Student debt forgiveness: where is it now
The Biden administration has not made a decision on canceling student loan debt, despite pressure from Progressive Democrats who called on the president to issue an executive order that would write off the debt of millions of borrowers.
However, the administration’s latest student loan cancellation initiatives suggest that widespread student loan cancellation may be possible in the future.
Here’s what you need to know about student debt cancellation and when it could affect your student debt.
What is happening now with the cancellation of student loans?
In his most recent and obvious step towards a massive remission, Biden asked in early April that US Secretary of Education Miguel Cardona oversee a legal review of whether the cancellation of the debt of a student loan without congressional approval is constitutional. The results of this review could help the Biden administration decide whether forgiveness is an option, when it might happen, and how much he would forgive.
“It appears that President Biden is trying to take a cautious and methodical approach to this issue which is a bit politically heavy,” said Mark Hamrick, senior economic analyst at Bankrate and chief of the Washington bureau. “By having an outside lawyer to weigh in, it is possible to essentially outsource some of the fundamentals of your decision as to whether and how to move forward, if at all.”
Warren’s Senate Hearing Highlights Planned Result of $ 50,000 in Student Loan Cancellation
While the results of the legal review are expected to take a few weeks, pressure is still mounting for Biden to act quickly, especially from Democrats like Senator Elizabeth Warren. On April 13, Warren held a hearing on new Department of Education data that highlighted the number of borrowers who would receive a full cancellation of the massive student loan cancellation.
In 2020, Biden proposed to write off $ 10,000 in federal student loan debt per borrower. Since then, Warren and other progressive Democrats have pushed Biden to forgive $ 50,000 per borrower. Although Biden objected to the $ 50,000 pardon, he did not completely write off the pardon of a larger amount.
According to the Education Department, around 15 million borrowers would have their federal student loan debt written off completely as part of Biden’s $ 10,000 cancellation proposal, while around 36 million would have their debt written off in the part of Warren’s $ 50,000 proposal.
Of the 44,972,000 federal borrowers with student loans, here’s how many borrowers would have their total student debt written off completely, with amounts between $ 10,000 and $ 50,000 per borrower.
Borrowers in default or in arrears would also benefit greatly from the massive forgiveness of their student loans. Nearly 4.7 million borrowers in default would have their federal loan balances canceled under Biden’s proposal, while 9.8 million borrowers would receive full forgiveness under Warren’s proposal.
Congressional Democrats hope data highlighting the benefits of a larger pardon amount will push Biden in that direction. However, Biden is highly unlikely to forgive a larger amount. Asked about the possibility of forgiving $ 50,000 at a CNN town hall in February, he said, “I won’t make it.”
During the town hall, he argued that the funds used to hand over $ 50,000 per borrower would be better spent on providing early education to underprivileged children. He also argued that forgiving such a sum would have a disproportionate impact on students attending prestigious schools like Ivy League institutions.
“He faces pressure from the more progressive members of his party to act more aggressively,” says Hamrick. “At the same time, there is a challenge and a problem in providing a benefit to some people who do not need help, including those who have the financial means or are in a strong position with regard to current or future income that can be used to pay off this debt.
Adds Hamrick: “I’m not convinced Biden is convinced of the idea in general. I think it’s absolutely safe to say that forgiveness is not very high on his priority list.
What student loan forgiveness offers have been made?
A number of the Biden administration’s proposals – some of which have become law – have already written off millions of dollars in student loan debt. Among them:
New stimulus package makes forgiveness of federal student loans tax-exempt
In March, a $ 1.9 trillion stimulus package – also known as the American Rescue Plan – included a provision that makes forgiveness of student loans exempt from federal tax until 2025.
The provision was introduced in March 2021 as the Student Loan Tax Relief Act and was led by Democratic Senators Elizabeth Warren and Bob Menendez. Thanks to the Relief Act, borrowers will not be required to pay federal taxes on their forgiven student debt from 2021 to 2025. This has mainly benefited borrowers who are enrolled in income-oriented repayment programs, as they are no longer required to report their remittance. amounts as taxable income.
The massive forgiveness of student loans would also be considered non-taxable under the provision.
Biden administration provides billions of dollars in federal forgiveness by overhauling borrower’s defense on repayment
Earlier this year, the Biden administration revised the borrower’s defense to the repayment law and made forgiveness easier to obtain. The Borrower’s Defense Against Repayment is a federal law that allows students the full forgiveness of their student loan balance if their college closes or engages in fraudulent or illegal activity.
The program review will impact approximately 72,000 borrowers who received only partial forgiveness through the program under the Trump administration. Under the old administration, forgiveness was more difficult to obtain and borrowers had only three years to prove their eligibility. As a result, many have received partial or no forgiveness.
The Department of Education totally and definitively remits the federal debt disabled borrowers
At the end of March, the Department of Education announced revisions to the Total and Permanent Disability (TPD) leave program. The TPD Release Program allows borrowers who qualify as totally and permanently disabled to have their student loan debt discharged. This decision is expected to provide more than $ 1.3 million in forgiveness and affect 230,000 borrowers.
Prior to the review, borrowers were required to show proof of income for three years. If they exceeded the income limit or failed to provide the proper documentation, their debt would be restored. For this reason, many borrowers were unable to take advantage of the program.
Borrowers will now be able to more easily qualify for the program and will not be required to submit income documents during the remainder of the COVID-19 pandemic.
What could happen in the near future?
When it comes to the massive cancellation of student loans in the near future, it relies primarily on the results of the legal review, says Mark Kantrowitz, the nation’s leading expert on student loans. “The fact that it’s taking time suggests that it won’t be as clear as people assume,” he says. “If the result of the review is that you have the authority, then they could do it pretty quickly.”
If Biden doesn’t have the executive authority to enact pardon without Congress, things can get complicated. If Congress fails to come up with a bipartisan resolution regarding pardon, it will begin planning some sort of budget reconciliation omnibus bill to determine how much money is available, Kantrowitz says.
“The limiting factor is going to be an increase in income and a decrease in costs to offset the costs of forgiveness,” he says.
While there is no set timeline, there is likely a feeling there is a time limit with the midterm elections two years from now, Kantrowitz says. As for the student loan cancellation in the near future, it will all ultimately come down to the results of the legal review, and then the Biden administration will likely be able to give a more specific timeline.
What are the student loan forgiveness options currently available?
Federal borrowers who qualify for a student loan always have forgiveness options. Here are some of the best federal forgiveness programs and how you can take advantage of them.
- Public service loan forgiveness: Must work in a qualifying public service job for a required period of time. You can get the remaining balance canceled after 120 qualifying payments.
- Teacher loan forgiveness: Must work in an eligible position at an eligible school for at least five years. You can be forgiven for up to $ 17,500, depending on the subject you teach.
- Nursing Corps Loan Repayment Program: Must meet eligibility criteria. You can get up to 60% cash back on your “outstanding two-year qualifying nursing student loan”. You can then apply for a third year, for another 25 percent of your canceled loans.
- Income-driven repayment plans: Must have eligible federal student loans. There are four standard income-focused repayment plans, and each requires you to pay off a portion of your “discretionary income” for 20 to 25 years before your loans are canceled.
- Sorry for the military: Must be an eligible member of the military or an eligible veteran. There are many ways to receive forgiveness, and eligible borrowers can be forgiven for up to 100% of their balance.
- Sorry for the doctors: Must be a specific physician for a qualifying period of time. There are several programs that offer forgiveness to physicians in eligible circumstances.
- Sorry for the lawyers: There are a number of state relief programs that can help qualified attorneys receive a pardon. You can also receive up to $ 60,000 in forgiveness under the Attorney Student Loan Repayment Program.
- Forgiveness through AmeriCorps: Individuals who serve in AmeriCorps are eligible for 100% forgiveness if they also receive the Segal AmeriCorps Education Award.