Who Would Benefit From Student Loan Forgiveness?June 10, 2021
In the United States, borrowers owe $1.7 trillion — yes, trillion with a “t” — in student loans. With college costs and student loan balances continuing to grow, there’s been increased demand for some form of student loan forgiveness.
During his campaign, President Biden proposed student loan forgiveness for some borrowers, but not everyone would qualify. Continue reading to find out who would benefit from student loan forgiveness, and what to do if you’re not eligible for Biden’s proposal.
President Biden’s proposal to forgive student loan debt
During President Biden’s campaign for office, he proposed a measure that would forgive $10,000 of each borrowers’ outstanding student loans. However, some politicians said his proposal was too modest, and advocated for $50,000 of loan forgiveness for every borrower. Regardless of which approach the President took, student loan forgiveness would have a significant impact on the economy.
However, neither measure has made any progress as of June, 2021. The U.S. Department of Education and the Justice Department are reviewing laws to see if a President has the authority to cancel up to $50,000 of loan debt; if they find that the President doesn’t have the authority, any student loan forgiveness measures would have to pass through Congress.
Student loan forgiveness proposals will likely meet significant opposition, so it could be months before any bills are passed.
What progress has been made so far for student loan borrowers
While initiatives for $10,000 and $50,000 of forgiveness haven’t moved forward, that doesn’t mean there hasn’t been any progress at all. Since Biden took office, there has been some relief for borrowers.
In March, the Education Department made it easier for borrowers that are totally and permanently disabled to discharge their federal loans. Changes to the total and permanent disability discharge program reduced the paperwork needed to file for those affected by the coronavirus pandemic.
Also in March, the Education Department issued an additional $1 billion in loan forgiveness to borrowers defrauded by for-profit schools through the borrower defense to repayment program.
Who would benefit from student loan forgiveness right now?
In both of the above programs — total and permanent disability discharge and the borrower defense to repayment program — are only for federal loan borrowers.
Under the current general student loan forgiveness proposals, that’s likely to be a consistent approach. Biden’s student loan forgiveness proposals currently only include federal student loans.
As with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, only federal loans owned by the Education Department are likely to qualify for any loan forgiveness measures. Private student loans and school or lender-owned Federal Family Education Loan Program (FFELP) will not be eligible. If you have one of those loans, you’ll have to repay them as agreed upon in your promissory note with your lender.
Alternatives to student loan forgiveness
Now that you know who would benefit from student loan forgiveness, you can start developing a plan for yourself. If you aren’t eligible for potential student loan forgiveness programs that may happen in the future, don’t be discouraged; there are other ways to get relief.
1. Consolidate FFELP loans
If you have FFELP loans that are owned by a school or lender, you don’t qualify for the CARES Act’s protections — including the payment suspension and 0% interest waiver — and you likely won’t qualify for federal student loan forgiveness.
However, there is a workaround: you can consolidate your debt with a federal Direct Consolidation Loan. Once you do so, your loans will become federal Direct loans. Direct loans qualify for the CARES Act and, since they’re solely owned by the government, will be eligible for any future loan forgiveness initiatives.
You can apply for a Direct Consolidation Loan online at no cost.
2. Contact your lender
If you’re ineligible for federal loan forgiveness but need some relief from your debt, contact your lender right away. Some lenders, including ELFI, offer forbearance for borrowers that are experiencing financial hardships. If you’ve lost your job or have become ill, you may be able to temporarily postpone your payments so you can catch up on your finances.
3. Refinance your student loans
If you have private student loans and are ineligible for loan forgiveness, consider student loan refinancing. Depending on your credit and income, you could qualify for a lower interest rate or reduce your monthly payment. By refinancing your debt, you could save thousands and pay off your debt early.