based on your discretionary income, family size and state of residence. After 20 or 25 years, you can get student loan forgiveness on your remaining balance. However, the amount of student loan forgiveness is taxable. The Public Service Loan Forgiveness provides federal student loan forgiveness if you work for a qualified public service or non-profit employer. You have to make 120 monthly payments and meet other requirements to get student loan forgiveness.
How To Pay Off Student Loans
There’s no guarantee that you will get outright student loan forgiveness. If it happens, it may only help with some of your student loans. That’s why you must have a plan for student loan repayment now. What’s the best way to payoff student loans? Get a student loan game plan. Here are three smart approaches, all of which have no fees: