Don’t Expect Student Loan Forgiveness

Don’t expect student loan forgiveness for every student loan borrower.

Here’s what you need to know — and what it means for your student loans.

Student Loans

At a virtual student loan debt summit yesterday, Senate Majority Leader Chuck Schumer (D-NY) criticized President Joe Biden for not enacting wide-scale student loan cancellation. Schumer repeated his call for Biden to cancel up to $50,000 of student loan debt for borrowers “with the flick of a pen,” referring to what Schumer believes is Biden’s legal authority to enact mass student loan cancellation through an executive order. Schumer says that cancelling student loans will stimulate the economy, and help a generation of student loan borrowers have extra money to get married, start a family, buy a home, save for retirement and start a business. However, here’s the thing: as much as student loan cancellation is pitched, the reality is that every student loan borrower won’t get student loan cancellation. Let’s break it down:

1. Every student loan borrower won’t get student loan cancellation

Student loan forgiveness has been loosely talked about in a binary way: either Biden cancels student loan debt, or no one get student loan forgiveness. Since becoming president, Biden has cancelled nearly $10 billion of student loans. (Find out how to apply for nearly $10 billion of student loan forgiveness). This includes student loan forgiveness for disabled student loan borrowers as well as student loan cancellation for student loan borrowers under the borrower defense to repayment rule. (Find out how to apply for this student loan cancellation). Despite the high headline number, some say that on a relative basis, targeted student loan forgiveness is welcomed but the student loan forgiveness to date only constitutes less than 1% of total student loan debt of $1.7 trillion. Student loan cancellation may help more student loan borrowers, but that doesn’t mean Biden will cancel everyone’s student loan debt. Biden has actively chosen to cancel student loans on a targeted basis under existing federal law. In contrast, Biden doesn’t agree that he has unilateral authority to cancel everyone’s student loan debt. (Here are 5 reasons why Biden hasn’t cancelled student loans). While Biden asked the U.S. Department of Education in March to opine on his legal authority, that legal memorandum hasn’t been made public. Biden will continue to cancel student loan debt, but most student loan borrowers won’t have all their student loan debt discharged.

2. Student loan forgiveness: “Students don't need their debts paused — they need it erased”

Schumer said that “Students don’t need their debt paused — they need it erased.” Schumer is referring to temporary student loan forbearance, which as then-Senate Minority Leader, he helped pass through the Cares Act stimulus package in Congress in March 2020. While Biden hasn’t enacted wide-scale student loan cancellation, Biden extended student loan temporary forbearance twice. (Student loans have been cancelled thanks to these heroes). According to the U.S. Department of Education, this has resulted in an aggregate $5 billion in savings per month for student loan borrowers. Based on these two extensions, this means Biden will have cancelled an additional $60 billion of student loans by January 31, 2022, when this student loan relief will end. Combined with student loan relief from Congress and two extensions from President Donald Trump, student loan borrowers will have received more than $110 billion of student loan forgiveness through early next year. (Here’s how to get student loan forgiveness). As an extra benefit to student loan borrowers, for purposes of income-driven repayment plans and the Public Service Loan Forgiveness, the non-payments of student loan debt during the 22 months of the Covid-19 pandemic will be counted as payments to calculate student loan forgiveness under these programs. In fairness to Biden, a bipartisan Senate passed the Cares Act, which granted substantial student loan relief to student loan borrowers. While Biden wasn’t a senator at the time, Schumer was and could have tried to negotiate for outright student loan cancellation in the Cares Act if believed student loan cancellation was superior to the student loan payment pause. In fairness to Schumer, however, as a member of the minority party in the Senate, the Republican-led Senate wouldn’t have passed his proposal to cancel up to $50,000 of student loans. Today, Schumer is the most powerful member of the Democrat-controlled Senate and could bring a vote to the Senate floor on wide-scale student loan cancellation. To date, however, that hasn’t happened. Congress hasn’t even voted on student loan cancellation, even though Biden has called on Congress to pass legislation to cancel up to $10,000 of student loans. Of course, if Congress had the votes, Congress could cancel up to $50,000 or another amount. (Here’s where Democrats stand on student loan forgiveness).

3. Student loan cancellation up to $50,000 may not include you

Schumer and Sen. Elizabeth Warren (D-MA) are the architects of the plan to cancel up to $50,000 of student loan debt for student loan borrowers. As a presidential candidate, Warren advocated for cancelling student loan debt for up to 95% of all student loan borrowers. Under the Schumer-Warren plan, 36 million student loan borrowers would have the federal student loan debt completely forgiven. That said, sometimes this plan gets loosely described as cancelling everyone’s student loan debt. Warren and Schumer are the top advocates for wide-scale student loan cancellation, yet their plan also won’t cancel every student loan borrower’s student loan debt. First, their plan doesn’t apply to private student loans, so if you have private student loan debt, those student loans won’t be eligible for student loan cancellation. Second, there is an income limitation. If you make more than $125,000 per year, then you won’t qualify for student loan cancellation under their plan. You may find this fair or unfair, but it’s important to understand the proposal, who would qualify and who would be excluded. (If you don’t get student loan forgiveness, do these 3 things).

4. Student loan forgiveness: messaging is important to student loan borrowers

Don’t expect your student loans to be cancelled. That’s the message that student loan borrowers may not want to hear, but they should hear. It’s not a comment on the soundness, or lack thereof, of the underlying policy to cancel student loans. Rather, it’s the reality of the current political landscape and legislative agenda. Again, you may find that fair or unfair, but that’s the most likely outcome. The Biden administration has clearly stated that student loan relief from the Covid-19 pandemic will end, with no further extensions, on January 31, 2022. If you are counting on an extension of student loan relief, please don’t. If you think that all your student loan debt will be forgiven through wide-scale student loan cancellation before then, please don’t. The U.S. Department of Education is contacting student loan borrowers to inform them of the restart of federal student loan payments beginning February 1, 2022. While there is always the possibility of a January surprise, there’s no clear indication that either Biden or Congress will enact wide-scale student loan cancellation any time soon.

It’s important to convey this message so that you can prepare now for student loan repayment. If you qualify for existing student loan forgiveness, apply. If you don’t, make sure you understand your alternative options. Here are some popular ways to save money:

• Student loan refinancing (get a lower interest rate + lower monthly payment)
• Income-driven repayment plans (get a lower monthly payment)
• Public service loan forgiveness (get student loan forgiveness)

Student Loans: Related Reading

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