5 ways Biden can offer student loan forgiveness
Here are 5 ways President Joe Biden can provide student loan forgiveness.
Here’s what you need to know — and what it means for your student loans.
It seems everyone has an opinion on how Biden should cancel student loans. Now that Biden has forgiven more than $17 billion in student loan debt, student borrowers are wondering if Biden will embrace large-scale student loan forgiveness next. Here are 5 ways to forgive student loans.
1. Biden gives student loan forgiveness to all student borrowers
First, Biden could give student loan forgiveness to all student borrowers. In this scenario, Biden could seek to cancel all federal and private student loans. If implemented, 45 million student borrowers would get $1.7 trillion in student loan forgiveness. Sen. Bernie Sanders (I-VT) has defended full student loan forgiveness.
Advantages : There would be no outstanding student loan debt. Student borrowers could achieve financial freedom and become debt free. It could help student borrowers save for retirement, buy a home, start a family, start a business, and save for retirement. Large-scale cancellation of student loans could also help reduce disparities.
Disadvantages: Complete cancellation of $1.7 trillion in student loans comes at a substantial price. The cancellation of private student loans, which do not belong to the federal government, poses administrative problems. High-income earners and student borrowers would benefit disproportionately.
2. Biden forgives up to $50,000 in student loans
Second, Biden could forgive up to $50,000 in student loan debt. Unlike the total cancellation of student loans, Biden would likely focus only on federal student loans. Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) support the proposal. Under their plan, only student borrowers with an annual income of up to $125,000 would qualify.
Advantages : If enacted, 36 million student borrowers would see 100% of their federal student loan debt eliminated.
Disadvantages: The total cost could be $1 trillion.
3. Biden forgives up to $10,000 in student loans
Third, Biden could forgive up to $10,000 in student debt for borrowers. (Biden will cancel student loans or extend the student loan pause by August 31). In this scenario, Biden would likely only focus on federal student loans. Biden campaigned on $10,000 in student loan forgiveness, which is significantly lower than the Schumer-Warren proposal. Biden has repeatedly called on Congress to pass legislation to forgive $10,000 in student loan debt. If Congress votes to cancel student loan debt, Biden said he would sign the bill.
Advantages : Biden is providing student loan relief to millions of student borrowers who are struggling financially. Despite popular belief, research shows that student borrowers with lower student loan balances often struggle more financially than student borrowers with higher student loan balances.
Disadvantages: The total cost could be around $370 billion. Student borrowers with higher student loan balances may qualify for limited student loan relief.
4. Biden could cancel student loans only for low-income student borrowers
Fourth, Biden could limit student loan forgiveness to low-income student borrowers. The Biden administration is expected to define “low income” and decide whether to include student borrowers in student loan nonpayment or default.
Advantages : This student loan forgiveness would be more targeted student loan relief at a lower cost to the federal government. Biden could help student borrowers who are struggling financially and avoid criticism that high-income earners benefit disproportionately.
Disadvantages: Student borrowers who do not meet the income threshold could face financial hardship, but would not get student loan relief. (Cancelling a student loan might be different from what you expected).
5. Biden pursues targeted student loan relief
Fifth, Biden could pursue targeted student loan relief. In this final scenario, Biden could decide not to enact any large-scale student loan forgiveness. Instead, Biden could focus on student loan forgiveness for government officials, borrowers with disabilities, or borrowers who have been misled by their college or university into defending the borrower for student loan forgiveness.
Advantages : Biden could limit costs to the federal government while providing student loan relief to millions of student borrowers.
Disadvantages: Student borrowers who do not qualify for these programs would get no student loan forgiveness.
Student Loan Relief: Additional Considerations
There are additional considerations the Biden administration must assess before implementing any large-scale student loan forgiveness. First, any student loan forgiveness plan has additional benefits and risks. Second, the Biden administration must determine that the president has existing legal authority to enact large-scale student loan forgiveness. To date, Biden has said he does not believe he has such authority. Even if Biden proceeds with large-scale student loan cancellation, any implementation of student loan cancellation could be delayed by legal challenges. Third, Biden will weigh the political pros and cons of canceling student debt, including before or after the midterm congressional elections in November.
Student loan relief is scheduled to end on August 31, 2022. Are you ready for the restart of student loan repayment? Know all your options and choose the best student loan repayment strategy that suits your unique financial situation. Be sure to evaluate these popular options: