If you have any of these student loans, they might not be canceled.
Here’s what you need to know.
As Congress and President Joe Biden contemplate a large-scale student loan forgiveness, you may not be eligible for your student loan cancellation if the following describes you. While there are no guarantees, here is the latest on student loan cancellation based on the latest proposals:
Private student loans
If you have private student loans, don’t expect a student loan cancellation. Senator Bernie Sanders (I-VT) and other members of Congress want to write off $ 1.7 trillion in student loan debt. However, the main proposal in Congress from Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) calls for the cancellation of student loans for federal student loans. So, if you have private student loans, you will need to consider other options for student loan repayment. With record interest rates, student loan refinancing is a smart option for your private student loans. With student loan refinancing, you can get a lower interest rate, get a lower monthly payment, choose a fixed or variable interest rate, and choose a student loan repayment term of 5 to 20 years.
Certain federal student loans
Here’s a shock to some student loan borrowers: Not all federal student loans will likely qualify for potential student loan cancellation. It may sound confusing, but there is a difference between federal student loans. For example, most FFELP loans and Perkins loans are not owned by the federal government. FFELP loans were issued before 2010 primarily by banks and may be owned by financial institutions or third party investors. Perkins loans are issued by colleges and universities. Student loan borrowers with FFELP loans or Perkins loans have been largely excluded from Cares Act student loan relief, including suspended student loan payments. Federal student loans such as direct loans, subsidized student loans, and unsubsidized student loans should be eligible. The US Department of Education is looking into Biden’s legal authority to cancel student loans, so it’s possible that these 5 changes to canceling student loans are happening.
You earn over $ 125,000 per year
Any student loan cancellation should have an income cap. If that seems unfair to you, understand that this is part of Warren and Schumer’s proposal. For example, under their plan, only student loan borrowers who earn up to $ 125,000 per year would be eligible for large-scale student loan cancellation. Like stimulus checks, an income cap means millions of student loan borrowers might not get their student loan canceled.
Parent PLUS borrowers and Parent Loans
Most of the discussion around student loan cancellations has focused on student loan borrowers. However, parents also borrow to pay for college and higher education. There are two main types of loans for parents to finance their education. Parent loans are private loans borrowed from a private lender, while Parent PLUS loans are offered by the federal government. Parental loans are considered private student loans, so they are unlikely to be included in a student loan cancellation. This leaves Parent PLUS Loans, which are owned by the federal government. The latest statistics on student loan debt show that there are approximately $ 100 billion in Parent PLUS loans outstanding. Parents who owe Parent PLUS loans may be retired and therefore have limited income, even though they have higher equity. Warren and Schumer’s plan would likely include these Parent PLUS loan borrowers, but there is little discussion of how to help parents with student loans versus student loan borrowers.
There was no explicit mention of the exclusion of graduate student loans from the cancellation of student loans. However, there was talk of focusing on undergraduate student loans. Why? Borrowers who pursue graduate studies in law, business, medicine or dentistry, for example, have higher incomes on average. It’s possible that to appease budget conservatives, Biden or Congress would limit the type of degree for student loan cancellation. Of course, not all students who pursue higher education are high income people, but some programs may be limited.
If you have student loans, consider these smart options when paying off your student loans:
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