Biden could write off $ 10,000 of your student loan debt
President Joe Biden’s student loan proposals have gained national attention – especially his campaign pledge to write off $ 10,000 in federal student loan debt for borrowers under the emergency measures in the event of a pandemic.
This pledge, which is part of Biden’s emergency action plan to save the economy, would only affect borrowers on federal student loans.
Here’s what you need to know about his proposal and the impact it could have on your student loan debt.
Biden’s plan could ease the debt of the majority of borrowers
Student loan debt continues to grow in the United States; the most recent statistics of MeasureA report a total of nearly $ 1.6 trillion in outstanding student loans, 92% of which belong to the federal government.
From free or reduced tuition fees to revised repayment plans based on income, Potential Biden Policies could radically change the financial situation of student borrowers.
In addition to these more systemic changes, Biden also suggested more immediate relief. A measure proposed in Biden’s emergency action plan would grant all federal student loan borrowers $ 10,000 or more in student loan forgiveness to promote economic recovery. Unlike the long-term forgiveness stated in his other proposals, this student loan cancellation would not be conditional on service.
For some borrowers, a $ 10,000 rebate may seem like a small fraction. However, a recent Ministry of Education report found that about 15 million borrowers have federal student loan debt of $ 10,000 or less, meaning that about a third of federal student loan borrowers would have all of their federal debt written off.
In addition, a Discount rate survey found that 73 percent of millennials have delayed major milestones in their lives because of their student loan debt. With $ 10,000 less, these goals could be more attainable. To put it in perspective, $ 10,000 could pay for a car or serve as a down payment on a house.
Biden explores the possibility of a decree
The likelihood of this measure going through depends in part on the details of the policy, according to financial aid expert Mark Kantrowitz. Senators Elizabeth Warren and Chuck Schumer also pressured Biden increase the forgiveness amount to $ 50,000, so that the details of the amount of forgiveness a student loan borrower might receive may change.
Whether or not Biden will use an executive order to cancel the student loan has been the subject of debate. On November 16, 2020, Senator Warren tweeted: “Student loan debt is preventing an entire generation from buying homes, starting small businesses, and saving for retirement – all of which we rely on to grow our economy. . Executive action for #CancelStudentDebt would be a huge economic stimulus during and after this crisis. “
Biden has traditionally favored the idea of going through Congress to pass student loan reform. However, Biden recently asked Education Secretary Miguel Cardona to explore the possibility of canceling student loan debt through an executive order. Depending on the results of the memo, we might see Biden change his mind about canceling student debt through executive order.
Student loan cancellation is now tax free
While the future of widespread student loan forgiveness is uncertain, Congress is laying the groundwork for a possible deployment of student loan forgiveness. As part of the US bailout, Democratic Senators Elizabeth Warren and Bob Menendez introduced a provision that allows all student loan forgiveness to be tax exempt until 2025. Previously, most canceled federal student loans were taxed as income.
Where does the money come from?
Biden’s plans to help ease growing student loan debt can come at a steep price. “Basically you have to get the money somewhere,” says Kantrowitz. “It will therefore be either to tax individuals, or to tax companies, or to increase the deficit. These are the three main sources.
Ultimately, the question is whether the burden of at least some of the existing debt will be placed on the backs of taxpayers, says Mark Hamrick, Washington bureau chief and senior economic analyst for Bankrate. “This is a delicate question, and one that Biden and others will have to resolve if the issue is resolved.”
Should you continue to pay off your student loan if forgiveness is possible?
The hope of a student loan cancellation may seem like a good reason to stop paying off your student loans. But there is several factors to consider before making this decision.
- There is no loan cancellation guarantee. Currently, the subject of cancellation or cancellation of student debt is a hot topic among lawmakers. However, no formal policy or law has yet been adopted. The surrender terms could be amended or changed completely before a policy becomes final. Relying on forgiveness could put you in a tough spot later if you find yourself responsible for the payments you miss.
- Federal student loan payments are not required at this time. If you have other financial priorities, putting your loan payments on hold now might be a good idea. As part of a coronavirus relief policy, federal student loans do not accumulate interest and do not require payments until September 30, 2021. If you need to accumulate savings or have other debt to repay This is the best time to put your student loan payments on hold.
- Forgiveness will not automatically remove all debt. If the $ 10,000 discount is accepted and your student debt is higher than that, you will still be responsible for the rest of your debt. Working on it now will make it easier to manage loans in the future, whether or not the forgiveness occurs.
What’s the next step for student loans?
In addition to Biden’s emergency action plan, he also proposed measures to write off $ 10,000 in student loan debt per year (up to five years) for borrowers who perform national or community service, doubling Pell grant values and reduce people’s income obligations. piloted reimbursement plans. During his first few months in office, he also worked with the Department of Education to review existing programs that offer loan forgiveness, such as full and permanent disability release and borrower defense against repayment. .
It’s important to remember that Biden’s emergency action plan, as well as his longer-term student loan plans, are just propositions at this point. For now, federal borrowers can continue to take advantage of the federal forbearance period, which President Biden has extended until September 30, 2021.