President Joe Biden (Photo by NICHOLAS KAMM/AFP via Getty Images)
Here are the potential income limits that Biden could impose to qualify for student loan forgiveness.
Here’s what you need to know — and what it means for your student loans.
Student Loans
Within weeks, President Joe Biden could announce a comprehensive plan for wide-scale student loan forgiveness. If student loan borrowers get their way, Biden could forgive student loans for millions of student loan borrowers. How wide-scale will wide-scale student loan forgiveness be? Well, expect limits on student loan cancellation. Biden, who has canceled $17 billion of student loans, could impose income limitations on any wide-scale student loan relief. These income limitations, which Biden hasn’t formally announced, could reduce the overall cost of student loan forgiveness and exclude millions of student loan borrowers. Here are the potential income limits that Biden could impose to qualify for student loan forgiveness.
Student loan cancellation: $125,000 income limit
Everyone won’t qualify for student loan forgiveness. The Biden administration said that it’s considering an annual income limit of $125,000 for student loan borrowers to qualify for wide-scale student loan forgiveness. During the 2020 presidential campaign, Biden used the same $125,000 income threshold for a tuition-free college plan. Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) also proposed a $125,000 income threshold for their plan for student loan cancellation of up to $50,000 for eligible borrowers. According to the U.S. Department of Education, $50,000 of student loan cancellation would eliminate federal student loans for 36 million borrowers. (Biden confirms he won’t cancel $50,000 of student loans—5 key takeaways).
Student loan forgiveness: $75,000 income limit
Biden could get pushback on the $125,000 income threshold. Why? When Congress approved stimulus checks in response to the Covid-19 pandemic, Congress imposed a $75,000 income threshold. The goal of stimulus checks was to direct financial assistance to Americans who needed the most financial relief. Why would student loan borrowers get a higher income threshold than other Americans? Yes, a higher income threshold means more people get student loan cancellation. However, if the Biden administration chooses a higher income threshold than stimulus checks, Biden will need to explain why student loan borrowers will be prioritized. (5 ways for Biden to cancel student loans).
Student loan relief: $50,000 or lower-income limit
Biden could determine that either $125,000 or $75,000 income thresholds are equally inappropriate. Alternatively, Biden may opt for a lower threshold that focuses on lower-income student loan borrowers. Why? Lower-income student loan borrowers are financially vulnerable and most likely to default on their student loans, even with relatively low student loan balances. If Biden opts for an income threshold that targets low-income student loan borrowers, it would transform student loan forgiveness to a more targeted effort. Biden also confirmed that he won’t cancel $50,000 of student loans. One reason may be that lower-income borrowers, on average, tend to have relatively lower student loan balances. Biden also could deflect criticism that wide-scale student loan cancellation disproportionately will benefit higher-income earners. The downside is that fewer student loan borrowers would qualify for student loan forgiveness. Even if Biden acts on student loan cancellation now, student loan forgiveness could mean the end of student loan relief from the Covid-19 pandemic.
Student loans: next steps
Biden hasn’t decided whether he will cancel student loans. (4 reasons your student loans may not get canceled). If he proceeds with student loan forgiveness, expect student loan cancellation to have an income threshold, be limited to federal student loans, or be restricted to college student loans, for example. Biden also could decide not to enact wide-scale student loan cancellation and instead focused on targeted student loan relief through existing student loan forgiveness programs. As Biden mulls student loan cancellation, temporary student loan relief is scheduled to end on August 31, 2022. Are you prepared? Here are some smart ways that you can prepare for student loan repayment starting now:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (cancel student loans)
Student Loans: Related Reading
Biden confirms he won’t cancel $50,000 of student loans—5 key takeaways
3 ways Biden could cancel student loans
Student loan forgiveness: who could qualify under Biden’s plan
Student loan forgiveness: 5 key takeaways from major announcement
