If you’re staring at a pile of student loan debt wondering what you’re going to do about it, you’re not alone. 65 percent of college students borrow student loans to pay for college. Current student loan debt amounts to $1.6 trillion. Each borrower owes an average $39,351. It’s the second-highest form of debt in the U.S., only preceded by home mortgages. Since the outbreak of the pandemic, conversations about forgiveness of student loan debt have increased in frequency. President Biden made student loan forgiveness a key component of his presidential campaign. After two years of the pandemic and one year of President Biden’s term, student loan forgiveness is a hot topic now more than ever.
The future of student loan debt forgiveness is very much up in the air, and it’s understandable if you’re confused or have questions. Can my loans be forgiven? Can ALL my loans be forgiven Is there a certain level of eligibility? Are there any requirements? When, if at all, will this happen? All legitimate concerns. While the answers will vary from person to person, here are some basics to get you started.
What’s going on with the student loan situation right now?
President Biden extended the pause in student loan payments until May 1, 2022 at the end 2021. This was through the CARES Act. It was the first COVID relief legislation passed by the Trump presidency in March 2020. The payment pause was previously extended by Trump twice. President Biden has extended it three times. After the second extension, the Biden Administration stressed that there wouldn’t be another, but decided to allow one more in light of the raging Omicron variant.
The current student loan payment pause is:
- There will be no federal student loan payments after May 1, 2022
- There is no interest accumulation on loan amounts
- No collection of loans in default
Will student loan forgiveness ever happen?
Many experts believe that total loan forgiveness is unlikely to happen, but we’re still holding out hope for partial cancellations from the U.S. government. More than 30 pieces are currently being considered by Congress in relation to student loan forgiveness. The amount of debt that should be cancelled is a matter of contention among members of Congress. President Biden campaigned on forgiveness of $10,000, and one piece in the House committees proposes to forgive $50,000
The dispute has effectively stalled the progress of student loan forgiveness legislation. But all is not lost. President Biden has cancelled nearly $12 billion of federal student loan debt since the start of his term. There could be more cancellations. These are some things to remember in the event that President Biden cancels additional debt or if debt forgiveness legislation is passed.
President Biden’s cancellations have limitations
The $12 billion in student loan debt President Biden has canceled has been reserved for a select group of borrowers. These cancellation beneficiaries include teachers, public servants, borrowers with closed institutions, borrowers misled by their institutions (this, also known as borrower defense), and Americans living with total and permanent disabilities. You may be eligible for one of the other cancellation categories. Click the hyperlinks to find out more!
Only federal loans can be forgiven
Not all student loans can be taken out at the same time. Borrowers can either get loans from the federal government, or loans from private lenders. Only federal loans can be cancelled or paused by government. The loan forgiveness legislation that is passed will not affect the amount borrowers owe private lenders. Therefore, payments would continue as usual.
Federal loan forgiveness could be based upon income
President Biden proposed a $10,000 loan cancellation for each borrower. However, he also advocated for a long-term payment plan that would lower payments based upon income. His plan would reduce your annual student loan repayments by five percent of any income earned above $25,000. If you have $75,000 in discretionary income, after taxes, housing and food expenses, you would pay $2,500 annually in student loan repayment ($50,000 x 5%) If your discretionary income is below $25,000, you wouldn’t have to make payments at all.
What about loans with private lender?
Even though loan forgiveness doesn’t apply to loans taken out with private lenders, you still have options. Private lenders may offer refinance options, which could lower your interest rates or repayment assistance programs depending on the state, loan type, and length of the loan. Other borrowers have also found solutions by going to court, which could be a welcome surprise considering that predatory lending practices are more common among private lenders.
Navient, a private lender that serves 12 million borrowers, settled a class-action lawsuit. They were accused of telling borrowers to put their loans in forbearance instead of offering income-determined repayment plans. The lawsuit claimed that Navient offered loans for borrowers it knew would default. The settlement includes Navient cancelling debts amounting to $1.7 billion for 66,000 borrowers, and paying nearly $260 to 350,000 of those borrowers. Navient may contact you if you are an affected borrower in this lawsuit if you have defaulted or charged off loans that Sallie Mae took out between 2002 and 2010. You wouldn’t technically be a party to the lawsuit, but you could possibly still benefit from the settlement. After all legal proceedings are concluded, Navient will contact affected borrowers.
What do I do now?
I am not a financial and student loan advisor. It is important to seek professional advice before making major financial decisions. However, it appears that the situation regarding student loan forgiveness will not change in the immediate future. It is worth considering if you are prepared to resume federal payments beginning May 1, 2022. If loan forgiveness legislation is passed and the qualifications are clear, then the odds of you winning will be in your favor. In the meantime, stay ready so you don’t have to get ready, and check out these student loan debt resources:
- National Consumer Law Center: The NCLC’s Student Loan Borrower Assistance site is your one-stop loan information shop. It offers tools to help with everything, from repayment to default concerns. If you need a starting point for loan repayment assistance, don’t miss this one.
- The Student Loan Doctor LLCSonia Lewis, a student loan doctor, happily assumes the role of student loan doctor. She is the first Black and female-owned student loan repayment company in America. Sonia has helped more than 20,000 clients, including current and former borrowers.
- Podcast: Student Loan ShowJay Fleischman, a student loan attorney, hosts this podcast. It covers a wide range of topics related to student debt. Six episodes are available, which makes them very easy to consume and informative. A six-part email series is also offered by the host, which covers collections, defaults, repayment, and more.
- Destroy Your Student Loan Debt by Anthony O’Neal: A former Ramsey Personality, Anthony O’Neal is an author who has carved out space for himself as a student debt expert. Get rid of your student debtAfter his highly acclaimed 2019 book, was published in 2020 Debt-Free Degree: The Step by Step Guide to Helping Your Kid Get Through College Without Student Loans
- Dave Ramsey’s Total Money Makeover: As a guide to eliminating personal and financial debt, Dave Ramsey, a financial expert, published this book. The book is intended to help readers develop better relationships with money by debunking “money myths” and completely transforming money habits.
Source: The Every Girl
