If there is a plan to write off student loans, will you be eligible for student loan forgiveness? Not necessarily.
Here’s what you need to know.
In the ongoing debate over whether to cancel student loans, one thing is certain: nothing. Despite the enthusiasm for the possibility of student debt cancellation, there is less clarity on who is eligible for student loan forgiveness. Of course, that assumes Congress or President-elect Biden cancels student loans. If this happens and there is no collateral, the details of the student loan cancellation and beneficiaries have yet to be determined. Here are 5 important questions that Congress and the President should consider in determining if you qualify for a student loan forgiveness:
1. Is the plan to cancel federal student loans or cancel private student loans?
Most of the student loan cancellation proposals were for federal student loans. However, House Democrats proposed in the Heroes Act – the $ 3 trillion stimulus package – to cancel private student loans. Congress could decide to cancel either federal student loans or private student loans (or even both). Most likely, if Congress chooses one type of student loan to cancel, Congress would choose to cancel federal student loans held by the United States Department of Education. Private student loans are made between student borrowers and private lenders. Often, private student loans are sold to investors. Any private student loan cancellation project may be more administratively burdensome for the federal government.
2. Would all types of federal student loans be canceled?
There are different types of federal student loans. For example, the student loan relief contained in the Cares Act – the $ 2.2 trillion stimulus package that Congress passed in March – only applied to federal student loans held by the US Department of Education. This includes direct loans such as Stafford loans. However, FFELP loans and Perkins loans are not included. Why? FFELP loans have been issued primarily by banks and other financial institutions (not the federal government), and Perkins loans are issued by colleges and universities. As a result, the federal government does not hold most FFELP loans and Perkins loans. Therefore, these types of federal student loans were not included in the Cares Act student loan relief. Senator Elizabeth Warren (D-MA) says any canceled student loans should include all types of federal student loans, including FFELP loans and Perkins loans.
3. Would every student borrower get a student loan discount?
Biden called on every student borrower to get their student loan forgiven. However, the Heroes Act could serve as a basis for Congress to cancel student loans during the Biden administration. The Heroes Act limits who can qualify for a student loan forgiveness. For example, the Heroes Act includes a provision that only student borrowers who are “economically struggling” due to the Covid-19 pandemic would be eligible. If student debt is forgiven, will student loan forgiveness only be available to student borrowers who are “economically struggling”?
4. Will the Student Loan Discount be available for University Student Loans and Graduate Student Loans?
There is no guarantee that college student loans and graduate student loans would be canceled. It is possible that Congress will focus only on canceling undergraduate student loans. Why? Many graduate degrees, including a law degree or medical degree, for example, can result in significantly higher incomes and higher student loan repayment rates than a college degree alone. If the student loan forgiveness is limited to undergraduate student loans, millions of borrowers may not receive the student loan forgiveness for graduate student loans.
5. Will student loan forgiveness be income-based?
Congress could limit the remission of student loans based on income. For example, Congress could phase out eligibility for student loan cancellation based on a student borrower’s annual income. The Cares Act, for example, provided income limits for stimulus checks – $ 99,000 for individuals and $ 198,000 for married and spousal filers. Warren offered a student loan forgiveness for 95% of the student loan forgiveness, and his plan had income limits. Conversely, Senator Bernie Sanders (I-VT) proposed canceling student loans for all student borrowers, regardless of their income.
These are not the only issues Congress and the President will consider. There are many other questions, including:
- When is the proposed time for canceling student loans?
- How much student loan forgiveness will you get?
- Will Congress cancel student loans or will the President cancel student loans by executive order?
- Will forgiveness of student loans be tax-free?
- Will there be a tax credit or a cash payment for individuals who have already paid off their student loans?
- Will there be a tax credit or a cash payment for people who have never been to college or have never borrowed a student loan?
How to repay student loans
What’s the best way to pay off student loans? Get a student loan game plan. Here are three smart approaches, all at no cost:
Student loans: related reading
Biden: canceling student loans “is part of my plan”
No Joe Biden can’t forgive $ 50,000 in student loans