Stop Believing These 5 Myths About Student Loan Cancellation
Beware of These 5 Myths About Canceling Student Loans.
Here’s what you need to know.
There is a lot of misinformation about canceling student loans – who will get it, how many, and when. Make sure you know how to separate fact from fiction. Don’t Believe These 5 Myths About Student Loan Cancellation:
1. Everyone gets their student loan forgiven
Myth: “Cancel student loans” means that all student loans are canceled or everyone gets a student loan cancellation.
- Senator Bernie Sanders (I-VT) has proposed to cancel all student loans, including the $ 1.7 trillion in private and federal student loans.
- However, this proposal does not have the support of the general public, whether it is from President Joe Biden or members of Congress.
- Everyone is unlikely to get their student loan forgiven. Expect limitations on income requirements, for example.
- Senate Majority Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) have proposed canceling student loans for student borrowers with a annual income up to $ 125,000. If you earn more than this amount, you won’t get any student loan discount under their plan.
2. Your private student loans will be canceled
Myth: Biden or Congress will write off your private student loan debt.
- Biden proposed to write off $ 10,000 in student loans for borrowers. Biden’s plan can only apply to federal student loans, not private student loans.
- Likewise, Schumer and Warren’s plan only applies to federal student loans.
- While it is possible that private student loans could be canceled, the current feeling is that only federal student loan debt would be forgiven in the event of a large-scale student loan cancellation.
- Specifically, the cancellation of student loans would apply to federal student loans held by the US Department of Education. Therefore, this could exclude certain FFELP and Perkins loans held by financial institutions or private investors.
3. Biden can cancel student loans by decree
Myth: Biden can unilaterally order the cancellation of the student loan by decree.
- Biden wants to cancel student loans in three ways.
- Despite the rhetoric of some members of Congress, it’s not as simple as saying that Biden can order student loan cancellation “with the stroke of a pen.”
- Biden has some power to forgive student loans through executive action. For example, since taking office in January, Biden has canceled more than $ 2.3 billion in student loans for student loan borrowers.
- The US Constitution grants Congress, not the President, the “power of the stock market” to control federal spending. The most popular interpretation is that the president does not have the unilateral power to order the cancellation of student loans without further authorization from Congress.
- If the president cancels student loans, that decision will likely be challenged in court. This could delay any student loan forgiveness for borrowers.
- Biden has asked the US Department of Education to conduct a legal review of his power to enact a large-scale student loan cancellation through executive order.
4. Congress will cancel student loans
Myth: The cancellation of student loans is widely supported in Congress.
5. Canceling a student loan is the only way to get a student loan forgiven
Myth: If Biden doesn’t cancel my student loans, I will never get a student loan cancellation.
- There are several ways to get student loan forgiveness.
- While they don’t happen immediately, these existing programs can help save you money.
- Income Based Repayment Plans such as Income Based Repayment (IBR), Pay As You Earn (PAYE), Compensation As You Earn (REFUND) and Pay As You Earn (REFUND) Income Based (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-based repayment plans are especially useful if you are having trouble paying off your student loans or if you lose your job.
- Until 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 that date.
- The Public Service Loan Forgiveness Program helps student loan borrowers get their student loans forgiven if they work full-time for a qualified public service or non-profit employer and make at least 120 payments monthly for their student loans, among other requirements.
- There is even a proposal to cancel student loans for all public servants after 10 years of service, even if they do not meet the requirements for canceling student loans.
- Biden supports the public service loan forgiveness program and has offered to offer up to $ 50,000 in 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 US Department of Education’s legal note, which may help guide his next steps on student loan cancellation. Biden will weigh both legal and political considerations, although he may choose a different recommendation that Education Secretary Miguel Cardona recommends. If Biden cancels student loans by executive order, the cancellation of the student loan might look like this. If Biden does not have the legal authority to cancel student loans by executive order, Congress will have to act next. Biden has indicated he will sign any student loan forgiveness legislation Congress passes. To pass a law, however, Congress would have to modify its current proposal for a $ 50,000 student loan forgiveness in order to find a solution that attracts more support.
Whether Biden or Congress decides to cancel student loans, don’t expect all of your student loans to be canceled. That is why it is important to also consider these other potential options for saving money: