What we know about student debt cancellation
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Here’s what: We’re traveling with student loan forgiveness
If you are one of tens of millions of Americans whose federal student loan payments have been on pause for two years, hello. You are among friends here. Let’s talk about forgiveness.
Since the beginning of the COVID-19 pandemic, the United States has been conducting an extraordinary experiment: what happens when we suspend the debts of a large part of the population? Good things, it turns out.
According to a California Policy Lab March Report, many borrowers affected by the pause saw their credit rating increase; some have reduced their debt by redirecting their money to other debts, such as car bills and credit cards, and others have sought better-paying jobs thanks to new financial flexibility.
As for the broader implications of the break? Some experts say the economy has been “more than okay” without billions funneling to the federal government, which may explain why the Biden administration has been dancing around the issue of canceling student loans during of the past 12 months and why advocates are pushing hard for broader debt cancellation.
Here is an overview of what happened
- The pause on federal student loan payments has been extended (for the sixth time) until August 31, 2022. It is not yet known whether payments will actually resume after that date. The scope of the break was also widened in March, adding more borrowers.
- This month, the Department of Education wrote off $6 billion in debt for about 200,000 borrowers who attended predatory, for-profit colleges including DeVry University and the University of Phoenix. See the full list of eligible schools here.
- In April, the department brought many borrowers closer to forgiveness (or forfeited their loans entirely) when it made changes to income-driven repayment plans. Learn more about the changes and see if you qualify here.
- In the same month, borrowers whose loans were past due or in default before the pause were given a “fresh start” and returned to good standing, allowing them to get back on track with payments when the pause finally ends.
- Last year, more than half a million public sector workers became eligible for loan forgiveness when the Department of Education made temporary changes to the civil service loan forgiveness scheme. The temporary waiver expires in October; learn more here and apply soon.
- More than 320,000 lifetime disabled borrowers had their debts automatically canceled in 2021.
- The department also has canceled billions of debts for defrauded borrowers who attended Corinthian Colleges and other private, for-profit institutions under the “Borrower Defense in Loan Repayment” program. Learn more about the program here and find out how to apply.
Who should be careful?
According to my colleague Ryan Wangman, loan reporter for Personal Finance Insider, anyone with federal student loans should be watching the Biden administration’s moves.
“Although a widespread discount has not yet been announced, many borrowers who were previously ineligible for discount are now eligible,” he said. “Follow the latest news to make sure you don’t miss any help you may be entitled to.”
He noted that while a large majority of federal borrowers have yet to see any of their debt forgiven — and private borrowers have not had any loans canceled either — more news is expected.
“The full-scale forgiveness timeline is still murky. Rumor has it that a decision will come ‘later this summer,’ but that timeline has been a stirring goal since Biden took office,” I was told. he says. “If widespread loan cancellation happens, it’s likely to be around $10,000 per borrower, depending on income.”
What can you do now to get your loans canceled?
If you don’t want to wait for an announcement from the Biden administration, or if $10,000 won’t really help you advance your debt, there are ways to progress on your own to greater or full loan forgiveness.
Ryan recommends looking into public service loan forgiveness if you are an eligible public sector worker (such as a teacher, non-profit employee, government employee, etc.). Some income-driven repayment plans also end with loan forgiveness after 20 or 25 years.
Defending the borrower against loan repayment may be an option if you believe your school has defrauded you. Additionally, adds Ryan, “certain states and professions” — like nursing — “have specific programs you may be eligible for that can further reduce the cost of your debt.”
Student loan forgiveness is in the air. May the breeze blow closer and closer – and faster.
— Stephanie Hallett, editor of Personal Finance Insider
Learn more about student loan forgiveness
Nationwide student loan forgiveness is not guaranteed, so have a plan in place to pay off your loans
Although it seems likely that the Biden administration will cancel some student debt, you may still owe once the payment break is over. Reassess your budget now so you can prepare.
6 Ways to Use Your Money to Build Wealth While Student Loan Payments Are Paused
If you don’t need your extra cash to pay off other debts right now, try investing or saving it in a high-yield rainy-day savings account.
Private Student Loan Forgiveness Doesn’t Exist – Here Are 3 Alternatives to Consider
Private student borrowers have been left out of the pandemic pause and forgiveness talks. But state- and occupation-specific programs may be available. And refinancing at a lower interest rate can help you pay less over time.
Student loans can keep you in debt for years. Here’s how to avoid them.
If you’d rather opt out of this loan repayment merry-go-round (or at least make sure your kids never have to be on it), factor affordability into your college decision and look for financial aid and rewards. that you did not repay.
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