Student Loan Cancellation Could Look Different Than You Expect

Student loan cancellation could look different than you expect.

Here’s what you need to know — and what it means for your student loans.

Student Loans

President Joe Biden has an important decision to make regarding your student loans. After extending the student loan payment pause for the fourth time during his presidency, Biden must now decide whether he will enact wide-scale student loan cancellation. However, “student loan cancellation” means different things to different people — and it might not be what you expect.

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Option 1: Biden cancels everyone’s student loans

The term “student loan cancellation” may conjure images of total student loan forgiveness. (New proposal would extend student loan payment pause and cancel student loans). This could include the elimination of all private and federal student loan debt, for example. There are multiple advocacy groups and some legislators such as Sen. Bernie Sanders (I-VT), who are calling for the complete cancellation of all student loan debt. It’s common to hear a member of Congress call for total student loan forgiveness on social media, on the floor of the House of Representatives, or during a campaign rally.

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Option 2: Biden cancels some student loan debt for everyone

If Biden doesn’t cancel everyone’s student loans, an alternative option is to cancel some student loan debt for everyone. For example, Biden could cancel up to $10,000 for every student loan borrower. This would benefit all student loan borrowers, but particularly it would help student loan borrowers with lower student loan balances. Despite popular belief, student loan borrowers with lower student loan balances (such as less than $10,000) are the borrowers who struggle the most with student loan repayment. (Student loan cancellation and the student loan payment pause are confusing. Here’s what to know)

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Option 3: Biden cancels some student loans for some borrowers

For advocates of wide-scale student loan forgiveness, the notion of student loan cancellation for only some borrowers may sound less appealing. However, this is the leading proposal in Congress for student loan cancellation. Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) have proposed canceling up to $50,000 for some student loan borrowers. To qualify, borrowers must have federal student loans and earn up to $125,000 annually. If Congress or Biden enacts this plan, then 36 million borrowers would have all their federal student loans forgiven. (Biden will cancel $6.2 billion of student loans).

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Option 4: Biden cancels student loans for low income borrowers

Biden could limit student loan forgiveness to student loan borrowers with lower incomes. (Student loan forgiveness leaves both Democrats And Republicans thoroughly upset with Biden). Rather than enact wide-scale student loan cancellation, one option Biden may consider is to target student loan relief to borrowers who need it the most. There are different ways to define “low income” or “struggling financially.” For example, Biden could expand the definition to consider unemployed borrowers, borrowers who have been adversely impacted by the Covid-19 pandemic, or who have a high debt-to-income ratio. If Biden pursues this option, it would combat perceptions that student loan cancellation is regressive. (6 major changes to student loan forgiveness)

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Option 5: Biden could cancel student loans without wide-scale student loan cancellation

Biden may not enact wide-scale student loan cancellation. (Biden drops student loan cancellation from budget). He has repeatedly called on Congress to cancel $10,000 of student loans and says he doesn’t believe that he has the authority to cancel student loans unilaterally for all student loan borrowers. That said, Biden said he will sign any bill on student loan forgiveness that Congress passes. Student loan borrowers have saved $195 billion since student loan payments were paused in March 2020. With Biden’s extension of the student loan pause, student loan borrowers could save another $20 billion over the next four months. This may not be the traditional definition of “student loan cancellation,” but it’s a form of student loan cancellation. Why? Borrowers will save on student loan interest with 0% interest rates on their federal student loans and non-payments “count” toward student loan forgiveness through income-driven repayment plans.

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Student loans: next steps

Biden is likely to decide on student loan cancellation before November. That’s when America will vote in the midterm election, which will decide the balance of power in Congress. Currently, Democrats face an uphill battle to retain control of both houses of Congress, which could impact Biden’s legislative agenda. That said, there’s no guarantee he will enact wide-scale student loan cancellation. Yes, he’s considering it, but the outcome could be much different than you may expect. For now, federal student loan payments are paused temporarily. So, make sure you’re prepared for the restart of student loan payments. Here are smart options for student loan repayment:

Student Loans: Related Reading

New proposal would extend student loan payment pause and cancel student loans

Here’s who won’t qualify for $6.2 billion of student loan cancellation

Biden drops student loan cancellation from budget

Student loan refinancing rates just got ridiculously cheap