If Biden Cancels Student Loans, It Could Look Like This
President Joe Biden (Photo by Spencer Platt/Getty Images)
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If President Joe Biden cancels student loans, student loan cancellation could look like this.
Here’s what you need to know.
Student Loans
Biden has asked the U.S. Department of Education to conduct a legal review of the president’s authority to cancel student loan debt. The outcome of that review, which is not completed but is expected within weeks, could help shape Biden’s decision whether to enact wide-scale student loan forgiveness. There are two main paths to student loan forgiveness. Here’s what could be inside that recommendation and what it means for your student loans:
Who may qualify for student loan cancellation
Despite generic calls to “cancel all student loans,” not everyone will get student loan forgiveness. That may come as a surprise, but there is no mainstream proposal to cancel student loans for every borrower. Like stimulus checks, there likely will be limitations on eligibility on student loan forgiveness. There have been various proposals floated that could determine who qualifies for student loan cancellation, although these could change as both Biden and Congress consider the various policy, legal and political ramifications of wide-scale student loan forgiveness.
Which student loans could be cancelled
Do you qualify for student loan forgiveness? When Biden and Congress refer to “cancelling student loans,” they’re referring to federal student loans. Federal student loans comprise more than 90% of outstanding student loan debt. More specifically, they’re referring to student loans owned by the U.S. Department of Education. In contrast, private student loans may be owned by lenders, banks or third party investors, and therefore are not owned by the federal government. The leading proposal for student loan forgiveness in Congress, which Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) proposed, applies only to federal student loans. Could Biden decide to cancel both private and federal student loan debt? Yes. However, there is no indication that he is considering student loan cancellation beyond federal student loans. The next question is whether FFELP Loans and Perkins Loans could be cancelled too. Most of these student loans are not owned by the U.S. Department of Education. Most FFELP Loans are owned by financial institutions and third party investors, while Perkins Loans are issued by colleges and universities. If you have a FFELP or Perkins Loan, you could consolidate these student loans into a Direct Consolidation Loan. Contact your student loan servicer for details. A Direct Consolidation Loan would convert these student loans into a Direct student loan, which would be the most likely type of federal student loan to be forgiven.
Student loan cancellation could be limited by income
Opponents of student loan cancellation have argued that wide-scale student loan forgiveness, without a cutoff based on income, invariably could benefit wealthy student loan borrowers. This is another reason why everyone will not get their student loans cancelled. For example, Schumer and Warren want to limit student loan forgiveness to borrowers with an annual income up to $125,000. Biden wants student loan cancellation three ways, and has supported that same income threshold ($125,000) for other types of student loan forgiveness. However, Biden has not publicly endorsed a specific income threshold for wide-scale student loan forgiveness. The next issue will be whether that income threshold will be lowered. For example, stimulus checks in the latest stimulus package had an income threshold of $75,000 for each individual, which is $50,000 less than the proposed income threshold in Schumer and Warren’s legislative proposal.
How much student loan cancellation
Some members of Congress, such as Sen. Bernie Sanders (I-VT), have called for…
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