Is Student Loan Debt Forgiveness Coming?

Student loan debt is the second-largest source of household debt in America, larger than credit card debt, and second only to mortgage debt. Around 42 million U.S. borrowers now owe over $1.5 trillion in student loan debt; and many of them are hoping for student debt forgiveness under the Biden Administration.

The pandemic financial crisis made it difficult for many Americans to keep up with student loan payments, and the government responded by suspending loan payments and interest on all federal loans as part of the CARES Act in March. An executive order extended that protection through the end of the year. However, this action only helps borrowers with federal student loans, not those with private loans.

With 2021 just around the corner and a new president coming into office, many borrowers are wondering:

• Will the government extend suspension of student loan payments and interest in 2021?

• Will President-elect Joe Biden forgive student loan debts after he is sworn in?

• Could Congress approve free college tuition as some Democrats have proposed?

While it’s too early to know for sure, here’s what we know so far and some suggestions on what you can do to manage your debt if new government action won’t be available to help you.

Could college become tuition-free?

The possibility of free college tuition may depend on the balance of power in Congress. Georgia has a runoff election in January, and if Democrats win both Senate seats, they will take control of the Senate as well as the House, making it more likely for proponents to push through student loan and college tuition reform. However, a majority doesn’t guarantee any particular outcome, especially since there will be so many other priorities for Congress to consider.

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Will President-elect Biden sign an executive order forgiving student loans?

During his campaign, President-elect Biden expressed strong support for student debt forgiveness, but he hasn’t said if he will use an executive order to achieve that goal. Comments made recently suggest that he prefers to let Congress make that call.

President-elect Biden has said that he:

• Supports legislation proposed by House Democrats to forgive $10,000 per person of federal student loan debt

• Proposes that borrowers making less than $25,000 per year wouldn’t need to make payments, and no interest would accrue, and everyone else would pay 5% of their discretionary income, with the rest being forgiven

• Wants to change the tax code so that forgiven student loans won’t be taxed as income

• Thinks that tuition should be free for 2-year and 4-year undergraduate programs at public colleges for students making less than $125K per year

• Supports doubling Pell Grants

• Supports extending student loan forgiveness to private Historically Black Colleges and University (HBCU) or a Minority-Serving Institutions (MSI)

• Wants to address problems with the existing Public Service Loan Forgiveness program

However, President-elect Biden has stopped short of saying he would use an executive order to cancel student loan debt, most likely because Congress would have to approve funds for the project. It’s also possible that he’s simply playing his cards close to the vest, for now.

Bottom line: It’s unlikely that your student loans will be forgiven when President-elect Biden takes office in January. If forgiveness does occur, it will probably be months or even years before it takes effect. More immediate solutions will be needed.

Will the government extend student loan forbearance?

The HEROES Act would have extended federal student loan forbearance until September 30, 2021, but although it won House approval in May, it failed to pass the Senate, and has since stalled out. In the aftermath of the election, lawmakers seem to be waiting to see how the balance of power shifts in Congress before working on another relief package.

So while we wait to see what the government does to help students, let’s explore ways for managing your student loan debt on your own.

How to manage without government student debt forgiveness

If you’re not able to pay your student loans, you do have a few limited options available to you right now.

Federal student loan debt forgiveness that already exists

The Public Service Loan Forgiveness (PSLF) program was created to incentivize students to get jobs in high-need industries, like teaching, government, and nonprofit jobs. If you work for a qualifying employer and make payments on your Direct Loan for 10 years (120 payments), then you could possibly have the remainder of your loan forgiven. You can find more information about the PSLF program on the studentaid.gov website.

However, the PSLF program is notorious for having problems, which is why President-elect Biden has discussed making changes to the program. Fortunately, making changes to programs like this is well within the president’s powers, so reforms here may come sooner than widespread student debt forgiveness.

Other ways to get relief on your federal student loans include:

• Teacher loan forgiveness program

• Income-driven repayment plan

• Military service

• AmeriCorps

For now, take advantage of the current forbearance program in place, and contact your congressional leaders to encourage them to continue deferments in 2021.

Private student loan debt relief

Even if student loan forbearance is extended, it won’t help the many Americans who have private student loan debt. Private student loans make up just under 8% of all student loan debt.

If you’re not able to make payments due to your financial circumstances, contact your student loan servicer and ask them how they can help you. They may be willing to suspend payments until you’re able to make payments again.

If your servicer isn’t willing to work with you, or the burden of student loan debt is too big to bear, then the good news is that you have two options that federal student loans don’t have: Debt settlement and bankruptcy. These are more extreme solutions, so carefully weigh the pros and cons before proceeding.

• Debt settlement – You, or a negotiator working on your behalf, may be able to negotiate a reduction in the amount you owe.

• Bankruptcy – While it’s much harder to get student loan debt discharged in bankruptcy than credit card debt, it may be possible if you meet the hardship requirements.

Learn the 6 ways to eliminate any kind of debt

Whatever kind of debt you have, it’s important to understand what your options are for resolving it as quickly as possible so you can escape the burden of crushing debt payments that hurt your ability to save for long-term goals. Learn the six ways to tackle debt in our free guide, How to Manage Debt.

Editor’s Note, December, 2020: The Department of Education announced on December 4th that student loan forgiveness for federal loans will be extended until January 31, 2021. More changes may be coming, so be sure to check with your lender for the latest information.

Learn More:

• How to Manage Student Loan Debt (Freedom Debt Relief)

• 7 Smart Ways to Pay off Student Loans (Freedom Debt Relief)

• What Biden’s Election Could Mean for Student Loans (The New York Times)

• How Does Student Loan Forbearance Affect Your Credit Score? (Freedom Debt Relief)

Disclaimer: We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Our service is not available in all states and our fees may vary from state to state. The use of debt settlement services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest. C.P.D. Reg. No. T.S. 12-03825.