What is the latest news on student loan cancellation?
Here’s what you need to know.
Will your student loans be cancelled? This is the question student loan borrowers and taxpayers are asking. Given the proposals, the titles, and the assumptions, let’s set the record straight. Here is the latest:
1. We can get an answer on student loan cancellation soon
President Joe Biden wants to cancel the student loan in three ways. On a positive note, Biden asked the US Department of Education to make a recommendation as to whether he has the legal authority to enact unilateral student loan cancellation by executive order. Previously, Biden said he did not believe he had the authority to cancel student loans on a large scale. Therefore, Biden wants Congress to immediately cancel $10,000 in student loans. The contents of the legal memorandum on student loans from the Department of Education may determine whether Biden can move forward with canceling student loans, or whether he lacks legal authority and therefore Congress will have to pass legislation to cancel student loan debt. The Trump administration has already written a legal memorandum to the president I can not Enact unilateral student loan cancellation without additional authorization from Congress.
2. However, do not expect to cancel your student loan tomorrow
Don’t expect to cancel your student loan tomorrow. The path to widespread student loan forgiveness, if any, could be a long one. After the Biden Department of Education issues its opinion, it’s possible to get your student loan canceled, but there’s one major problem: The legal opinion isn’t just non-binding, it’s just a legal opinion. To obtain a binding decision, the court will need to issue a ruling on student loan forgiveness. If Biden sets out to cancel student loans, it could be challenged in court, potentially delaying implementation for months or more.
3. Not everyone will get student loan cancellation
Most importantly, despite the headlines you may have read, You’re Not Likely To Get $50,000 From Student Loan Cancellation. Biden has never supported canceling $50,000 in student loans, and has repeatedly said he is unlikely to cancel up to $50,000 in student loans. The $50,000 figure, which is repeated frequently, comes from a proposal in Congress from Senate Majority Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA), both of whom are leading advocates of large-scale student loan abolition. Most importantly, even their suggestion won’t forgive everyone’s student loans. There are several limitations in their suggestion, which is why it is important to read text in small print. First, their suggestion only applies to Federal Student Loans. Second, their suggestion only applies to student borrowers who borrow annually Income up to $125,000. If Biden cancels student loans, he could apply the same restrictions, or perhaps make them stricter. As a result of, Not everyone should expect student loan forgiveness.
4. Biden cancels $2.3 billion in student loans
There is a lot of talk about Biden not canceling student loans. However, since becoming president, Biden has already written off at least $2.3 billion in student loan debt. (You can find out if you qualify for $2.3 billion student loan forgiveness here.) First, Biden canceled $1 billion in student loans for 72,000 student loan borrowers, and second, he canceled another $1.3 billion in student loans for 41,000 borrowers with complete and permanent disabilities. America responded to the cancellation of Biden’s student loan in various ways. Some have argued that this amount of student loan debt is not enough. For example, $2.3 billion represents just 0.1% of the $1.7 trillion of outstanding student loan debt. Similarly, 110,000 student loan borrowers represent only 0.2% of the 45 million student loan borrowers. However, Biden has taken a targeted approach to student loan cancellation. He has helped certain groups on a piecemeal basis, and will likely continue to do so in partnership with US Secretary of Education Miguel Cardona.
5. Student loan forgiveness is now tax free
The latest stimulus package included a Big profit for student borrowers. Any student loan cancellation is now tax-exempt until December 31, 2025. Therefore, if your student loan is canceled by Congress or the President, you will not owe any income tax on the student loan forgiveness amount you receive. In contrast, before Warren and Senator Bob Menendez (D-NJ) proposed this provision, student loan borrowers would have been owed income tax on the remaining student loan balance that was forgiven. This tax-exempt provision also applies to student loan forgiveness through income-based repayment plans such as IBR, PAYE, REPAYE, and ICR. Student loan forgiveness through the Public Service Loan Forgiveness Program is already tax-free.
6. Congress has no votes to pass student loan cancellation
This may come as a surprise to many, but Congress has no votes to pass student loan cancellation. There have always been two main pathways for student loan forgiveness. The first track is through legislation from Congress. The second track, although more unlikely given constitutional limitations, is through an executive order from the president. If Biden does not have the legal authority to cancel student loans, Congress will be the course remaining to cancel student loans. The problem is that despite the rhetoric and headlines, Congress doesn’t have the votes to pass key student loan forgiveness legislation, Schumer and Warren’s plan to cancel up to $50,000 in student loans. In addition to a group of progressive senators, neither the Full Democratic caucus supports the cancellation of the $50,000 student loan nor does any Republican support it. Likewise, Congress likely won’t support $10,000 of outright student loan cancellation, either. Therefore, to get any student loan repeal, Congress would have to craft compromise legislation on student loan forgiveness and higher education reform potentially acceptable to members of both parties.
7. Student loan payments are likely to resume on October 1
This is not guaranteed, but there is a good chance that your student loan payments will resume as of October 1, 2021. Currently, federal student loan payments and interest accrual are paused until September 30, 2021. When asked this week if federal student loan payments will resume On October 1, 2021 or will be paused after that date, Cardona responded: “We’re looking at that. Obviously we’re going to take a lead on what the data tells us and where we are as a country in terms of the pandemic recovery. That’s not out of the question, but at this point, it’s September 30th.” If the payment pause period is not extended, there will be correspondence from the US Department of Education regarding the next steps to repay the suspended loan payments. As of September 30, student loan borrowers will receive more than $90 billion in student loan cancellations since the start of the Covid-19 pandemic.
Will your student loans be cancelled?
Will your student loans be cancelled? The answer is not necessarily binary, and it may take longer than expected to get an answer. The Education Ministry is expected to present its recommendations to the president within weeks. However, Biden likely won’t cancel student loans. Ultimately, according to White House Chief of Staff Ron Klein, Biden will make the final decision on canceling the student loan based on law and policy. Today, Congress has the power to legislate on canceling student loans, but instead it pins its hopes on a presidential proclamation. However, there is no guarantee that there will be any student loan cancellation now or in the future. If student loan forgiveness is widely available, it may also not apply to all types of student loans or be available to everyone.
Make sure you understand all of your options for getting student loans. Here are some potential options to consider:
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