Your student loans can be canceled under the new stimulus package.
Here’s what you need to know.
Congress and President-elect Joe Biden could release a new stimulus package as early as this week. It is likely that stimulus checks of $ 2,000 as well as state and local aid will be included. It is possible that Congress will also include the cancellation of student loans in the new stimulus package. Why? Biden wants Congress to immediately cancel student loans. Several House and Senate Democrats are also supporting the cancellation of student loans. Before Congress or Biden cancels student loans, they must agree on the amount of student debt canceled and who gets the student loan canceled. Here are 5 ways Congress could cancel student loans under the new stimulus package:
Option 1: Cancel $ 10,000 in student loans for all federal borrowers
First, with student loans removed from the most recent stimulus package, Congress could cancel $ 10,000 in student loans for all federal borrowers. Under this potential proposal, Congress could cancel student loans such as direct loans, including Stafford loans. Congress could also cancel FFELP loans and Perkins loans. However, the Cares Act – the $ 2.2 trillion stimulus package that Congress passed in March – excluded FFELP loans and Perkins loans from student loan relief such as suspended payments. Why? FFELP loans and Perkins loans are not owned by the federal government, which could make it difficult to cancel student loans with borrowers who hold these types of federal loans. Congress should reimburse owners of FFELP loans (such as financial institutions or institutional investors) and Perkins loans (such as colleges and universities).
Option 2: Set aside $ 10,000 for some federal borrowers
Second, Congress could write off $ 10,000 in federal student loans for some student borrowers. This proposal is similar to the first, but Congress could choose to exclude FFELP loans and Perkins loans, which are not owned by the federal government. If Congress continues down this path, it would be the same types of student loans contained in the Cares Act. That said, since the Cares Act, Democrats and some Republicans have proposed including FFELP loans and Perkins loans so that all federal student loan borrowers can get their student loans canceled.
Option 3: Forfeit $ 10,000 if you earn $ 125,000 in income
Third, Congress could write off $ 10,000 in student loans for every borrower who earns $ 125,000 in annual income. There are many ways your student loans could change this year, and student loan cancellation is a possibility. Congress could choose a higher or lower income threshold, but President-elect Joe Biden referred to that amount in his student loan plan. Supporters of student loan cancellations generally want to increase the number of potential recipients who get student loan cancellations. Opponents want to limit the forgiveness of student loans either completely, or at least to a small sample. Limiting income is one way to shrink the pie, even though opponents might push for a lower income threshold, like $ 75,000, for example, which was the threshold for stimulus checks.
Option 4: cancel $ 10,000 if you are “economically in difficulty”
Fourth, Congress could cancel $ 10,000 in student loans for “economically distressed” borrowers. That language appeared in the Heroes Act, which is the stimulus package House Democrats passed last year and from which Biden has said he wants to base his new stimulus package. “In economic difficulty” could be defined in several ways. In the Heroes Act, the phrase “economically distressed” referred to a student borrower who would otherwise pay $ 0 per month under an income-based repayment plan, was in default on a student loan. or was 90 days late on their student loan. By this definition, millions of student loan borrowers will not receive any student loan forgiveness. Alternatively, Congress could, for example, define “economically distressed” as either unemployed or otherwise materially affected financially by the Covid-19 pandemic.
Option 5: Cancel $ 50,000 in student loans if you earn $ 125,000 in income
Fifth, Congress could write off up to $ 50,000 in student loans for each borrower who earns $ 125,000 or less in annual income. This is the proposal of Senator Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-NY). Warren and Schumer believe their proposal will boost the economy, reduce disparities and help a generation of Americans start life without the threat of student debt. Warren and Schumer want Biden to write off student loan debt directly through an executive order. However, Biden will not cancel $ 50,000 in student loans. Biden has always championed a $ 10,000 student loan forgiveness and said he was unlikely to use an executive order. Considering the potential cost, this proposal is the least likely to be included in the new stimulus package.
How to pay off student loans faster
What’s the best way to pay off student loans? There is no guarantee that Congress will cancel student loans as part of the new stimulus package or through stand-alone legislation. Biden and several members of Congress want to cancel student loan debt, but Congress also wants to pass other policies like stimulus checks first, which could delay any student loan cancellations. That’s why it’s essential that you make a student loan game plan now. Start with these three options, all at no cost:
5 student loan changes for 2021
Biden wants to cancel student loans, but it has to happen first