What Student Loan Forgiveness Means for Your Student Loans

Here’s what large-scale student loan forgiveness means for your student loans.

Here’s what you need to know.

Student grants

President Joe Biden could announce his decision on large-scale student loan waivers any day. Whatever the president decides, more than 40 million student loan borrowers will be affected. Biden said he would decide on student loan forgiveness before the student loan payment break ends on Aug. 31, 2022. Let’s see what student loan forgiveness can do for you. Here are 4 things you need to know about large-scale student loan forgiveness.

1. Forgiveness of Student Loans Can Be Life-Changing

For some student loan borrowers, canceling student loans on a large scale can be life-changing. For example, if the president cancels $50,000 in student loans for each borrower, about 36 million student loan borrowers would have all of their federal student loans canceled. Progressive Democrats are lobbying the president to enact a large-scale $50,000 student loan waiver. Biden is unlikely to cancel that amount of student loans, though. The president has consistently supported $10,000 in student loan forgiveness. That said, $10,000 in student loan cancellations can also be life-changing for borrowers. Despite popular belief, student loan borrowers with lower student loan balances — such as less than $10,000 — often have financial difficulties and have higher student loan default rates. By canceling $10,000 in student loans, Biden could provide a financial lifeline to these student loan borrowers.

2. Student Loan Cancellation: Don’t Expect a $10,000 Check

If Biden is conducting large-scale student loan forgiveness, don’t expect a check for $10,000. Why? Unlike a stimulus check from the Covid-19 pandemic, student loan forgiveness would mean a reduction in your student loan principal balance. This means that you will not receive a physical check for the amount of any student loan waiver. For example, you won’t receive a check if you have $100,000 in student loans and get $10,000 in student loan forgiveness. Instead, the U.S. Department of Education would automatically lower your student loan principal balance to $90,000. You will therefore not receive a lump sum payment. Instead, you would have a lower monthly student loan payment based on your new, lower student loan balance.

3. Student Loan Forgiveness: You May Not Qualify

Student loan forgiveness may not be available for every student loan borrower. According to leaked documents from the US Department of Education, student loan waivers may be limited to specific borrowers. For example, large-scale student loan forgiveness could only be limited to federal student loan borrowers. This means that borrowers with private loans are not eligible. That said, a proposed plan from Biden’s education division would include borrowers with Direct Loans, FFELP Loans, Perkins Loans, Parent PLUS Loans and Grad PLUS Loans. The Biden administration is considering an income limit of $150,000 for individuals and $250,000 for families. You may be barred from large-scale student loan waivers if you earn more than these thresholds.

4. Don’t expect a larger-scale student loan forgiveness

If Biden introduces a large-scale student loan cancellation, don’t expect the president to re-cancel student loans for every student loan borrower. Therefore, expect large-scale student loan cancellations to be a one-time event. That said, Biden will continue to provide targeted student loan forgiveness through programs such as Borrower Defense Against Repayment and Public Loan Forgiveness. This week, Biden canceled $3.9 billion in student loans for 208,000. In the coming days, Biden will announce whether he will extend the student loan payment pause for the seventh time. Even if Biden extends the student loan waiver, remember that the student loan payment break won’t last forever. That is why developing a student loan repayment game plan is critical. Here are some of the best ways to get out of student loan debt and save money:

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