If you have student loans, the possibility of loan forgiveness can sound like a dream come true. But will student loans be forgiven in 2021?
While President Biden has discussed his support for $10,000 of loan forgiveness in the past, he hasn’t taken any official actions to make student loan forgiveness a reality just yet. However, there are some other changes that may indicate that loan forgiveness is on its way.
Here are the latest updates on Biden student loan forgiveness for 2021.
Will Student Loans Be Forgiven This Year?
During his presidential campaign, student loan forgiveness was a part of Biden’s education platform. He presented two different student loan forgiveness ideas:
- Adjust Public Service Loan Forgiveness (PSLF): Under the current PSLF program, federal loan borrowers can only qualify for loan forgiveness after working for a non-profit or government agency for 10 years. Biden’s proposed change would allow qualifying workers to earn up to $10,000 of loan forgiveness for every year of service, for a maximum of five years and $50,000 of forgiveness.
- Partial Loan Forgiveness for All Federal Borrowers: Due to the COVID-19 pandemic, there was an increased demand for student loan relief. As part of his platform, Biden suggested forgiving $10,000 of federal student loans for all borrowers, regardless of their employment.
Some politicians want even more student loan forgiveness for federal borrowers, calling for $50,000 in forgiveness.
However, at a town hall event in February, President Biden said he was opposed to $50,000 of loan forgiveness, and reiterated his support for $10,000 of loan forgiveness.
Where Loan Forgiveness Plans Stand Now
While many people are calling on President Biden to issue an executive order to forgive student loans, the President has been resistant to that idea. His team has said they aren’t sure if he has the legal authority to unilaterally forgive student loans.
In April, Biden asked Education Secretary Miguel Cardona to research the issue and develop a memo outlining the President’s legal authority to forgive student loans.
If Cardona finds that the President cannot forgive student loan debt on his own, the Biden administration would have to submit the issue to Congress for its approval.
Any student loan forgiveness measures would likely face significant opposition in Congress, and there may be delays, or forgiveness may not be approved at all.
Current Changes to the Student Loan System
While there is no clear guidance on forgiveness yet, President Biden has made some changes to the existing student loan system to give borrowers relief.
Current changes include:
- Extensions to the CARES Act: President Biden extended the CARES Act’s student loan relief measures through January 31, 2022. Under the CARES Act, the government suspended federal student loan payments and reduced interest rates to 0%.
- Forgiveness for defrauded borrowers: Biden reversed previous policies that impacted borrowers defrauded by colleges. Under the new regulations, roughly $1 billion in federal student loan debt was canceled.
- Eliminated taxes on some forms of forgiveness: In March, President Biden signed a $1.9 trillion relief bill into law. The bill contained a provision that would eliminate income taxes on forgiven student loans. Previously, some forms of forgiveness — such as income-driven repayment discharge — were taxable as income, which caused some borrowers to face massive tax bills.
While those three updates to the student loan system won’t discharge your loans, they are important steps in providing aid to borrowers.
Alternative Ways to Manage Your Loans
It may take some time for any student loan forgiveness measures to be approved, and even so, there’s no guarantee that they will be approved at all. Also keep in mind that any forgiveness programs that are passed will likely only apply to existing federal student loans. If you have private student loans, you likely won’t be eligible for loan discharge.
If you want to tackle your debt ahead of any changes to student loan forgiveness, here are a few tips:
1. Make Extra Payments
For federal loan borrowers, now is a great time to make extra payments toward your debt if you can afford to do so. Under the CARES Act, you aren’t required to make payments, and your interest rate is set at 0%. With the interest rate reduced, any payments you make from now through January 31, 2022 will go directly against your loan principal rather than interest charges.
By making payments now while interest is set at 0%, you can speed up your debt repayment and reduce the amount of interest that accrues later on.
If you’re worried that forgiveness is forthcoming and payments would be wasted, consider making extra payments until your balance reaches $10,000, and then stop. That way, you can accelerate your repayment but still take advantage of potential forgiveness.
2. Follow the Debt Avalanche Method
If you have private loans or a mix of private and federal debt, use the debt avalanche method to save money and pay off your loans faster. With this approach, continue making the required payments for each account. If you have any extra money to put toward the loans, make additional payments toward the loan with the highest interest rate.
If you have both federal and private loans, consider using the payment you’d normally put toward your federal loans to make extra payments against your private loans. Payments aren’t required on federal loans right now, but private loans don’t have that same benefit. By using your payment to chip away at your private loans, you can save money.
3. Refinance Some of Your Debt
If your current student loans have high interest rates, student loan refinancing can be a smart solution. You can potentially qualify for a lower interest rate, allowing you to save money over the life of your loan.
If you have federal loans that are eligible for the CARES Act measures, be aware that refinancing transfers your federal loans into private ones. After refinancing, those loans will no longer be eligible for the CARES Act or other federal benefits. However, you may be able to refinance your private loans — or partially refinance your federal loans — to get a lower rate and still take advantage of the CARES Act benefits for your other loans.
If you decide that refinancing is right for you, use ELFI’s Find My Rate tool to get a quote. It takes just two minutes and doesn’t affect your credit score.
