Will everyone really get student loan forgiveness?
Here’s what you need to know.
There’s been a growing call to cancel student loans for every student loan borrower. Supporters say that cancelling student loans for every borrower will save a generation from significant debt, enable them to buy a home, save for retirement, reduce racial and social disparity, and help stimulate the economy. Supporters want Congress to pass the Heroes Act — the $3 trillion stimulus package that House Democrats passed in May, but that is currently stalled in the U.S. Senate. The Heroes Act includes a variety of plans to stimulate the economy, including second stimulus checks, weekly enhanced unemployment benefits, state and local aid, and student loan forgiveness. President-elect Joe Biden says Congress should pass a stimulus package like the Heroes Act.
The only problem for people who want to cancel student loans for every student loan borrower is this: The Heroes Act doesn’t cancel student loans for every student loan borrower.
That may come as a surprise to you, given all the rhetoric to “cancel student loans,” particularly in a legislative bill that House Democrats proposed and passed. So, let’s explore the fine print so that you’re fully informed about student loan forgiveness and what you should expect if Congress passes the Heroes Act in its original form.
Will your student loans be cancelled?
If Congress passes the Heroes Act in its original form, there’s a good chance you won’t get student loan forgiveness. Here’s why:
The Heroes Act only would cancel private student loans
Surprising, but true. The Heroes Act would cancel private student loans up to $10,000 for each student loan borrower. Federal student loans comprise more than 90% of the $1.6 trillion of outstanding student loan debt. While some borrowers hold both federal student loans and private student loans, only private student loans would be cancelled. So, if you have Direct Loans such as Stafford Loans or any Perkins Loans or FFELP Loans, these student loans wouldn’t be eligible for student loan forgiveness. The Heroes Act, therefore, is different than many other proposals in Congress, which would cancel federal student loans.
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The Heroes Act would only apply to student loan borrowers who are “economically distressed”
Only student loan borrowers who are “economically distressed” would have their student loans cancelled. Economically distressed, for example, refers to a student loan borrower who would otherwise pay $0 monthly through an income-driven repayment plan, was in student loan default or was 90 days delinquent on their student loans. Clearly, this means that millions of student loan borrowers will not receive any student loan forgiveness. Based on this definition, this is a much smaller subsection of the 45 million student loan borrowers who may be hoping for student loan forgiveness. However, opponents of wide-scale student loan forgiveness may be more willing to support this limited student loan forgiveness if Congress ultimately decides to cancel student loans.
Earlier this fall, House Democrats passed a revised, $2.2 trillion version of the Heroes Act that did not include any student loan forgiveness. Why? House Democrats may have been willing to eliminate student loan forgiveness in an effort to strike a bipartisan stimulus package, even if it wasn’t their first choice. If Democrats win both U.S. Senate seats in Georgia in the upcoming runoff election, Democrats in Congress will have a clearer path to cancel student loans and again could include the student loan forgiveness provision in the revised Heroes Act. Ultimately, despite the original Heroes Act, Congress can modify the Heroes Act to cancel student loans for federal student loan borrowers, private student loan borrowers or both. Biden has called on Congress to cancel up to $10,000 of student loans for every borrower immediately. If Republicans maintain control of the U.S. Senate, however, it’s unlikely there will be any wide-scale student loan forgiveness. Why? Some Senate Republicans have expressed concern about the high amount of federal spending in response to the Covid-19 pandemic, while others simply think cancelling student loan debt is bad policy. Sen. Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-NY) say Biden can cancel student loans through executive order without further congressional approval. Warren and Schumer want Biden to cancel up to $50,000 of student loans for every student loan borrower. However, Biden has not endorsed this position nor is it legally clear whether a president can cancel student loans for every student loan borrower.
Pay Off Student Loans
If the original Heroes Act is any indication, it’s possible you won’t qualify to have your student loans cancelled. Therefore, make sure you have a game plan to pay off student loans now. Here are 3 ways to pay off student loans, all of which have no fees: