If you’re confused about student loan cancellation and the student loan payment pause, then you’re not alone.
Here’s what you need to know — and what it means for your student loans.
If you have student loans, you may be wondering what’s going to happen with student loan repayment, student loan forgiveness, student loan cancellation and the student loan payment pause. It seems that each day, there is a new proposal, tweet or speech about your student loans. The result is confusion.
Let’s make this really simple for you. Here’s the latest on your student loans and what realistically could happen next.
What’s happening with the student loan payment pause?
Let’s set the record straight: federal student loan payments are scheduled to restart after May 1, 2022. That said, there has been speculation that Biden could extend the student loan payment pause for an unprecedent fourth time (and the sixth overall extension, including President Donald Trump’s two extensions). There are two indications that this could happen. First, White House Chief of Staff Ron Klain said on a recent podcast that the president could extend student loan payment pause. Second, the U.S. Department of Education apparently has instructed student loan servicers to stop informing student loan borrowers about the restart of student loan payments in May. However, the president hasn’t issued any public statements about extending the student loan payment pause. Importantly, the student loan payment pause applies only to federal student loans.
(Biden could extend the student loan payment pause forever)
What do all these proposals for student loan cancellation mean for your student loans?
There has been no shortage of proposals for student loan cancellation. For example, Sen. Bernie Sanders (I-VT) wants all $1.7 trillion of student loans cancelled. Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) want up to $50,000 of student loans cancelled. This proposal would cut student loan cancellation to $25,000 for student loan borrowers. This senator wants student loan cancellation for health care workers and teachers. Finally, this new proposal would extend the student loan payment pause and cancel student loans. What do these mean for your student loans? Currently, these are only proposals. To become law, Congress first must pass legislation and the president must sign the bill. Given the current balance of power in Congress, it’s unlikely that any of these legislative proposals for student loan cancellation will become law soon. (Here’s who won’t qualify for $6.2 billion of student loan cancellation)
Will your student loans get cancelled?
It’s unlikely that your student loans will be cancelled before May 1, 2022. (Student Loan Cancellation Doesn’t Mean What You Think It Means). Why? There isn’t support in Congress for wide-scale student loan cancellation. That said, Biden has said he wants Congress to pass legislation for $10,000 of student loan cancellation. However, he has expressed doubt that he has the legal authority to enact wide-scale student loan cancellation through executive action without further authorization from Congress. (What to do if you don’t qualify for student loan forgiveness). Progressive Democrats in Congress are pressuring Biden to enact wide-scale student loan cancellation, but it’s dubious whether the president has such legal authority. Could Biden try to enact wide-scale student loan cancellation? It’s possible. If that happens, that doesn’t mean that student loan cancellation will be implemented. Expect potential legal challenges, which could delay any student loan cancellation for months or longer.
(Biden could deliver student loan cancellation and student loan payment pause this year)
Will student loan interest rates be eliminated?
Many student loan borrowers are wondering whether student loan interest will be eliminated. This includes questions whether student loan interest rates will be reduced permanently to 0%. Due to the student loan payment pause, interest rates on federal student loans have been set at 0% temporarily. This has resulted in no new interest accrual for student loan borrowers. Sen. Marco Rubio (R-FL) has proposed that federal student loan interest rates should be 0%. That said, Congress has no plans to eliminate student loan interest or set interest rates to 0% permanently. Therefore, when student loan payments restart, you should expect your student loans to have your regular interest rate from before the Covid-19 pandemic. If you have private loans with a variable interest rate, your interest rate will be higher compared to your interest rate before the Covid-19 pandemic. (Student loans could get more expensive with higher interest rates). Why? The Federal Reserve increased interest rates this month, which means you should expect the interest rate on any variable interest student loans to be higher.
(If Biden extends student loan payment pause, these 3 things would happen)
Will income-driven repayment plans become simpler?
You may be wondering whether income-driven repayment plans such as IBR, PAYE, REPAYE and ICR will become simpler. Income-driven repayment plans are available for federals student loans, particularly for student loan borrowers who are struggling to make monthly student loan payments. With an income-driven repayment, your monthly student loan payment is 10% – 20% of your discretionary income. Biden has proposed to simplify income-driven repayment to a single payment plan that would reduce your monthly student loan payment to 5% of your discretionary income. Both Democrats and Republicans have expressed interest in simplifying income-driven repayment. (These Republicans want to end student loan relief now). The U.S. Department of Education is undergoing a process to collect feedback and evaluate potential options for changing student loan repayment. This includes potentially making enrollment automatic, reducing the number of payment plans, and changing the percentage of discretionary income. However, it’s unlikely that any meaningful changes will be made before May 1, 2022, when student loan payments restart. Similarly, Congress is unlikely to pass legislation in the near-term that would materially change income-driven repayment. It’s possible that the U.S. Department of Education could simplify income-driven repayment through its rulemaking review process, although no major changes are expected in the near-term.
(Bombshell Report Claims This Student Loan Servicer Misled Student Loan Borrowers)
How do you get student loan forgiveness?
There are many ways to get student loan forgiveness. This includes public service loan forgiveness, borrower defense to repayment and teacher loan forgiveness. Even if there is no wide-scale student loan cancellation, Biden is committed to more student loan cancellation for student loan borrowers. Biden has cancelled $15 billion of student loans since becoming president. Last week, Biden announced he will cancel $6.2 billion in student loans. His approach is focused on targeted student loan cancellation for specific groups of student loan borrowers (rather than student loan forgiveness for every student loan borrower). For example, Biden has created a limited waiver for the Public Service Loan Forgiveness program. This limited waiver enables student loan borrowers to count previously ineligible student loan payments toward the requirements for student loan forgiveness. This is a game changer for borrowers who can now get retroactive credit for late student loan payments, partial student loan payments and student loan payments made under the wrong income-driven repayment plan.
Student loans: next steps
This may not answer every question you have, but hopefully it sets the record straight on some major questions about student loans, student loan relief, student loan repayment, student loan forgiveness and student loan cancellation. For now, federal student loan payments will restart after May 1, 2022. Make sure you have a plan and know your options.
Here are some popular ways to pay off student loans and save money: