Student Loan Forgiveness: The Future

By: Zack Friedman, Senior Contributor

Here’s what to expect next with wide-scale student loan forgiveness.

Here’s what you need to know — and what it means for your student loans.

Student Loans

President Joe Biden is days away from announcing his decision on student loan forgiveness. Biden, who already has canceled $32 billion of student loans, is considering wide-scale student loan cancellation for more than 40 million student loan borrowers. The president has committed to announce his decision on broad student loan forgiveness by August 31, 2022, the same date the student loan payment pause ends. Will Biden cancel student loans? Here are some key predictions on what you could expect if Biden enacts wide-scale student loan forgiveness.

1. Expect $10,000 of student loan forgiveness

If Biden enacts wide-scale student loan forgiveness, expect $10,000 of student loan forgiveness. Internal documents from the U.S. Department of Education include a proposal for Biden to cancel $10,000 of student loan debt. As a presidential candidate, Biden supported this amount of student loan cancellation. As president, Biden has called on Congress to pass legislation to cancel $10,000 of student debt. However, Progressive Democrats such as Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) have lobbied Biden to cancel $50,000 of student loans for borrowers. Biden has never supported this amount of student loan relief.

2. Expect all federal student loan borrowers to qualify

If Biden cancels student loans, expect all federal student loan borrowers to qualify. Previous student loan relief applied only to Direct student loans, excluding borrowers with FFELP and Perkins Loans. With broad student loan cancellation, Biden could expand eligibility to include FFELP Loans, Perkins, Loans, Parent PLUS Loans and Grad PLUS Loans, for example. The U.S. Department of Education doesn’t own most FFELP Loans and Perkins Loans. If these student loans are included in student loan forgiveness, the federal government would have to manage the logistics of paying off third-party owners of these debts, such as financial institutions, investors and colleges.

3. Expect student loan interest rates to remain the same

You should expect the same student loan interest rate regardless of whether the president cancels student loans. The student loan payment pause temporarily set 0% interest rate for federal student loans. While Biden proposed to lower interest rates on student loans, student loan cancellation won’t automatically make student loan interest rates 0% permanently. Once the student loan payment pause ends, interest rates for federal student loans will reset to the interest rate from before the Covid-19 pandemic in March 2020. Since federal student loans have fixed interest rates, they do not change when the Federal Reserve raises interest rates.

4. Expect an income threshold to limit student loan forgiveness

Not everyone will qualify for student loan forgiveness. For example, the Biden administration could implement an income threshold limiting higher-income earners from qualifying. The Biden administration has floated income thresholds of $150,000 or $125,000 for each individual. In contrast, $75,000 was the income threshold for individuals to receive a stimulus check from the Covid-19 pandemic. Why institute an income threshold? The argument in favor not only saves money for the federal government, but also counters the idea that broad student loan forgiveness is wealth redistribution for higher-income earners with a college education. Biden is also focused on lower-income earners, and has proposed to give student loan borrowers in student loan default a “fresh start” with their student loans.

Student loans: next steps

Expect a decision on wide-scale student loan cancellation and the student loan payment pause this week. There’s no guarantee that Biden will implement wide-scale student loan cancellation, but if he does, these predictions may not hold. Biden has supported major changes to student loans, including expansion of student loan forgiveness. If the president chooses not to cancel student loans, he will still support targeted student loan cancellation for specific groups of borrowers through existing federal student loan programs such as public service loan forgiveness. Importantly, wide-scale student loan forgiveness of $10,000 or another extension of the student loan payment pause won’t eliminate all your student loans. Make sure you understand all your options for student loan repayment, so you can get out of debt faster. Here are some smart ways to save money on your student loans: