Will your student loans change in 2021?
Here’s what you need to know.
Student loans could change this year on several fronts. The election of Joe Biden, the Covid-19 pandemic, the composition of Congress and the state of the economy each could influence the direction of student loans in 2021. With multiple proposals for your student loans percolating in Congress, it’s possible that your financial life could be impacted this year.
Here are 5 things about your student loans that could change:
Cancel Student Loans
Student loan forgiveness is one of the hottest topics in student loans. Will your student loans get cancelled? Over the past year, there have been multiple proposals to cancel student loans. For example, in the Heroes Act stimulus package, House Democrats proposed to cancel $10,000 of student loan debt for borrowers who are struggling economically. However, while Congress passed a $900 billion stimulus package that included $600 stimulus checks, Congress dropped student loans from the stimulus package. In the U.S. Senate, Sen. Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-MA) want to cancel $50,000 of student loans for every student loan borrower who earns less than $125,000 annually. While Warren and Schumer want President-elect Biden to cancel student loans through executive order, Biden has said he’s unlikely to cancel student loans through executive action. Instead, Biden wants Congress to cancel $10,000 of student loans immediately. If Republicans control the U.S. Senate, it’s less likely that Congress will cancel student loan debt.
Pause Student Loan Payments
Student loan payments for federal student loans are paused through January 31, 2021. On February 1, 2021, absent any extension, your regular student loan payments will resume. The CARES Act — the $2.2 trillion stimulus package that Congress passed in March — provided many benefits for student loan borrowers. For example, for federal student loans, Congress paused payments, stopped interest accrual and halted student loan debt collection for defaulted student loans. It’s possible that Congress or the president could extend the forbearance period for federal student loans beyond January 31. Any decision to extend student loan relief would be based on several factors, including the pace of economic recovery, the unemployment rate, the trajectory of the Covid-19 pandemic and the level of bi-partisan support.
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Cancel Student Loans In Bankruptcy
Can you cancel student loan debt in bankruptcy? Traditionally, it’s challenging, although not impossible, to discharge your student loans in bankruptcy. For certain borrowers, it is possible to receive student loan forgiveness through the bankruptcy process based on financial hardship. Biden has called for student loans to be discharged in bankruptcy. There is also bipartisan support in Congress to allow borrowers to discharge their student loans in bankruptcy. As an alternative to wide-scale student loan debt cancellation, Congress could change the bankruptcy code to allow borrowers to discharge student loans in bankruptcy.
Your Employer Pays Student Loans
Your employer can help pay your student loans. Under the Cares Act, there is a tax incentive for employers to help their employees with student loan repayment. Employers can make tax-free payments of up to a maximum of $5,250 per employee. Both federal student loans and private student loans are eligible, so long as the payments for principal or interest on a “qualified education loan”. Both you and your employer can benefit. For example, you can save on federal income taxes, while you and your employer save on federal payroll taxes on qualifying student loan payments. Employers can choose between tuition assistance and this student loan repayment, but not both. This employer student loan relief was scheduled to expire on December 31, 2020. However, in the new stimulus package, Congress extended this education benefit through December 31, 2025.
“Free College” was a hot button issue on the presidential campaign trail, and has been spearheaded by Warren and Sen. Bernie Sanders (I-VT). The philosophy of tuition-free college is to make higher education more affordable and to reduce the amount of student loan debt. Biden has said that the government should forgive all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for borrowers who earn less than $125,000 per year. Don’t expect “free college” in 2021. While Congress may address the cost of higher education and student loans, it’s unlikely that Congress will implement a tuition-free plan now. The proposal requires partnerships with states, which also would have financial responsibility to subsidize the tuition costs. With many state governments facing budget crunches from the impact of the Covid-19 pandemic, Congress is less likely to address this policy proposal in the near-term.
How to pay off student loans faster
What’s the best way to pay off student loans faster? In an election year with a public health crisis, high unemployment and economic hurt, anything can happen with your student loans. In the meantime, make sure you’re not hoping or waiting for student loan relief that may not come. Invest the time to create a student loan debt repayment plan so you can pay off your student loans faster. Start with these three options, all of which have no fees: