If there is a plan to cancel student loans, will you qualify for student loan forgiveness? Not necessarily.
Here’s what you need to know.
In the ongoing debate whether to cancel student loans, one thing is certain: nothing. Despite the excitement regarding the possibility of student loan debt cancellation, there is less clarity on who qualifies for student loan forgiveness. Of course, that assumes that Congress or President-Elect Biden cancels student loans. If that happens, and there is no guarantee, the specifics to cancel student loans and who benefits still needs to be determined. Here are 5 important issues for Congress and the president to examine so they can determine whether you may qualify for student loan forgiveness:
1. Is the plan to cancel federal student loans or cancel private student loans?
Most proposals to cancel student loans have been for federal student loans. However, House Democrats proposed in the Heroes Act — the $3 trillion stimulus package — to cancel private student loans. Congress could decide to cancel either federal student loans or private student loans (or even both). Most likely, if Congress chooses one type of student loans to cancel, Congress would choose to cancel federal student loans that the U.S. Department of Education owns. Private student loans are between student loan borrowers and private lenders. Often, private student loans are sold to investors. Any plans to cancel private student loan may be more administratively burdensome for the federal government to manage.
2. Would all types of federal student loans be forgiven?
There are different types of federal student loans. For example, the student loan relief contained in the Cares Act — the $2.2 trillion stimulus package that Congress passed in March — only applied to federal student loans that the U.S. Department of Education owns. This includes Direct Loans such as Stafford Loans. However, FFELP Loans and Perkins Loans are not included. Why? FFELP Loans were issued primarily by banks and other financial institutions (not the federal government) and Perkins Loans are issued through colleges and universities. As a result, the federal government does not own most FFELP Loans and Perkins Loans. Therefore, these types of federal student loans were not included in the student loan relief in the Cares Act. Sen. Elizabeth Warren (D-MA) says that any student loans that are cancelled should include all types of federal student loans, including FFELP Loans and Perkins Loans.
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3. Would every student loan borrower get student loan forgiveness?
Biden has called for every student loan borrower to get student loan forgiveness. However, the Heroes Act could serve as the basis for Congress to cancel student loans during the Biden administration. The Heroes Act limits who may receive student loan forgiveness. For example, the Heroes Act includes a provision that only student loan borrowers who are “economically distressed” due to the Covid-19 pandemic would be eligible. If student loan debt is cancelled, will student loan forgiveness only be available to student loan borrower who are “economically distressed?”
4. Will student loan forgiveness be available for college student loans and graduate student loans?
There’s no guarantee that both college student loans and graduate student loans would be forgiven. It’s possible that Congress focuses on cancelling undergraduate student loans only. Why? Many graduate degrees, including a law degree or medical degree, for example, can lead to significantly higher income and higher student loan repayment rates than a college degree alone. If student loan forgiveness is limited to undergraduate student loans, it’s possible that million of borrowers may not receive student loan forgiveness for graduate student loans.
5. Will student loan forgiveness be based on income?
Congress could limit student loan forgiveness based on income. For example, Congress could phase out eligibility to cancel student loans based on a student loan borrower’s annual income. The Cares Act, for example, included income limitations for stimulus checks—$99,000 for individuals and $198,000 for married and joint filers. Warren proposed student loan forgiveness for 95% of student loan forgiveness, and her plan included income limits. Conversely, Sen. Bernie Sanders (I-VT) proposed cancelling student loans for all student loan borrowers, regardless of income.
These are not the only questions that Congress and the president will consider. There are many other questions, including:
- What is the proposed timing for student loan forgiveness?
- How much student loan forgiveness will you get?
- Will Congress cancel student loans or will the president cancel student loans through executive order?
- Will student loan forgiveness be tax-free?
- Will there be a tax credit or cash payment for individuals who already paid off student loans?
- Will there be a tax credit or cash payment for individuals who never went to college or borrowed student loans?
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