The gift of student loan debt forgiveness may be in the works.
Sarah Tew/CNET
The American Rescue Plan includes money for individuals and families who continue to struggle through the ongoing pandemic, including the third round of stimulus checks and “plus-up payments,” money for unemployed workers, additional money for families with the new child tax credit and changes to health care savings. One group is not directly addressed in the $1.9 trillion package, however: struggling students, who are looking to President Joe Biden and members of Congress to see if they will forgive federal student loans in 2021.
Right now in the US, students have an accumulated total of $1.71 trillion in loan debt, making it second in consumer debt behind home mortgages. Biden made canceling $10,000 of loan debt per student a drive of his election campaign, but some members of Congress say that isn’t enough. They want him to forgive $50,000 per student. “Today we’re calling on President Biden to use his authority to forgive up to $50,000 in student loan debt,” New Jersey Sen. Bob Menendez said during an April 12 press conference.
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So far, Biden hasn’t canceled any debt across the board, though $1 billion in loans for students defrauded by for-profit institutions were forgiven. Here’s where the situation stands now when it comes to student loan forgiveness; we’ll continue to update this story as it develops. For more on the new child tax credit, here who is eligible of thousands of dollars and how to calculate your total.
What’s happening right now with the federal student loan debt?
During his presidential campaign, Biden called for forgiving $10,000 of federal student loan debt per person. He also laid out additional plans for college students in the Biden Plan for Education Beyond High School, such as free tuition and more money for federal grants.
Additionally, we should forgive a minimum of $10,000/person of federal student loans, as proposed by Senator Warren and colleagues. Young people and other student debt holders bore the brunt of the last crisis. It shouldn’t happen again.
— Joe Biden (@JoeBiden) March 22, 2020
Shortly after taking office, Biden signed an executive order to extend the pause on student loan payments and interest till the end of September. Former President Donald Trump initially suspended payments at the start of the coronavirus pandemic, and the loan suspension was extended two additional times.
In Biden’s American Rescue Plan, a provision removed any tax penalty if student loans are forgiven. The IRS treats debt discharged for less than what’s owed as taxable income. This would apply to both government and private loans. The forgiveness provision lasts until Dec. 25, 2025. However, as president, Biden has yet to formally forgive additional student loan debt.
It’s important to keep in mind how there has been no movement on loan debt cancellation as there is a growing number of scammers claiming they can help you with student loan forgiveness.
Does Biden have the authority to forgive $50,000 in loan debt?
During a CNN town hall back in February, an audience member asked if Biden would cancel $50,000 of student loan debt.
“I’m prepared to write off a $10,000 debt, but not 50” thousand, Biden said. “Because I don’t think I have the authority to do it by signing [with] the pen.”
It appears Biden may have changed his sentiment. On April 1, he asked Education Secretary Miguel Cardona if it’s within the president’s power to cancel $50,000 in student loan debt. The department has yet to announce its findings.
What might happen in the near future?
Depending on the response from the secretary of education’s office, a few things could take place. Biden may be able to sign an executive order that cancels some debt per student. Or it may be that Congress would have to pass a bill if sweeping cancellations are outside Biden’s power. In either case, the final amount canceled, and any rules and exceptions over public and private debt, would be contentious areas of negotiation.
Whatever the outcome, it’s unlikely to occur imminently, though it’s a topic we’re keeping a close eye on.
Money tied up in student loans? There are a few things you can do now.
Sarah Tew/CNET
Are there any loan forgiveness options available right now?
Yes, but they’re not so widely available — or quick to receive.
Public Service Loan Forgiveness is a government program intended to forgive federal direct student loans if the borrower has a job with the government or a nonprofit organization, after 120 qualifying on-time payments in an income-driven repayment plan. This means after 10 years of making payments, the government is supposed to forgive the balance. However, many borrowers who believe they’re qualified for forgiveness are having issues getting approved.
In 2019, there were more than 41,000 PSLF applications — and 206 were approved by the Department of Education. Many were denied due to errors, but a 2020 report from the Student Borrower Protection Center found the department’s Office of Federal Student Aid had mischaracterized employers, causing applicants to be ineligible. Since the PSLF began in 2007, 98.8% of applications have been denied according to the center.
Borrowers who took out loans to become teachers can get their Perkins, Stafford or Direct loans partially forgiven. The amount varies depending on what subjects they teach, what schools they teach at and how long they’ve been teaching.
And lastly, borrowers who are on an income-driven repayment plan — in which the monthly payments are no more than 10% of a person’s discretionary income — can have their remaining loan balance forgiven after 20 years for undergraduates, or 25 years for graduate students.
For more information, visit CNET’s resource guide on all things loans.