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During his first address to Congress Wednesday evening, President Joe Biden unveiled a proposal for an additional $1.8 trillion in federal spending, which includes investment in education — but didn’t make a single mention of student loan forgiveness.
Student loan debt is an issue affecting almost 45 million Americans. Each one of those Americans who have student debt carries an average of almost $33,000, according to a 2019 report to the U.S. House of Representatives’ Committee on Financial Services.
On his first day as president, Biden extended the suspension of interest and principal payments on federal student loans until Oct. 1, to provide temporary relief to student loan borrowers during the COVID-19 pandemic. In March, he forgave $1 billion in loans for students defrauded by for-profit institutions.
And earlier this month, Biden asked Education Secretary Miguel Cardona to see if he can legally cancel federal student debt.
But Congress is divided about whether student loans should be forgiven, and if so, by how much. Some Democrats say they want up to $50,000 of loans canceled; however, most Republicans oppose that, and Biden has said that $10,000 per federal loan borrower is his target. (People with loans from private institutions would not be affected.) The American Rescue Plan Act of 2021, passed this month, allows canceled student loan debt to be tax-free through 2025. That temporarily ensures that borrowers who had their student debt forgiven wouldn’t get saddled with a significant unexpected tax bill.
Some experts contend that broad student loan forgiveness would have multiple benefits, including stimulating the economy, helping unemployed or underemployed Americans get back on their feet, and reducing racial disparities. Others say it’s a short-term solution that doesn’t address larger underlying issues in the U.S. higher education system. And some are opposed to forgiving student loan debt in general.
Here’s what we know so far about what Biden or Congress might do about student loan forgiveness — and what you can do right now, regardless of what may happen.
Can You Count on Student Loans Being Forgiven?
Rumors and speculation regarding federal student loan forgiveness continue to swirl, so we asked student loan experts what they think will happen. Some say widespread student loan forgiveness will likely happen, and others would be surprised if it does.
But they all agreed on one thing: You shouldn’t set your strategy around the perceived likelihood that student loan forgiveness is coming. If it happens, “look at it like a gift,” is how Leslie Tayne, a New York-based debt relief lawyer, put it.
According to these five experts, here’s what could come next for student loan forgiveness:
Robert Farrington: There will be reform, not debt forgiveness
“A blanket $10,000 in student loan forgiveness is good for individuals, but it’s bad policy unless they do something to fix the system,” says Robert Farrington, CEO and founder of The College Investor. “I personally don’t think anything will pass.”
According to Farrington, a more likely scenario is Congress passing a broader reform package that targets higher education costs and existing federal loan programs, like income-driven repayment plans and the Public Service Loan Forgiveness program, and possibly incorporates some student loan forgiveness.
“I would like to see a higher education reform package if there is student loan forgiveness,” Farrington says. “If Biden tries to do it by executive order, I would not expect it happening right away. It’ll probably get tied up with lawsuits and litigation. However, if Congress manages to pass a bill that allows student loan forgiveness sometime this summer, then I think it would happen right away.”
Laurel Taylor: $10,000 would be great, but don’t count on it
Based on all the relief that student borrowers have been given in the last year, there will be some debt forgiveness, according to a former Google executive who founded a student loan repayment platform. The question is, how much?
“I think the $10,000 in forgiveness is likely, but I’m cautious about anything more than that,” says Laurel Taylor, CEO and founder of FutureFuel.io.
Even forgiving just $10,000 in student debt would completely eliminate student loans for about 16 million people. It “would make a huge difference, especially for those who are most likely to default,” Taylor says.
But no borrower should depend on that possibility, Taylor cautions: it might not pass anytime soon, or at all. “Biden is examining whether he has the executive authority, but the bottom line is that there is a lot of confusion. That’s what we’re seeing on our platform when our users are engaging with their student debt,” says Taylor.
Adam Minsky: Existing federal programs will be revamped
There will be a combination of solutions to address mounting student debt, which may or may not include student loan forgiveness, according to Adam Minsky, a lawyer specializing in student loans.
“I don’t think that everyone’s student loan debt is going to be unilaterally wiped out,” he says. “I think we’ll probably see some combination of broad student loan forgiveness of a certain amount and other criteria attached to that, such as school attendance or income, so there might be limitations of who’s eligible for loan forgiveness based on those factors.”
Instead, Minsky thinks there will be more of a focus on revamping and fixing a number of existing federal loan programs, such as the Public Service Loan Forgiveness program and income-driven repayment programs.
“These are all existing programs that have well-documented problems and can result in loan forgiveness for people. I think we’ll see changes to those programs, and that will hopefully widen the pool of borrowers to get some form of loan forgiveness.”
Andrew Pentis: If anything happens, it will be later this year
“Student forgiveness unfortunately remains a pretty divisive issue,” says Andrew Pentis, a certified student loan counselor with Student Loan Hero, which offers counseling for borrowers. “We are starting to see little movement from the two parties, but it’s a ways off and there’s no true end in sight.”
Wiping out $50,000 in student loans is not going to happen, Pentis says, but a smaller cancellation is much more likely.
“A $10,000 student loan forgiveness proposal would be less aggressive in nature and more targeted,” says Pentis. “Biden wants to target relief for three categories of borrowers: borrowers who have been hit by the pandemic, public service workers, and consumers with low incomes and high debt.”
If there is some dose of forgiveness, whether it’s from the Biden Administration or Congress, Pentis suspects it won’t occur until closer to the end of the student loan forbearance period later this year.
Leslie Tayne: Don’t expect it for everybody, and not soon
Like Farrington, Tayne, an attorney specializing in debt relief, doesn’t think there will be student loan forgiveness for all borrowers. Tayne — who took on a lot of debt to go to law school and has five kids in college — says there are larger issues with higher education at play that need to be addressed.
“It’s a great talking point, but it’s not really that realistic because it’s complex and there are a lot of moving parts,” she says. “I tell people that it’s something to listen for and pay attention to, but it’s not something to live by. If you have the ability to pay it back, then it’s a financial obligation that you took on and you should try to pay it back.”
If Biden or Congress agrees to pass a proposal on student loan forgiveness, she says it would more likely be targeted toward certain groups. For example, she says it’s more likely that frontline workers who carry student loan debt will receive forgiveness before everyone else.
“The analysis is very complex, and it should be researched and well-evaluated. Don’t expect student loan forgiveness to happen anytime soon,” she says. “I would be surprised to see some widespread changes this year.”
Here’s What You Can Do Now
Until the President signs an executive order or a bill, nothing is certain. That’s why experts say you should hope for the best, but plan for the worst when it comes to your student loan debt. Regardless of what happens with legislation on student loan forgiveness, here’s how you can make the most out of the current situation.
Start Putting Together a Plan Now
Due to the pandemic, payments on most federal student loans are suspended through September 30, 2021. But the experts say you should start putting a plan together now for when student loan payments resume.
“Make a plan now, because loan servicers will be overwhelmed in October,” says Taylor, referring to 40 million student loan borrowers who will begin repayments at the same time.
Private student loans aren’t eligible for the COVID-19 suspension of payments, but there are ways to make private student loans more manageable. If you’re a private student loan borrower, be sure to get ahead of any financial challenges by calling and requesting to refinance or modify your loan. With rates at historic lows, now is a great time for private student loan borrowers to refinance before rates go up again.
Here are five steps you should take when developing an action plan for your student loans:
- Make sure your information is up-to-date on your account: Keep an eye out on any new information on your loans and the forbearance period from your loan servicer. Make sure your address and email is current in your online portal, so you aren’t missing any important memos.
- Research repayment plans: If you have federal student loans, check with your loan servicer for alternative repayment plans you may qualify for. They may significantly reduce or eliminate your monthly payment for a period.
- Review your loan terms: Double check the pay-off dates and grace periods for each loan.
- Know what you owe: Create a master list of all your student loans, including the servicers, outstanding balances, minimum monthly payments, and interest rates. That will help you know who to contact for help, such as exploring forgiveness, requesting deferment, consolidating, or enrolling in an alternative repayment plan.
- Make a budget: Now is a great opportunity to make a budget for when payments resume. Take into account any changes to your income and see if you need to cut spending in certain areas to make room in your budget.
Tackle Debt from High to Low Interest
If you have other debts charging more, such as credit cards or personal loans, always tackle them before your student loans.
However, if you’re in a good spot with your finances, have a steady income, and want to chip away at your student loans, target loans with the highest interest rate first.
Because you don’t have to make payments across all of your loans right now, you can target the loans that will be more expensive throughout the life of the loan — and everything that you pay will go towards principal.
“For borrowers who do have three to six months of savings, now is a great time to pay off your loans. It’s the first time in history that we have payment suspension,” says Taylor.
Build Your Savings
Farnoosh Torabi, host of the “So Money” podcast and contributing editor at NextAdvisor, and several other experts, say now isn’t the best time to aggressively pay down student loan debt.
If you’ve been benefiting from the federal student loan deferment program set forth in the CARES Act, Torabi recommends staying the course until it expires at the end of the year.
“Don’t give them an extra cent,” Farrington concurs.
Instead, focus on building your emergency fund savings or contribute to your retirement plan until the student loan forbearance period ends. Those are areas where you can make your money go further right now.
“For borrowers who don’t have three to six months of savings, take advantage of this payment suspension and start putting money away in a savings account,” says Taylor. “Build a nest egg.”