The student loan crisis has long been an important issue. However, it became more noticeable during the COVID-19 pandemic when many borrowers faced financial struggles. Additionally, President Biden’s favorable approach to direct loan forgiveness created high hopes for debt cancellation. So, many borrowers started to ask, “ Will student loans be forgiven?” considering the forgiveness news appearing all over the news. This guide will explore different scenarios and advise further steps for both private and federal student loan borrowers.
Will Student Loans be Forgiven?
The direct answer to this question is uncertain for now. It seems like direct forgiveness has a long way to go considering current conditions. Before explaining these scenarios, let’s first understand how the direct loan forgiveness issue became considerable.
First, the discussions started when Joe Biden posted a tweet supporting $10,000 forgiveness. This tweet was published before he was selected. Hence, once he became the President, borrowers hoped the President would grant the long-waited loan forgiveness.
Additionally, we should forgive a minimum of $10,000/person of federal student loans, as proposed by Senator Warren and colleagues. Young people and other student debt holders bore the brunt of the last crisis. It shouldn't happen again.
— Joe Biden (@JoeBiden) March 22, 2020
However, the President has not made any progress for loan forgiveness since January. Yet, he provided other benefits. For example, when everyone expected 1-2 months of extension to loan forbearance, the President granted eight more months. Then, he prolonged non-repayment till 2022.
$50,000 Loan Forgiveness
While people wondered if $10,000 direct forgiveness would be granted, a more significant hope emerged- $50,000 forgiveness. Democrats, mainly led by Sen. Elizabeth Warren and Majority Leader Chuck Schumer, strongly favored $50,000 forgiveness. They claimed that such an amount of debt cancellation is necessary to stimulate the economy as many borrowers will be debt-free.
1. Biden-Harris can cancel billions of dollars in student loan debt, giving tens of millions of Americans an immediate financial boost and helping to close the racial wealth gap. This is the single most effective executive action available for a massive economic stimulus.
— Elizabeth Warren (@SenWarren) November 12, 2020
Besides, the Democrats claimed that the President has a right to grant forgiveness even without getting Congress’s approval. Such a method to change regulations is called executive action.
Executive Action for Forgiveness
When the President kept silent, people started losing their hopes for forgiveness. It seemed like the question of “Will student loans be forgiven?” was going to have “No” as an answer.
At that time, the White House Press Secretary tweeted to show the President’s continuing support for the student loan forgiveness.
The President continues to support the cancelling of student debt to bring relief to students and families. Our team is reviewing whether there are any steps he can take through executive action and he would welcome the opportunity to sign a bill sent to him by Congress.
— Jen Psaki (@PressSec) February 4, 2021
As noticeable, the President asked the Justice Department to investigate if executive action can be performed and it will be lawful. But, unfortunately, there is no exact result for this investigation yet. Besides, the President is not favorable to executive action and prefers forgiveness to be offered through Congress’s approval.
Later, during his first address to Congress, people expected that the President would mention loan forgiveness. However, he did not raise this issue which again disappointed borrowers. Therefore, the question of “Will student loans be forgiven?” remained unresponded.
Immediate forgiveness might not happen immediately. In fact, it might not even occur expectedly. Therefore, experts developed several scenarios, which we will briefly discuss in the following section.
No Forgiveness but Improvement
One of the scenarios is that there will be no forgiveness granted to borrowers by Biden’s administration. The primary rationale behind such a scenario is that forgiveness is a highly conflicting issue. Even if President Biden gives forgiveness through executive action, multiple lawsuits will emerge against the decision, which will delay it.
However, some improvements will likely be made. For example, instead of investing money to write off debt, the government can introduce more repayment plans, cheaper student loans, or even free education opportunities.
Currently, the Biden administration has already started working on improvements on existing student aid programs. For example, the administration already launched an inquiry to collect public opinion on Public Service Loan Forgiveness. Once feedback is collected, the loan forgiveness will be updated to match public needs.
Only $10,000 Direct Forgiveness
Although the Democrats are pushing the administration to grant $50,000, this amount seems highly unlikely. Additionally, President Biden only supported $10,000 forgiveness before he was elected. He never supported $50,000, nor did he claim forgiveness would be granted through executive action.
So, will student loans be forgiven? Even if forgiven, you will be better off expecting a lower amount- $10,000 forgiveness. Sure, it can eliminate 100% of the debt of 16 million borrowers. However, do not tie all your hopes to this announcement.
Forgiveness Only for Some Borrowers
Some experts also claim that forgiveness might be possible. However, it might not be available to all borrowers.
Since Biden’s presidency, we have observed targeted loan forgiveness strategies. For example, instead of granting forgiveness to all borrowers, the Education Department helped different groups of borrowers.
For example, disabled debtors and those who the schools misled received main forgiveness opportunities. In other words, Total and Permanent Disability Loan Discharge and Borrower’s Defense to Repayment were two main student aid programs frequently appearing in the news.
We might also observe the same pattern for direct forgiveness possibilities. Even if the Education Department eliminates $50,000 worth of student loans per borrower, not every debtor will enjoy this benefit. There can be different conditions that determine eligibility. For example, the borrowers in absolute poverty or exceeding a particular debt to income ratio can become eligible. Alternatively, people of color and minority groups can become targeted.
Forgiveness in the Long Run
Another popular opinion is that some portion of student loans will be forgiven. However, it will take a lot of time. If Biden grants it through executive action, the process will be quick. Yet, Biden seems like he is not supporting executive action.
Hence, much time is required till investigations on the possibility of executive action are fully completed. It has already been seven months since the President asked the Justice Department to analyze this solution. Additionally, an executive order can be subject to a lot of lawsuits.
On the other hand, legislative action can be a solution, but it will still take a lot of time. It is hard to convince officials to vote for immediate forgiveness.
Will student loans be forgiven? We analyzed several scenarios and came to a single important conclusion. It is worth listening and paying attention to forgiveness updates; yet, borrowers should not live by this possibility.
It will be a waste of hope as even the positive case of forgiveness might bring several challenges such as time and little more than expected. Besides, if forgiveness is for specific groups of borrowers, you might be left without any debt cancellation.
What Programs are Favorable under Biden’s Administration?
Although debt forgiveness has not been offered yet, the Biden administration made huge efforts to decrease borrowers’ debt burden. This section will introduce you to the most popular programs under the Biden administration, which might help you find your debt resolution strategy.
Borrowers’ Defense to Repayment
This loan forgiveness program aims to protect students whom the schools misled. During recent years, the school officials lied to debtors to convince them to enroll. They misinformed students about the actual cost or quality of education, job replacement rates, transferability of credits, etc.
This program prospered during Obama’s administration, but in recent years, the program lost its attractiveness. The Education Department delayed the application review process and mostly rejected the applications. Many borrowers could not get forgiveness in high percentages, although their applications were successful.
Since Biden became the President, he aimed to improve this forgiveness program and help borrowers. As a result, many applicants received forgiveness through this program. Besides, the ED granted complete forgiveness to those who received only partial discharge before.
Total and Permanent Disability Discharge
Another area of improvement has been the Total and Permanent Disability Discharge program. This program offers 100% forgiveness to borrowers who could prove their disabilities. In addition, it is possible to get required disability documentation from Veteran Affairs, Social Security Administration, and a physician.
The Education Department under Biden’s Presidency has also helped thousands of disabled borrowers. Recently in August, more than 320,000 borrowers received a full discharge. In total, a $5.8 billion loan discharge was granted to debtors who automatically became eligible.
Apply Immediately If You are Eligible
As you are already familiar with the prospering opportunities, the first thing to do is check if you are eligible for any of these options. For example, if your school misled you, try to gather all evidence and develop a sound argumentation.
Besides these two programs, other forgiveness opportunities still exist, and they are more effective than ever. It is one of the best times to apply for debt forgiveness programs while the administration is in support of existing options. Before worrying about immediate forgiveness, which does not seem highly likely, try to explore your existing debt resolution strategies.
What about Private Student Debt?
Even if the legislation becomes successful, Biden’s efforts only cover federal loans. Unfortunately, regardless of the amount, direct student loan forgiveness will not be available to private student loan borrowers. In short, Democrat’s attempts to get forgiveness only focus on federal loans.
Why? Because private lenders distribute private loans. The government does not have much power over private businesses, and certainly, it cannot push the lenders to write off student loans. Therefore, if you received your loans from banks, credit unions, and online lenders, your loans are not going to be forgiven.
So, what should the right strategy be for private loan borrowers? Even if you do not get direct forgiveness, you can effectively pay out your loans.
Stop Payments for Federal loans.
As you might know, currently, there is a forbearance period applied to federal student loans. Therefore, till January end, 2022, you do not need to make any payments for federal debt. Besides, no interest is accruing for such forbearance due to the COVID-19 pandemic. Hence, if you miss payments, it will have zero impact on your debt balances.
You can utilize this situation in your favor. While you are not required to make payments for federal student loans, you can use the surplus money (if you have it) to pay private loans faster. In other words, prioritize your private loan payments as they are usually in higher amounts than federal debt payments.
Refinance Student Loan Debt
Refinancing allows borrowers to get rid of existing debt and roll the balance to a new loan. Preferably, the new loan should have a lower interest rate to save money in the long run. Generally, a high credit score and stable income are required.
If you have private loans, you can enjoy refinancing immediately. However, do not prefer using this method for your federal loans. If refinancing, you will lose non-repayment benefits on your federal student loans, and you will no longer qualify for direct forgiveness.
Talk to Lender
If you cannot prioritize private debt or get refinancing services, you can talk to your lender. Try to explain to them your challenges and ask for any favor to ease the debt burden. Some lenders allow forbearance status for a few months. Although, during this period, interest continues to accrue, you will have some time to develop a debt management strategy for the future.
Still, your options depend on the lender. Hence, first, talk to your lender and analyze the consequences before accepting any offer.
In the Meantime…
As mentioned, Biden did not want to grant direct forgiveness without Congress’s approval. Yet, he still asked the Justice Department to investigate if a President has the executive power to push such forgiveness without Congress’s support.
However, it is already seven months, and still, no exact finding has been released. There is still no expected timeline for forgiveness, and we do not know if findings will ever be released to the public.
Will student loans be forgiven? We do not know yet. But what we do know is that you should keep repaying your debt. Sure, for now, you are not required to make payments for federal loans. However, when payment resumes, make sure you do not ignore them. Even if forgiveness is granted, it can take a lot of time till your debt is eliminated. So do not allow your debt to grow by missing interest payments in all cases.
Explore Your Options
Instead of simply waiting for a direct forgiveness announcement, you will be better off if you step up your game to see will student loans be forgiven or not. In other words, do not wait for an action from the government; find your debt management and resolution strategy.
There exist a lot of federal loan forgiveness programs which can erase your debt. You can read about them and identify which program you might qualify for. Alternatively, different debt repayment plans are available to grant you affordable payments.
We advise you to check our blogs and official Student Aid website to know more about your options. If you feel confused among various choices, we suggest getting expert help.
Like those in Student Loans Resolved, debt specialists can analyze your finances and recommend the best possible debt management strategy. Besides, they will guide you throughout the strategy, whether student loan refinancing or debt forgiveness, to maximize your chances of getting rid of the debt quickly. Even better, we provide a completely free consultation to struggling borrowers.
How to Develop a Debt Resolution Strategy?
As long as you are not required to repay federal debt, it is a great time to think about your debt challenges. Keep in mind that once debt repayment is resumed, loan servicers will be extremely busy. Hence, they might not provide the service and the help you need. Here are a few steps to start your plan:
Check Your Information
Sometimes loan servicers make mistakes while processing loans or payments. Therefore, it is better to keep an eye on these processes to avoid any errors. Besides, it is advisable to update your details, such as your email address or physical location. In this way, you will be kept up-to-date with any changes.
Check Repayment Plans
If you have federal loans, you have access to multiple repayment plans. Check their details, such as monthly rates and payback period, to find the most suitable option. Moreover, you can enroll in Income-driven repayment options for the most affordable monthly payments.
Know Your Loan Terms
If you never had time to check your loan terms or read carefully through the lines, it is the right time. First, read your contract, then contact the loan servicer or private lender. If you are not sure about your options, ask the lender. For example, maybe you have access to forbearance options or lower payments.
See the Big Picture
Will student loans be forgiven when we take into consideration the fact that some borrowers have multiple loans, different repayment periods, interest rates, due dates, etc. As a result, they might lose track of obligations and make mistakes. Hence, creating a list of commitments with required details is advisable, such as when to make the payments. In this way, you will be in control of your challenges.