Here are 5 ways President Joe Biden can forgive student loans.
Here’s what you need to know – and what it means for your student loans.
It seems everyone has an opinion on how Biden should cancel student loans. After Biden forgiven more than $17 billion in student loan debt, student loan borrowers are wondering if Biden will next be forgiving of large-scale student loan cancellations. Here are 5 ways you can cancel student loans.
1. Biden grants student loan forgiveness to all student loan borrowers
First, Biden could grant student loan forgiveness to all student loan borrowers. In this scenario, Biden could seek to cancel all government and private student loans. If implemented, 45 million student loan borrowers would have $1.7 trillion in student loan forgiveness. Sen. Bernie Sanders (I-VT) has pushed for full student loan forgiveness.
Advantages: There would be no outstanding student loan debt. Student loan borrowers could achieve financial freedom and become debt free. This could help student loan borrowers save for retirement, buy a home, start a family, start a business, and save for retirement. Widespread student loan forgiveness could also help reduce inequality.
Disadvantages: The entire $1.7 trillion in student loan cancellations comes with a significant price tag. There are administrative challenges in canceling private student loans that are not owned by the federal government. Higher earners and student borrowers would benefit disproportionately.
2. Biden cancels up to $50,000 in student loans
Second, Biden could forgive up to $50,000 in student loan debt. As opposed to full student loan forgiveness, Biden would likely only focus on federal student loans. Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) support this proposal. Based on their plan, only student loan borrowers with annual incomes of up to $125,000 would be eligible.
Advantages: If enacted, 36 million student loan borrowers would pay off 100% of their state student loan debt.
Disadvantages: The total cost could be $1 trillion.
3. Biden cancels up to $10,000 in student loans
Third, Biden could forgive up to $10,000 in student debt for borrowers. (Biden will cancel student loans or extend student loan pause before August 31). In this scenario, Biden would likely only focus on government student loans. Biden lobbied for $10,000 in student loan cancellations, significantly less than Schumer-Warren’s proposal. Biden has repeatedly asked Congress to pass legislation to forgive $10,000 in student loan debt. If Congress votes to eliminate student loan debt, Biden has announced he will sign the law into law.
Advantages: Biden is offering student loan relief to millions of financially struggling student loan borrowers. Contrary to popular belief, research shows that student loan borrowers with the lowest student loan balances often struggle more financially than student loan borrowers with higher student loan balances.
Disadvantages: The total cost could be around $370 billion. Student loan borrowers with higher student loan balances could receive limited student loan relief. (Student Loan Forgiveness: 5 Key Takeaways From The Big Announcement)
4. Biden could call in student loans only for low-income student borrowers
Fourth, Biden could limit student loan foreclosures to lower-income student borrowers. The Biden administration would need to define “low-income” and decide whether to include student-loan borrowers in student-loan delinquency or student-loan default.
Advantages: This student loan cancellation would be more targeted student loan relief at a lower cost to the federal government. Biden could help struggling student loan borrowers and avoid criticism that higher earners are benefiting disproportionately.
Disadvantages: Student loan borrowers who do not meet the income threshold could face financial difficulties but would not receive student loan relief. (The termination of the student loan may look different than expected).
5. Biden continues targeted student loan relief
Fifth, Biden could continue targeted student loan relief. In this last scenario, Biden could choose not to enact broad-based foreclosures on student loans. Instead, Biden could focus on student loan forgiveness for government officials, borrowers with a disability, or borrowers who have been enticed into student loan forgiveness by their college or university as part of the borrower’s defense.
Advantages: Biden could cap costs for the federal government while providing relief to millions of student loan borrowers.
Disadvantages: Student loan borrowers who do not qualify for these programs will not receive student loan cancellation.
Student loan exemption: additional considerations
There are additional considerations the Biden administration needs to examine before instituting any large-scale student loan forgiveness. First, there are additional benefits and risks to any student loan forgiveness plan. Second, the Biden administration must determine that the President has pre-existing legal authority to enact large-scale foreclosure on student loans. To date, Biden has said he doesn’t think he has that kind of authority. Even if Biden proceeded to issue a large-scale student loan foreclosure, any implementation of student loan foreclosure could be delayed by legal challenges. Third, Biden will weigh the political pros and cons of student debt relief, including before or after the November congressional elections.
The student loan exemption is expected to end on August 31, 2022. Are you prepared for student loan payments to resume? Know all of your options and choose the best student loan repayment strategy that works for your unique financial situation. Make sure to rate these popular options: