The American Rescue Plan proposed by President Joe Biden is a huge stimulus package aimed to recover the economy. The $1.9 trillion worth stimulus plan was unveiled in mid-January and evoked mixed feelings toward its benefit.
For once, it was a disappointment for student loan borrowers waiting for direct Forgiveness. Unfortunately, there is no stimulus for student loans in the form of debt cancellation. However, some measures still exist which can benefit the debtors.
This guide will discuss the American Rescue Plan’s different elements to create the full picture of the stimulus package for borrowers. Besides explaining the proposal, we will present alternative ways to reduce or eliminate debt obligations.
The $1.9 Trillion Worth American Rescue Plan
The COVID-19 pandemic hit the world economy. Not surprisingly, many people in the U.S lost their jobs, or their income levels decreased. As a result, student loan borrowers also faced difficulties repaying the debt.
Sure, the government allowed a student loan forbearance period for debt collection. In this way, the borrowers are not required to repay the debt, and no interest accrues. According to the latest request, Biden extended the debt collection suspension period by 8months. It means borrowers do not need to worry about repayment till October.
However, with the rescue plan proposal, there appeared more stimulus for student loans. The benefits might not be directly related to the student loan repayment. Yet, they allow borrowers to reduce other expenses or get an extra income. Therefore, borrowers can be better prepared till the debt collection resumes.
This section will present what is included in Joe Biden’s stimulus package. If you do not feel content, keep reading to explore more options available to borrowers.
1. Direct Payments
Similar to the previous stimulus packages, Biden’s plan also involves direct payments to the U.S adults. However, there are differences. First, the amount of payment is much higher than what was proposed in December, $1400 per person compared to $600. Second, more people qualify for the benefit. Biden’s proposal covers dependent children older than 17 and families with immigrated parents.
Besides the direct payment, the plan aims to increase the minimum wage to $15 per hour. However, Congress still needs to approve it before it is put into law.
2. Unemployment Aid
Before discussing what changes Biden brought for unemployed people, let’s get familiar with December’s proposal. In December 2020, the relief plan requested a $300 federal enhancement for unemployed people per week. Besides, the government extended the two pandemic programs targeting the unemployeds by eleven weeks, till around March. They could have expired at the end of December before the extension decision.
However, Biden proposed to increase these benefits. First, he aims to raise the weekly federal enhancement amount to $400 per person. Meanwhile, he also wants to extend the effective date of the two programs till the end of September.
For more information, the two programs are the Pandemic Emergency Unemployment Compensation and the Pandemic Unemployment Assistance plans.
3. Healthcare Services
Related to the second point mentioned, there are people who lost their jobs due to the pandemic. Luckily, Biden requested Congress to fund these people’s health insurance premiums. In particular, the ones losing their work-related health insurance through September.
The American Rescue Plan also benefits people enrolled in the Affordable Care Act. Currently, Biden wants Congress to increase the premium subsidies. As a result, people like student loan borrowers dealing with financial challenges will not pay more than 8.5% of their revenue for this aim.
Besides, Biden proposes allocating funds to mental disability and substance use disorder- $4 billion and veteran needs- $20 billion, respectively.
It should also be mentioned that the plan provides funds to develop and test vaccines. Around $70 billion is allocated for these purposes.
4. Rent Assistance
The American Rescue plan might not provide a direct stimulus for student loans, but it helps borrowers deal with other expenses like accommodation costs. If you are a borrower who lost a job during a pandemic and have low-to-moderate income, the government plans to assist you with rent expenses. For this aim, the plan allocates $25 billion.
Besides, utility costs can be expensive to afford if the individual is struggling with finances. Biden also proposes benefits to such people. In more details, $5 billion is set aside for utility bills.
It is no surprise that people become homeless due to their bad finances and debt issues. Hence, the American Rescue plan allocates an additional $5 billion for people at risk of homelessness.
Lastly, if you face a federal eviction moratorium, its expiration is also set to September end.
5. Food Aid
Here are four main things you need to know about food aid proposals.
- 15% increase in food stamp, extended till September
- $3 billion worth of food aid for women, children, and infants
- $1 billion funds allocated to nutrition assistance all over the U.S
- Partnerships with restaurants to provide food to people in need and workers lost their jobs during the pandemic.
As visible, Biden gives huge importance to deal with hunger and provide necessary food assistance through the American Rescue Plan.
6. Care for Children
Another element of the rescue plan is to allocate funds for child care. These funds will also help child care homes. In total, $40 billion is set aside. Besides, if you have a child, you will be able to get more tax credit, around half of the spending for children younger than 13.
7. Tax Credits
Tax credit changes are important parts of the stimulus package. As mentioned before, a provision exists to increase the tax credit for families with children. Furthermore, the tax credit will be up to $3,600 and $3,000 for children younger than six and between 6 and 17, respectively. Even better, the tax credit can be refundable.
8. Paid Leave
Biden extended the paid leave benefit till September end. If you are sick, in quarantine, or need to care for a child due to school closures, you can leave the job and still get paid. The duration of such a period can be a maximum of 14 weeks. Besides, the rescue plan covers workplaces with more than 500 and less than 50 employees.
For some employers, the government can reimburse the money. Particularly, businesses with less than 500 employees can get this benefit.
9. Small Business Support
In addition to the existing Paycheck Protection Program, the government aims to set aside $15 billion to support small businesses. An extra $35 billion will be allocated for financing opportunities providing low-interest funds.
10. Schools and State Infrastructure
One of the controversial points of the stimulus package was the state aid. While Democrats supported it, Republicans resisted the idea. In general, Biden’s Rescue plan targets $350 billion to assist states. The states will have the flexibility to utilize these funds- whether to spend for frontline workers, vaccines, schools, etc.
An additional $170 billion will assist schools, colleges, universities, etc.
How Guaranteed is the Proposal?
Business Insider mentioned that Biden’s $1.9 trillion relief plan could be in trouble. The plan might not be able to get Congress approval till March. The main reason for the delay is that some Republicans and key Senate Democrats do not fully support the proposal. It is also possible that the proposal will get Congress approval after some changes, which can again take time.
What about Stimulus for Student Loans?
As mentioned before, there is not much stimulus for student loans in the American Rescue Plan. Sure, it helps borrowers deal with other expenses, such as rent, utility, health care, child care, etc. However, the plan does not bring immediate relief to the borrowers.
Hence, the plan can be a disappointment for many borrowers. Especially due to Biden’s support for direct Forgiveness, there emerged an expectation for it.
The expectations started when Biden tweeted and expressed support to direct Forgiveness of $10,000 per person. He mentioned that Forgiveness should be immediate assistance to individuals struggling with debt repayments.
Currently, around 40 million people have student loans, and the total amount of debt is around $1.7 billion.
Who would not want to get a $10,000 reduction in debt immediately? Direct Forgiveness sounds like an attractive stimulus for student loans. There are many people in the government supporting this idea. For example, United States Senator Elizabeth Warren noted Forgiveness as a “single effective stimulus.”
Some Democrats even requested a higher amount of debt cancellation- $50,000.
Considering that 1 out of 5 borrowers default in the U.S, the Forgiveness can be immediate assistance. However, it will not be easy to convince Congress to approve it. Some experts still see this action as unfair to most taxpayers because not all of them take debt to get a better education.
If people got student loans for a degree, eliminating their debt with the funds of taxpayers who never risked being in debt for education can be an unfair step. Besides, legislative Forgiveness would require nine more Republicans to accept the idea, considering that all Democrats would support it (not guaranteed yet).
Another way to pass the Forgiveness is through budget reconciliation. With this method, it is enough to have support from the Democrats majority. However, it comes with its disadvantages. The budget reconciliation can only be utilized once a year, which means a trade-off. Besides, budget reconciliation can allow parties to change the provisions.
Some parties also alleged that Joe Biden could put this stimulus for student loans into executive order without Congress’s approval. However, Biden did not express any support for such action. Only time will show if debt forgiveness will be accessible at all.
What does the Education Department say About Forgiveness?
The outgoing Education Department Secretary Betsy DeVos does not support the forgiveness idea. In her farewell letter, she mentioned how she made the student loan processes and repayment easier than ever due to centralization.
In the final thoughts, she noted that Forgiveness would be an unfair decision because it will benefit the nation’s wealthiest section. Betsy DeVos claimed that using taxpayers’ money for Forgiveness would be unfair to two-third of taxpayers who did not get any loan for education or paid the loans responsively.
Biden’s Nominee for Education Department
Biden nominated Dr.Miguel A. Cardona for the Secretary of Education to replace Betsy DeVos. Dr.Cardona has experience in education and managing public schools for three decades.
Unlike DeVos, Cardona supports direct Forgiveness as a stimulus for student loans. He mentioned that he would back the idea and work with different parties to develop a student loan relief plan. He also added that the plan should provide benefits first to people who need it the most.
The Dark Side of Debt Forgiveness
Sure, student loan forgiveness granted out of nowhere seems like excellent government support. Many borrowers might wish this stimulus for student loans to get Congress approval as fast as possible.
However, stop for a minute and think more about Forgiveness. It can bring different challenges, as well. For example, tax payments can be one of these issues.
Some forgiveness programs are taxable. It means borrowers pay additional taxes from the forgiveness benefit they receive. The Internal Revenue Service recognizes Forgiveness as income. If the tax is not paid on time, it can accrue interest and late payment fees.
If the debt forgiveness ever gets Congress approval, the borrowers should determine if it will be non-taxable. Goldman Sachs estimated that such taxes could be 20% of the forgiven debt.
Sure, Biden supports eliminating taxability of many forgiveness opportunities. In his student loan plan, he proposed removing taxes from Income-based repayment plans so that the Forgiveness achieved would not bring new challenges. He noted that when people are finally free of the debt, they should not worry or get the new debt to meet the tax requirements.
Therefore, it can be expected that if Biden’s forgiveness proposal gets approval, it can also be non-taxable. However, we need to wait and see the final decisions regarding such stimulus for student loans.
Biden Stopped Debt Collection for 8 Months
Although Forgiveness is not achieved as a part of the stimulus for student loans, luckily, Biden extended the debt collection suspension period till October. Some people were worried that if the debt collection resumes in January, they will not be able to repay the debt.
Others expected that even if Biden extends the forbearance period, it will be around one to three months. However, on his first day of presidency, Biden requested the Education Department to extend the forbearance as long as eight months.
During this period, borrowers are not required to make monthly payments. Meanwhile, they face no penalties, or interest does not accrue. Besides, this benefit applies to debt collections through wage garnishments and tax refunds. The months with 0% interest still qualify for Public Service Loan Forgiveness, rehabilitation, etc., programs that require payments from borrowers.
Suspension- for Government and Borrowers
Many people think that debt collection suspension is a favor for borrowers. The government cares for borrowers’ financial difficulties and grants benefits such as non-collection periods. This idea can be partly true. However, there is another side to the story.
The government also needs such a period. It was observed that when people face financial difficulties due to unexpected situations like natural disasters, the default rates spike once the debt collection starts. Student loan default is not desirable because it makes the collection process more expensive and time-consuming. Hence, the government also needs to develop a plan to effectively resume the debt collection and keep the loan default rates lower.
On the other side, borrowers need to use this stimulus for student loans wisely. Non-collection periods should not be perceived as “holidays.” Borrowers should use this period to their advantage and plan the debt repayment’s future. Sooner or later, the debt repayment will resume, and you need to ensure that you do not struggle with it.
How to Take Advantage of the Forbearance Period?
As mentioned, borrowers need to plan the repayment process. Usually, borrowers procrastinate the research process for their debt resolution alternatives due to responsibilities. Currently, lockdowns and an 8-month suspension period create a good opportunity for borrowers to get familiar with all possible scenarios.
This section will present some alternatives to direct forgiveness plans to assist borrowers. As discussed above, Forgiveness should not be expected to happen soon, if it ever happens. Rather than waiting for the government’s favor, it is time to take responsibility and develop your plan.
Sure, you can research on your own and decide on the programs that can be helpful. For this aim, you can check Studentaid.gov or our articles. However, it will be more helpful to get help from third-party debt specialists, like those in Student Loans Resolved.
The forgiveness or repayment programs involve technicalities and finance background, which can be hard to understand. Yet, the debt specialists are familiar with the industry practices. Their extensive experience allows them to know which programs are the most effective and which are only a waste of time.
Additionally, debt experts can guide the borrowers through the whole process, from the program selection to the application process. In this way, debtors can maximize their chances of eliminating or reducing debt obligations.
Instead of waiting for government stimulus for student loans, it is more helpful to utilize existing programs. Sure, many programs are still funded by the government. Such debt resolution alternatives are available for federal loan borrowers. In the following sections, we will discuss these opportunities- Forgiveness, discharge programs, repayment plans, consolidation, etc.
However, private loan borrowers cannot apply to these options. Hence, to assist such borrowers, we will also present alternatives. The private loan borrowers might not be able to get Forgiveness, but they can at least reduce the debt burden. After considering all alternatives, if you have any questions or want to get more assistance, you can contact Student Loans Resolved immediately.
1. Forgiveness Programs
Student loan forgiveness is an excellent opportunity to get rid of the debt. Forgiveness is a part of government assistance for borrowers who provide some kind of service in return. Borrowers can get up to 100% debt reduction with the help of such programs.
The application process and eligibility requirements change depending on which program a debtor applies to. It is the most challenging part of Forgiveness. Thousands of borrowers get rejected every year because they do not clearly understand the eligibility criteria. Therefore, before choosing a program, debtors need to ensure they know the requirements.
Public Service Loan Forgiveness
If you work in public service, you can be eligible for the Public Service Loan Forgiveness. The program eliminates all the debt left after making 120 qualifying payments. In other words, if you pay the debt for at least ten years, the rest of the owed amount will be canceled. However, many eligibility requirements exist for the loan type, workplace, work conditions, etc.
In general, the borrower should work in a public or nonprofit organization. The work should be full-time, a minimum of 30 hours weekly. It is possible to be a half-time employee, but in this case, borrowers should be employed in more than one workplace to fulfill 30 hours per week requirement.
Keep in mind that only direct loans qualify for this forgiveness program. It is possible to consolidate loans, but only the payments after consolidation will bring credits. The borrowers should enroll in Income-driven repayment plans to make 120 qualifying payments. The payments need to be full and paid on time.
Previously, we talked about the taxability of forgiveness options. Luckily, the Public Service Loan Forgiveness is not taxable.
Biden’s Approach to PSLF
In his campaign plan, Joe Biden proposed changing the PSLF option to make it a better stimulus for student loans. Based on the changes, the PSLF program can bring direct Forgiveness for each year of service.
Rather than waiting for ten years, borrowers can get $10,000 forgiveness after one year of mandatory service. The maximum amount of such service years might be 5, which means the highest Forgiveness achieved will be $50,000. Biden mentioned that this change is necessary to simplify the PSLF process.
Student Loan Forgiveness for Teachers
Teachers might not get the highest benefits they deserve, but luckily the government cares about their student loans. The Teacher Loan Forgiveness program allows borrowers to get either $5,000 or $17,500 in return for five years of service. The benefit amount depends on the qualifications of the borrower. Another program available to teachers is Perkins Loan Cancellation. As the name suggests, only Perkins loans qualify for this program.
2. Borrower’s Defense to Repayment
The two programs mentioned above bring benefits based on the borrowers’ service intentions. There is another program- Borrower’s Defense to Repayment- based on the unfair practices students experience.
In other words, if the school officials mislead the students, lie about the education quality, true cost of loans, or deal with any other illegal/unethical practices, the students can stop repaying the debt. Keep in mind that this stimulus for student loans is only accessible if the school engages in education-related fraud. Personal issues, like physical harassment, do not qualify for this program.
How to Prove a Case?
The Borrower’s Defense program covers direct loans. The most important criteria for eligibility is proving the school’s misconduct. If the borrower is truly misled but cannot prove it to the Education Department, his/her application will be worthless. Therefore, when applying, borrowers should gather many supporting documents- email communications, advertising materials with false information, enrollment agreement, etc.
3. Discharge Options
Sometimes, depending on the conditions debtors face, they can discharge the debt. While borrowers can progress toward the forgiveness options, it is impossible to control the conditions that the discharge programs are based on. Student loan discharge might happen when the school closes, the borrower is disabled, dies, or bankrupts. Additionally, when schools engage in false certification issues, the borrower’s debt can be discharged. Debtors can get more information about discharge programs online or contact our debt specialists.
4. Repayment Plans
If you cannot get rid of the debt payments, you can find ways to pay them out effectively. Sometimes, it is easier to develop repayment plans than constantly chasing never-achievable forgiveness options. Fortunately, the government aid also involves multiple repayment plans. Each borrower can find a suitable option by getting familiar with the conditions.
Different repayment plans, like Standard, Extended, Graduated, and Income-Driven plans exist. Income-based plans usually benefit more to people who experience financial difficulties. Based on the income the borrower generates, the monthly payments can be extremely low for low-income debtors. Besides, it is possible to get Forgiveness after making payments for the required period.
5. Consolidation and Refinancing
Borrowers with multiple loans can ease the repayment process through consolidation. Student loan consolidation involves combining existing loans into one. As a result, the borrower gets a single loan. The new interest rate is usually the weighted average of existing loans’ interest rates.
Similarly, refinancing can simplify the repayment process. Refinancing means getting a new loan to pay out all existing debt. Borrowers enjoy student loan refinancing when the new loan has better loan terms, such as lower interest rates and more affordable monthly payments. Both federal and private borrowers can apply to this debt resolution strategy. However, federal debtors should think twice because they can access better options.
6. What Are Other Options Available for Private Borrowers?
Unfortunately, the debt resolution options that private debtors can access are limited. In this guide, we discussed the stimulus for student loans provided by the government during the COVID-19 pandemic. Even if Forgiveness becomes accessible, it will likely not cover the private debt. In general,government-funded programs mostly do not benefit private student loans.
If you have private debt and face financial difficulties, the first thing to do is contact the lender. The borrowers with good intentions should explain the challenges to lenders as fast as possible to avoid late actions. In return, lenders can grant a forbearance period or reduce the payments for a short period. Yet, the lender’s favor is not guaranteed.
Borrowers who missed multiple payments and cannot find any other solution can get help from debt settlement companies. Such companies develop a saving plan for the borrower. During the saving period, debtors do not repay the debt. In other words, they stop all debt payments to set aside some money. As a result, after some time, there is a considerable lump-sum amount collected. However, the amount is usually lower than the originally owed balance.
Some people might wonder why lenders should agree to the lower amount. In fact, they should not. There is no obligation for them to get less money. However, if they see that the borrower is in struggle and no other way exists to repay the debt, they might agree.
Biden’s proposed stimulus package can be a disappointment for many borrowers expecting direct Forgiveness. While there are no benefits specific to borrowers, other conveniences- such as food, rent, utility assistance- allows borrowers to be free of concerns during the pandemic. Yet, we advise you not to wait for direct Forgiveness and find your way for debt resolution.
Although the government did not provide a stimulus for student loans in the current package, there are many existing government-supported programs to eliminate the debt. This guide presented some alternatives for borrowers. However, you need to do your research more or contact the debt specialists like Student Loans Resolved to develop a feasible repayment plan.