Joe Biden has endorsed a new stimulus package—without widespread student loan forgiveness.
Here’s what you need to know, and what it means for your student loans.
President-Elect Joe Biden supports a new, $908 billion bipartisan stimulus package that would, among other benefits, provide $300 a week in enhanced unemployment benefits, $160 billion in state and local aid, small business loans, and additional funding for schools, health care, airlines and transit authorities. According to the New York Times, Biden said the stimulus package “wouldn’t be the answer, but it would be immediate help for a lot of things, quickly.” However, one thing is notably absent from the bipartisan bill: student loan forgiveness. While the stimulus package includes $4 billion for student loans, the proposal does not include any plan to cancel student loans.
Here’s what this could mean for student loan forgiveness and any potential plans to cancel student loans:
1. There are 3 ways to cancel student loans
There are 3 possible ways to cancel student loans:
- Congress cancels student loans in a stimulus package
- Congress cancels student loans through standalone legislation
- Biden cancels student loans through an executive order
This current stimulus package is only a proposal. While it’s supported by a group of moderate senators and representatives, Senate Majority Leader Mitch McConnell (R-KY) likely will not support this stimulus package. McConnell wants the Senate to pass a $500 billion stimulus bill, which also doesn’t include any plan to cancel student loans. The bottom line is that if there is any stimulus package before year end, it won’t include any student loan forgiveness. This is not surprising because Senate Republicans won’t support a plan to cancel student loans for all borrowers, and Senate Republicans control the Senate. Top Democrats such as Senate Minority Leader Chuck Schumer (D-NY) and Speaker of the House Nancy Pelosi (D-CA), who also support the stimulus proposal, may hope this compromise stimulus package spearheads further stimulus talks between Democrats and Republicans before year-end.
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2. Why does Biden support a stimulus package without student loan forgiveness?
Some may be wondering why Biden supports a stimulus package without student loan forgiveness. Biden has called on Congress to cancel student loans immediately, and has supported student loan forgiveness of $10,000 for every student loan borrower as a result of the Covid-19 pandemic. Why support legislation that doesn’t include a key policy goal? There could be several reasons. First, Biden may view this stimulus plan as a “first step,” namely essential, immediate financial relief. With stimulus discussions stalled for months, Biden may view a bipartisan compromise as the best path forward to provide economic stimulus now. Second, Biden likely plans for additional stimulus in spring 2021. So, this stimulus package could be viewed as imperfect bridge financing to a potentially larger stimulus package in the spring. Currently, Biden supports the Heroes Act, the now $2 trillion stimulus package House Democrats drafted. If the next Congress passes the Heroes Act, or a similar stimulus package, it could include up to $10,000 of student loan forgiveness. Notably, House Democrats passed the Heroes Act earlier this year, but it only included student loan forgiveness of $10,000 for private student loan borrowers only.
3. Congress could cancel student loans through standalone legislation
Biden’s support of this new stimulus package doesn’t preclude Biden from supporting future, standalone legislation that could cancel student loans. Biden has called on Congress to cancel student loans. Therefore, a stimulus package isn’t the only path to cancel student loans. It’s clear that direct economic stimulus is the first priority for the Biden administration. Whether that includes second stimulus checks, unemployment benefits or other economic relief, Biden seems focused first on direct financial relief.
4. A plan to cancel student loans doesn’t appear to be the top priority
That said, a plan to cancel student loans may be important, but it doesn’t appear to be the top priority. This doesn’t mean that student loans won’t be cancelled within the first 100 days or first year of a Biden presidency. There are many factors that could influence any plans to cancel student loans. First, the composition of Congress will play a direct role in any potential student loan cancellation. The outcome of the two Senate races in Georgia will determine the balance of power in the U.S. Senate. If Republicans retain control of the Senate, it’s less likely that Congress will pass any legislation to cancel student loans. If Democrats win both Senate seats, there could be a clearer path to student loan forgiveness. Regardless of outcome, among the many choices for economic stimulus, it appears that several other economic priorities—such as unemployment benefits, state and local aid and small business loans—could take priority over cancelling student loans no matter which party controls Congress. Again, this doesn’t mean there won’t be student loan forgiveness.
Second, the health of the economy next year also could impact whether Congress decides to cancel student loans. If there is an economic recovery, or signs of an economic recovery, Congress may be less willing to cancel student loans, or at least less willing to cancel a larger amount of student loans. For example, Sen. Elizabeth Warren (D-MA) and Schumer want Biden to cancel up to $50,000 of student loans. Given the total cost to federal taxpayers, Congress or Biden may be less willing to cancel up to $50,000 student loans if the economy shows signs of life.
Pay Off Student Loans
Bottom line: Don’t expect student loan forgiveness. It doesn’t mean it won’t happen, but it doesn’t appear to be the first priority. If widespread student loan forgiveness happens, consider it an upside surprise. In the meantime, make sure you know your options to pay off student loans. Here are 3 ways to help pay off student loans, all of which have no fees: