Misconceptions About Student Loan Cancellation

President Joe Biden’s student loan policies include the idea of ​​student loan cancellations. Biden wants to approach student loan foreclosures from two angles: a one-time relief measure that will forgive all federal student loan borrowers $10,000 in debt, and an ongoing option that will allow borrowers up to $10,000 per year for up to five years who are engaged in national or community service are cancelled.

Biden’s proposals have yet to reach Congress, but the idea of ​​student loan waivers has been popular with several congressional Democrats. With this in mind, student loan cancellation comes with a few important caveats. Here’s what you should know.

Which does not bring the cancellation of the student loan

The current talks of a student loan forgiveness plan do not include a plan to get rid of all student debt now and forever. It has many limitations and restrictions, and it will not solve all student debt problems for borrowers.

It will not forgive all debts

It’s easy to assume that forgiving student loans means eliminating all student debt, but that won’t be the case. As of 2020, the student loan debt totaled over $1.7 trillion, which would be a hefty bill for the government.

Biden has talked about canceling $10,000 in student loan debt per borrower, while others, like Sen. Chuck Schumer and Sen. Elizabeth Warren, have pushed for forgiveness of $50,000 in student loan debt per borrower. If you have tens of thousands of dollars in debt, you may still have student loans to pay off even after the termination measures have passed.

It will not help past or future borrowers

Biden’s proposal for a flat $10,000 for all borrowers would be part of pandemic relief efforts. This partial forgiveness would be offered as a one time offer. It would not apply to those who have already paid off their student debt, nor would it grant forgiveness to future borrowers.

A similar situation applies to the current $10,000 waiver for borrowers participating in the public service – most likely, this waiver would not apply retrospectively.

It may not apply to all current borrowers

Not all borrowers are eligible for student loan forgiveness. For one thing, private student loans are not included in any of the current proposals and are unlikely to be in the future. Additionally, it’s possible that there’s an income limit for forgiveness – meaning if you exceed a certain amount, you may not be eligible.

It’s not going to change college awards

Biden has discussed the need for cheaper or free college education, and two years of free community college are included in his 2022 budget proposal. However, there are currently no plans to lower the cost of four-year colleges, so borrowers will continue to accumulate debt even after the waiver is over.

How to Manage Your Student Loans Without Forgiveness

It’s hard to say what will happen to student loans in the future, as Biden has stated that he will not enact a student loan forgiveness plan by executive order and wants Congress to pass the plan. The feasibility of such a plan is still uncertain, but there are a few things you can do in the meantime to help manage your student loans.

Apply for student loan reimbursement if you are eligible

Borrowers with loans from institutions that have engaged in misconduct may see their loans forgiven. On March 18, 2021, the US Department of Education streamlined the process for borrowers in this situation to receive relief through what is known as “borrower defense until repayment.” Under the previous administration, many borrowers who qualified for the determination did not receive the promised full credit relief.

If this applies to you, you should receive a notification from the Department of Education in the next few weeks. Visit the Federal Student Aid website for more information on eligibility for this type of loan forgiveness.

Take advantage of the interest-free period

Most federal student loans are currently exempt from interest charges and required payments. These conditions are valid until May 1st, 2022.

If possible, use the interest-free period as an opportunity to continue financing your student loan. Pay as much as you can now before interest starts accruing again, or use the money you would pay to pay off other debt — including personal student loans or credit card debt.

Apply for a different repayment schedule

While federal student loan borrowers are automatically enrolled in the standard 10-year repayment schedule, if you’re struggling with monthly payments, you have other options, including income-contingent repayment plans. These plans use your income and family size to create a student loan payment plan for you. After 20 or 25 years (depending on the plan you choose), the rest of your student loan will be forgiven.

There are also student loan forgiveness plans for borrowers in certain occupations. These plans included Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF) plans. Consider applying to one of these programs if you are a teacher or have a career in public service.

Also note that student loan debt forgiven through December 31, 2025 does not qualify as taxable income. This change is part of America’s bailout plan and includes debt forgiven through a federal student loan forgiveness program.

Refinance your loans

Both government and private student loans can be refinanced through private lenders. While refinancing your federal loans will cause you to lose the current 0 percent interest rate period, it might be wise to refinance your personal loans. Refinancing your personal student loans could help you get a lower interest rate or a longer repayment period, which would decrease your monthly payment.

Use procrastination or indulgence

If you’re having trouble making your student loan payments, consider asking your lender for a deferral or forbearance. Both allow you to waive your student loan payment, although interest may still accrue. Most federal loans are automatically in administrative forbearance through May 1, 2022, but forbearance options for private loans vary by lender.

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