Watch out for these 5 myths about student loan cancellation.
Here’s what you need to know.
There’s a lot of misinformation about student loan cancellation—who will get it, how much there will be, and when it will happen. Make sure you know how to separate fact from fiction. Don’t believe these 5 myths about student loan cancellation:
1. Everyone gets student loan forgiveness
Myth: “Cancel student loans” means all student loans are cancelled, or that everyone gets student loan forgiveness.
- Sen. Bernie Sanders (I-VT) proposed to cancel all student loans, including all $1.7 trillion of private and federal student loans.
- However, this proposal doesn’t have mainstream support, either from President Joe Biden or members of Congress.
- It’s unlikely that everyone will get student loan forgiveness. Expect limitations on income requirements, for example.
- Senate Majority Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) have proposed to cancel student loans for student loan borrowers with an annual income up to $125,000. If you earn above that amount, you wouldn’t get any student loan forgiveness under their plan.
2. Your private student loans will get cancelled
Myth: Biden or Congress will cancel your private student loan debt.
- Biden proposed to cancel $10,000 of student loan for borrowers. Biden’s plan only may apply to federal student loans, not private student loans.
- Similarly, Schumer and Warren’s plan only applies to federal student loans.
- While it’s possible that private student loans could be cancelled, the current sentiment is that only federal student loan debt would be cancelled, if there is any wide-scale student loan cancellation.
- Specifically, student loan cancellation would apply to federal student loans that the U.S. Department of Education owns. Therefore, this could exclude some FFELP and Perkins Loans that are owned by financial institutions or private investors.
3. Biden can cancel student loans through executive order
Myth: Biden can unilaterally enact student loan cancellation through an executive order.
- Despite rhetoric from certain members of Congress, it’s not as simple as saying that Biden can enact student loan cancellation “with the flick of a pen.”
- Biden has some power to forgive student loans through executive action. For example, ince becoming president in January, Biden has cancelled more than $2.3 billion of student loans for student loan borrowers.
- The U.S. Constitution empowers grants Congress, not the president, with the “power of the purse” to control federal spending. The most widely-held interpretation is that the president doesn’t have unilateral authority to enact student loan cancellation without further congressional authorization.
- If the president cancels student loans, that decision likely would be challenged in court. This could delay any student loan forgiveness for borrowers.
- Biden asked the U.S. Department of Education to conduct a legal review of his authority to enact wide-scale student loan cancellation through an executive order.
4. Congress will cancel student loans
Myth: There is widespread support for student loan cancellation in Congress.
- Progressives in Congress have mounted an aggressive campaign to pressure Biden to cancel student loans up to $50,000 per borrower.
- However, there isn’t widespread support in Congress to cancel up to $50,000 of student loans per borrower.
- While some senators support $10,000 of student loan cancellation, there doesn’t appear to be widespread support to pass any legislation to cancel student loans.
5. Student loan cancellation is the only way to get student loan forgiveness
Myth: If Biden doesn’t cancel my student loans, I’ll never get student loan forgiveness.
- There are several ways to get student loan forgiveness.
- While they may not happen immediately, these existing programs can help save you money.
- Income-driven repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income Contingent Repayment (ICR) can help you get student loan forgiveness for your federal student loans after 20 years (undergraduate student loans) or 25 years (graduate student loans).
- Income-driven repayment plans are especially helpful if you are struggling to pay off student loans or your lose your job.
- Through December 31, 2025, any student loan forgiveness you get through an income-driven repayment plan is tax-free. Congress could extend this temporary provision beyond this date.
- The Public Service Loan Forgiveness program helps student loan borrowers get federal student loan forgiveness if they work full-time for a qualified public service or non-profit employer and make at least 120 monthly payments for their student loans, among other requirements.
- Biden supports the Public Service Loan Forgiveness program and has proposed to offer up to $50,000 of student loan forgiveness after five years.
Student loan cancellation: next steps
When it comes to student loan cancellation, there are many moving parts. Biden will review the legal memo from the U.S. Department of Education, which could help instruct his next steps on student loan cancellation. Biden will weigh both legal and policy considerations, although he may choose a different recommendation that Secretary of Education Miguel Cardona recommends. If Biden cancel student loans by executive order, student loan cancellation could look like this. If Biden doesn’t have legal authority to cancel student loans by executive order, then Congress would need to act next. Biden has indicated he would sign any legislation on student loan forgiveness that Congress passes. To pass legislation, however, Congress would need to amend its current leading proposal for $50,000 of student loan forgiveness to find a solution that attracts more support.
Whether Biden or Congress decides to cancel student loans, don’t expect all your student loans to get cancelled. That’s why it’s important to consider these other potential options as well to save money:
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