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Experts’ Predictions on Student Loan Forgiveness

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During his first address to Congress on April 28, President Joe Biden unveiled a proposal for an additional $1.8 trillion in federal spending, which includes investment in education — but made no mention of student loan forgiveness.

Student loan debt is an issue that affects nearly 45 million Americans. Each of those Americans with student debt holds an average of nearly $33,000, according to a 2019 report submitted to the US House of Representatives Financial Services Committee.

On his first day as president, Biden extended the suspension of interest and principal payments on federal student loans until October 1, to provide temporary relief to student borrowers during the COVID-19 pandemic. In March, he gave away $1 billion in loans to students who had been defrauded by for-profit institutions.

Biden previously asked Education Secretary Miguel Cardona to see if he could legally cancel federal student debt.

But Congress is divided over whether student loans should be forgiven, and if so, how much. Some Democrats say they want to cancel loans of up to $50,000; However, most Republicans oppose it, and Biden said his goal is $10,000 for each federal borrower. (People who have taken loans from private institutions will not be affected.) The 2021 U.S. bailout bill, passed this month, allows for exemption from tax-exempt student loan debt through 2025. This temporarily ensures that borrowers who have been forgiven for student debt will not be affected. Don’t burden us with a large unexpected tax bill.

Some experts assert that broad student loan forgiveness will have multiple benefits, including stimulating the economy, helping unemployed or unemployed Americans get back on their feet, and reducing racial disparities. Others say it is a short-term solution that does not address the larger underlying issues in the US higher education system. And some are against forgiving student loan debt in general.

Here’s what we know so far about what Biden or Congress might do about student loan forgiveness — and what you can do now, no matter what might happen.

Can You Count On Forgotten Student Loans?

Rumors and speculation about federal student loan forgiveness keep circulating, so we asked student loan experts what they think will happen. Some say widespread student loan forgiveness will likely happen, and others will be surprised if it does.

But they all agreed on one thing: You shouldn’t base your strategy around the perceived probability that a student loan will be forgiven. If it does, “see it as a gift,” Leslie Taine, a debt relief attorney in New York, puts it.

According to these five experts, here’s what can happen next for student loan forgiveness:

Robert Farrington: There will be reform, not debt forgiveness

“A comprehensive $10,000 student loan forgiveness is good for individuals, but it’s bad policy unless they do something to reform the system,” says Robert Farrington, CEO and founder of The College Investor. “Personally, I don’t think anything will pass.”

Robert Farrington

According to Farrington, the most likely scenario is for Congress to pass a broader reform package targeting higher education costs and existing federal loan programs, such as income-driven repayment plans and the Public Service Loan Forgiveness Program, possibly including some student loan forgiveness.

“I would like to see a reform package for higher education if there is student loan forgiveness,” says Farrington. If Biden tried to do this by executive order, I wouldn’t expect that to happen right away. It is likely to be linked to lawsuits and litigation. However, if Congress can pass a bill allowing for student loan forgiveness sometime this summer, I think it will happen immediately.”

Laurel Taylor: $10,000 would be great, but don’t count on it

Based on all the satisfaction that student borrowers have had in the past year, there will Debt forgiveness, according to a former Google executive who founded the student loan payment platform. The question is how much?

Laurel Taylor

“I think $10,000 in tolerance is likely, but I would caution about anything more than that,” says Laurel Taylor, CEO and founder of FutureFuel.io.

Even student debt forgiveness of just $10,000 would completely cancel student loans for about 16 million people. “It’s going to make a huge difference, especially for those who are most likely to default,” Taylor says.

But no borrower should rely on that possibility, Taylor warns: It may not pass any time soon, or it may not pass at all. “Biden is considering whether he has the executive branch, but the bottom line is there is a lot of confusion. That’s what we see on our platform when our users deal with student debt,” Taylor says.

Adam Minsky: Existing federal programs will be renewed

There will be a range of solutions to address rising student debt, which may or may not include student loan forgiveness, according to Adam Minsky, an attorney who specializes in student loans.

Adam Minsky

“I don’t think student loan debt will be canceled unilaterally,” he says. “I think we’ll likely see a combination of broad student loan forgiveness for a certain amount and other criteria associated with that, like school attendance or income, so there may be limitations on who qualifies for loan forgiveness based on those factors.”

Instead, Minsky believes there will be more focus on renewing and reforming a number of existing federal loan programs, such as the Public Service Loan Forgiveness Program and income-driven repayment programs.

“These are all programs that exist that have well-documented problems and can lead to people being forgiven. I think we will see changes in those programs, and hopefully that will expand the pool of borrowers to get some form of loan forgiveness.”

Andrew Bentis: If anything happens, it will happen later this year

“Unfortunately student forgiveness remains a highly divisive issue,” says Andrew Bentis, a certified student loan advisor with Student Loan Hero, who advises borrowers. “We’re starting to see a bit of movement from both ends, but it’s a long way off and there’s no real end in sight.”

Andrew Bentis

Writing off $50,000 of student loans won’t happen, Bentis says, but a smaller amount will likely be written off.

“The $10,000 student loan forgiveness proposal would be less aggressive in nature and more targeted,” Bentis says. “Biden wants to target relief for three categories of borrowers: borrowers who have been hit by the pandemic, public service workers, and low-income and high-debt consumers.”

If there is a dose of tolerance, whether it’s from the Biden administration or Congress, Pentice suspects it won’t happen until near the end of the student loan tenure later this year.

Leslie Tyne: Don’t expect that to everyone, and it’s not soon

Like Farrington, Tayne, an attorney who specializes in debt relief, doesn’t believe there will be student loan forgiveness for all borrowers. Tyne — who took on a lot of debt to attend law school and has five kids in college — says there are bigger problems with higher education at play that need to be addressed.

Leslie Tyne

“It’s a great talking point, but it’s not really realistic because it’s complicated and there are a lot of moving parts,” she says. “I tell people it is something to listen to and care about, but it is not something to live by. If you have the ability to pay it off, it is a financial obligation that you take on and you have to try to pay it back.”

If Biden or Congress passes a motion for student loan forgiveness, she says it will likely target certain groups. For example, she says, front-line workers who take on student loan debt are more likely to get forgiveness than anyone else.

“The analysis is very complex, and it needs to be well researched and evaluated. Don’t expect student loan forgiveness to happen any time soon,” she says. “I would be surprised to see some changes on a large scale this year.”

Here’s what you can do now

Until the president signs an executive order or bill, nothing is certain. That’s why experts say you should hope for the best, but plan for the worst when it comes to your student loan debt. No matter what happens with legislation for student loan forgiveness, here’s how to make the most of the current situation.

Start making a plan together now

Because of the pandemic, payments on most federal student loans have been suspended until September 30, 2021. But experts say you should start putting a plan together now when student loan payments resume.

“Make a plan now, because loan providers are going to be flooded in October,” Taylor says, noting the 40 million student borrowers who will start repaying at the same time.

Private student loans are not eligible for a COVID-19 payment suspension, but there are ways to make private student loans more manageable. If you are a private student loan borrower, be sure to address any financial challenges by calling and requesting to refinance or modify your loan. With historically low rates, now is a great time for private student borrowers to refinance before rates go up again.

Here are five steps you should take when developing a business plan for your student loans:

  1. Make sure your account information is up to date: Stay tuned for any new information about your loans and the patience period of loan service. Make sure your address and email are up to date in your portal, so you don’t miss any important notes.
  2. Research Payment Plans: If you have federal student loans, check with your loan provider for alternative payment plans that you may qualify for. You may significantly reduce or cancel your monthly payment for a while.
  3. Review the terms of your loanDouble-check the repayment dates and grace periods for each loan.
  4. I know what you have to do: Create a master list of all your student loans, including retainers, outstanding balances, minimum monthly payments, and interest rates. This will help you know who to contact for assistance, such as exploring a tolerance, requesting deferment, consolidation, or enrolling in an alternative payment plan.
  5. Make a budget: Now is a great opportunity to budget when payments resume. Take into account any changes to your income and see if you need to cut back on spending in certain areas to make room for your budget.

Debt handling from high to low interest

If you have other debts that charge more fees, such as credit cards or personal loans, always address them before your student loans.

However, if you are in a good position with your finances, have a stable income, and want to get rid of your student loans, then aim for the loans with the highest interest rate first.

Since you don’t have to make payments across all of your loans right now, you can target the loans that will be more expensive over the life of the loan – and whatever you pay will go to principal.

“For borrowers with three to six months of savings, now is a great time to pay off your loans. It’s the first time in history that a payment has been put on hold,” Taylor says.

Build your savings

Now is not the best time to aggressively pay off student loan debt, says Varnosh Trabi, host of the “So Money” podcast and contributing editor at NextAdvisor, and several other experts.

If you’re taking advantage of the federal student loan deferral program mandated by the CARES Act, Torabi recommends staying on the course until it expires at the end of the year.

“Don’t give them an extra cent,” Farrington agrees.

Instead, focus on building your emergency fund savings or contributing to your retirement plan until your student loan tenure is over. These are the areas where you can increase your money now.

“For borrowers who don’t have three to six months of savings, take advantage of this payment hold and start putting the money into a savings account,” Taylor says. “Building an egg nest.”

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