Personal Finance

Is Student Loan Cancellation Coming Next?

The unexpected happened yesterday, and student loan cancellation could be next.

Here’s what you need to know.

Student Loans

After months of silence and uncertainty, Biden delivered a windfall to student loan borrowers yesterday: four more months of student loan relief through January 31, 2022. This means that there will be no required federal student loan payments, 0% interest on federal student loans, and no collection of student loans in default. It’s a big win for progressives like Sen. Elizabeth Warren (D-MA) and Sen. Chuck Schumer (D-NY), who have advocated for months for the president to extend student loan relief for millions of student loan borrowers. They had hoped for an even longer extension of student loan relief — until at least March 31, 2022 at the earliest — but it appears they will settle on an extension into early next year. So, this begs the question: Is student loan cancellation coming next?


Student loan relief: what this means for student loans

Student loans: the good news

There’s good news and bad news for student loan borrowers with respect to student loan relief. The good news is that they will have another four months of financial relief. This is especially helpful to any student loan borrowers who are struggling financially in the wake of the Covid-19 pandemic. This extra time period will also help more than 10 million student loan borrowers who will lose their federal student loan servicer before December 31 get assigned a new one. Two major student loan servicers, FedLoan Servicing and Granite State Management & Resources, announced last month they will end their federal student loan servicing contracts with the U.S. Department of Education by year end. Therefore, the U.S. Department of Education will now have more time to ensure a smooth transition for those student loan borrowers who are impacted.

Student loans: the bad news

The bad news for student loan borrowers is that this is the final extension. The Biden administration explicitly announced there would be no more extensions of student loan relief. Therefore, student loan borrowers should prepare to start paying student loans again on February 1, 2022. At that time, your student loan interest rate will return to its normal, pre-pandemic interest rate. If you have student loan debt in default at the time, it could be subject to student loan debt collection, including potential garnishment of wages.


Student loan cancellation: two ways to view student loan relief

There are two main ways to view student loan relief and student loan cancellation. First, Warren and Schumer view the extension of student loan relief as a major victory and step one of two. From their perspective, student loan relief was the first step, and student loan cancellation is the second. With this first win, progressives will view Biden’s extension of student loan relief as a direct result of their lobbying efforts. Progressives will now turn their efforts to further lobbying Biden to cancel up to $50,000 of student loans. They may even view student loan cancellation as a more tangible possibility now that student loan relief has been extended.

Second, it’s unclear whether Biden’s first choice was to extend student loan relief. Biden could have decided to extend student loan relief regardless of pressure from progressives. However, it’s also possible that he extended student loan relief as a “peace offering” with members of his own party. Biden didn’t extend student loan relief for as long as many progressives hoped, but he extended student loan relief nonetheless before next month’s scheduled expiration. That said, Biden announced the extension on a Friday afternoon in the summer. This is hardly the time for a big announcement, which may suggest the administration didn’t want to promote the announcement beyond the cadre of student loan borrowers. The federal government has been subsidizing student loan borrowers since March 2020, which may not sit well with 80% of Americans who don’t have student loans or who didn’t attend college. The Biden administration is clearly committed to helping student loan borrowers, including through student loan cancellation and reformation of student loan forgiveness and student loan repayment. Biden has cancelled $3 billion of student loans and extended student loan relief twice. That said, through an alternative lens, this extension of student loan relief also could be completely unrelated to wide-scale student loan cancellation. Student loan cancellation may help student loan borrowers, but that doesn’t mean that Biden will cancel everyone’s student loans. Student loan relief may be another tool in a broader toolkit that the Biden administration is using to help student loan borrowers. Between now and January, the Education Department may announce proposals to help improve student loan repayment and student loan forgiveness, which could be viewed as alternatives to wide-scale student loan cancellation.


Student loan cancellation: what happens next

There is no direct relationship between student loan cancellation and student loan relief. Yes, they are both forms of financial relief for student loan borrowers, but they are separate policy decisions. For example, it’s possible that Biden extended student loan relief, but he won’t enact student loan cancellation. Warren and Schumer have an entirely different perspective. They want the two issues — student loan cancellation and student loan relief — linked. Supporters of student loan cancellation say that Biden can use the executive power that he used to extend student loan relief to enact student loan cancellation. Biden has said repeatedly that he doesn’t believe he has the legal authority to enact student loan cancellation without further explicit authorization from Congress. Warren and Schumer argue that Biden has such authority that has been granted through the Higher Education Act of 1965. The next step is for the U.S. Department of Education to issue its legal recommendations on student loan cancellation to Biden, who, based on that recommendation, will make the final decision on his authority to cancel student loans. Biden has supported $10,000 of student loan cancellation for student loan borrowers, but wants Congress to enact student loan cancellation through legislation. Biden’s position was bolstered last week by Speaker of the House Nancy Pelosi (D-CA), who said only Congress, not the president, has the power and legal authority to cancel student debt.

If you have student loans, understand that wide-scale student loan cancellation is not guaranteed. Student loan relief will end in January, so make sure you plan for your financial future now. Don’t wait until February. You can save money with these options for your student loans:


Student Loans: More Reading

Biden extends student loan relief through January 31, 2022

Student loan cancellation became focus today on Capitol Hill

Student loan cancellation may help more borrowers, but that doesn’t mean Biden will cancel everyone’s student loans

Student loan cancellation won’t stimulate the economy, according to new research

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