If President Joe Biden doesn’t enact student loan forgiveness, these 5 things could happen instead.
Here’s what you need to know—and what it means for your student loans.
The future of student loan cancellation may depend on a single legal memo from the U.S. Department of Education. Biden is awaiting a legal analysis from Education Secretary Miguel Cardona, which could be completed within weeks. While Biden ultimately may cancel student loans, there are several legal reasons why he won’t be able to enact unilateral student loan cancellation. If Biden doesn’t cancel student loans for all student loan borrowers, here are 5 things that could happen instead:
1. Targeted student loan cancellation
Will your student loans get cancelled? Wide-scale student loan cancellation is looking less likely each day. However, student loan cancellation can still happen, even if every student loan borrower doesn’t get student loan forgiveness. Since becoming president in January, Biden has embarked on a targeted, piecemeal approach to student loan forgiveness. Overall, Biden has cancelled at least $2.3 billion of student loans. (You can learn if you qualify for $2.3 billion of student loan forgiveness here). First, Biden cancelled $1 billion of student loans for 72,000 student loan borrowers and second, he cancelled another $1.3 billion of student loans for 41,000 borrowers with total and permanent disability. America has reacted to Biden’s student loan cancellation in different ways. However, there’s no indication that Biden would stop cancelling student loans even if he decides not to enact wide-scale student loan cancellation. For example, student loan borrowers who were defrauded by their college or university or who face permanent and total disability can still get student loan forgiveness.
2. Extend the pause on student loan repayment
Biden could extend the pause on student loan repayment, which he extended for eight months on first day as president. This pause means that student loan borrowers aren’t required to make any federal student loan payments through September 30, 2021. Importantly, this payment pause only applies to federal student loans that the Education Department owns, which means most FFELP Loans and Perkins Loans aren’t eligible. Cardona has said that extending the student loan repayment pause is “not out of the question,” but as of now, the student loan payment pause will end September 30, 2021. If that happens, then your federal student loans will be due starting October 1, 2021. The payment pause was enacted as part of the Cares Act, the $2.2 trillion stimulus package, in response to the Covid-19 pandemic. As the economy reopens, unemployment has dropped, and more Americans return to work, the Biden administration may be less likely to extend the student loan repayment pause.
3. Cancel student loans in bankruptcy
As an alternative to wide-scale student loan cancellation, Congress could amend the U.S. Bankruptcy Code so that student loan borrowers can have their student loans cancelled in bankruptcy. Biden, who opposed this policy as a U.S. senator, now supports making it easier for student loan borrowers to cancel student loans in bankruptcy. Currently, a student loan borrower can get their student loans discharged in bankruptcy, but typically they must prove undue financial hardship and meet other requirements. Sen. Elizabeth Warren (D-MA), Sen. Chuck Schumer (D-NY) also support this polcy change, and at least some Republicans could support this type of student loan cancellation.
4. Monitor student loan servicers
The Education Department and Consumer Financial Protection Bureau (CFPB) could increase regulation of student loan servicers. Your student loan servicer is the company to whom you make your monthly student loan payments. The Biden administration will increase consumer protection so that student loan borrowers get a fair shake with their student loans. That’s good news if you’re a student loan borrower. How will this benefit you? This should make student loan repayment easier and help reduce consumer complaints. For example, the goal is to help reduce and resolve consumer complaints, ensure student loan payments are applied correctly, and that borrowers are given accurate information and placed in the correct student loan repayment plan.
5. Cancel student loans in Congress
Biden isn’t the only one who can enact student loan cancellation. There are two main paths to wide-scale student loan forgiveness. Congress has the power to cancel student loans. While there have been multiple proposals for student loan forgiveness, Congress has yet to act. Why? Members of Congress won’t support the current proposals, which range, for example, from cancelling $50,000 of student loans to cancelling all student loan debt. Given Democrats’ slight majority in the U.S. Senate, Democrats may need to revise their student loans plan to find bipartisan support. While finding Republican support for outright student loan cancellation for every student loan borrower may be challenging, Democrats could start with a bipartisan plan to reform higher education, which may include some form of student loan relief.
Student loan cancellation: final thoughts
Will you get student loan cancellation? Biden hasn’t officially made a final decision. However, it appears based on recent actions that wide-scale student loan cancellation is less likely. While Biden wants to cancel student loans three ways, he excluded student loan cancellation from the latest stimulus package, infrastructure package and budget. So, there is no guarantee that Biden will enact student loan cancellation. That said, if there is no wide-scale student loan cancellation, Biden and Congress may unite to implement other student loan relief that could lead to student loan cancellation and other types of student loan relief. If you have student loans, make sure you are prepared for student loan repayment and understand all your options. Here are some helpful places to start:
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