Congress May Cancel Student Loans In New Stimulus Package
Updated January 15, 2021
Your student loans can be canceled in the new stimulus package.
Here’s what you need to know.
President-elect Joe Biden has released a $ 1.9 trillion stimulus package, which includes more stimulus checks, unemployment benefits, and state and local aid. However, one thing is missing and that is the cancellation of the student loan. Will you get your student loan canceled?? It’s possible Congress will include canceling student loans in the new stimulus package, even though Biden hasn’t included it in his stimulus package. Why? Biden wants Congress cancel student loans immediately. Several House and Senate Democrats are also supporting the cancellation of student loans. So Congress could potentially cancel student loans in the new stimulus bill or pass stand-alone legislation. Before Congress or Biden cancels student loans, however, they must agree on the amount of student debt to be canceled and who gets a student loan cancellation. Here are 5 ways Congress could cancel student loans in the new stimulus package:
Option 1: Cancel $ 10,000 in student loans for all federal borrowers
First, while student loans were taken out of the latest stimulus package, Congress could cancel $ 10,000 in student loans for all federal student loan borrowers. Under this potential proposal, Congress could cancel student loans such as direct loans, including Stafford loans. Congress could also cancel the FFELP and Perkins loans. However, the Cares Act – the $ 2.2 trillion stimulus package that Congress passed in March – excluded FFELP and Perkins loans from student loan relief, such as suspended payments. Why? FFELP loans and Perkins loans are not owned by the federal government, which could make it difficult to cancel student loans with borrowers who hold these types of federal loans. Congress should reimburse owners of FFELP loans (such as financial institutions or institutional investors) and Perkins loans (such as colleges and universities).
Option 2: Set aside $ 10,000 for certain federal borrowers
Second, Congress could cancel $ 10,000 in federal student loans for some student loan borrowers. This proposal is similar to the first, but Congress could choose to exclude the FFELP and Perkins loans, which do not belong to the federal government. If Congress goes down that road, it would be the same types of student loans contained in the Cares Act. That said, since the Cares Act, Democrats and some Republicans have proposed including FFELP loans and Perkins loans so that all federal student loan borrowers can get their student loan canceled.
Option 3: Cancel $ 10,000 if you earn less than $ 125,000 in income
Third, Congress could write off $ 10,000 in student loans for every borrower who earns less than $ 125,000 in annual income. There are many ways your student loans could change this year, and cancellation of the student loan is a possibility. Congress could choose a higher or lower income threshold, but President-elect Joe Biden referred to that amount in his student loan plan. Supporters of student loan cancellation generally want to increase the number of potential recipients whose student loans are canceled. Opponents want to limit student loan cancellation either completely, or at least to a small sample size. Limiting income is one way to reduce the pie, although opponents may push for a lower income cut-off such as $ 75,000, for example, which was the cut-off for dunning checks.
Option 4: Cancel $ 10,000 if you are “in economic difficulty”
Fourth, Congress could cancel $ 10,000 in student loans for “economically distressed” borrowers. This language appeared in the Heroes Act, which is the stimulus package House Democrats passed last year and from which Biden has said he wants to base his new stimulus package. “In economic difficulty” could be defined in several ways. In the Heroes Act, “economically distressed” referred to a student loan borrower who would otherwise pay $ 0 per month under an income-based repayment plan, was in default, or was in default. 90 days behind on student loans. By this definition, millions of student loan borrowers will not benefit from any student loan discounts. Alternatively, Congress could, for example, define “in economic difficulty” as unemployed or otherwise materially affected financially by the Covid-19 pandemic.
Option 5: Cancel $ 50,000 in student loans if you earn less than $ 125,000 in income
Fifth, Congress could cancel up to $ 50,000 in student loans for each borrower who earns $ 125,000 or less in annual income. This is the proposal of Senator Elizabeth Warren (D-MA) and Senate Minority Leader Chuck Schumer (D-NY). Warren and Schumer believe their proposal will boost the economy, reduce disparities and help a generation of Americans start life without the threat of a student loan. Warren and Schumer want Biden to write off student loan debt directly through an executive order. However, Biden won’t cancel $ 50,000 in student loans. Biden has always defended $ 10,000 for student loan cancellations and said he was unlikely to use an executive order. Considering the potential cost, this proposal is the least likely to be included in the new stimulus package.
How to pay off student loans faster
What’s the best way to pay off student loans? There is no guarantee that Congress will cancel student loans in the new stimulus package or through stand-alone legislation. Biden and several members of Congress want to cancel student loan debt, but Congress also wants to pass other policies like stimulus checks first, which could delay any student loan cancellations. This is why it is essential that you make a student loan action plan now. Start with these three options, all free: