It’s been nearly nine months since President Biden took office, and millions of students and their families are still holding their breath waiting for student loan forgiveness. This was a key pillar of Biden’s campaign, as the $1.57 trillion in outstanding student loan debt is being pegged as one of the top sources of modern financial hardship. Student loan debt forgiveness still hasn’t happened, though, and many are wondering: What’s the holdup?
Currently, federal student loans are in forbearance and have been for months. The forbearance officially ends on Jan 31, 2022, at which point many borrowers will have avoided making payments for nearly two years. However, forbearance doesn’t erase any debt; it simply puts it on pause. In the meantime, student loan forgiveness could provide a much-needed coup de grace for individuals to keep their finances intact, especially as the most recent eviction moratorium was not extended and has since expired.
The good news: some student loans have already been forgiven for specific individuals. Could more be on the way?
The Current State of Student Loan Forgiveness
As of August 2021, more than $9.5 billion in borrowed funds have been erased, affecting more than 563,000 borrowers. The targets of these rounds of forgiveness were individuals who qualify as permanently disabled former and active-duty service members who faced “imminent danger or hostile fire pay” during the periods served, and students who were defrauded by their schools.
If you’re taking advantage of the federal student loan forbearance program that started at the beginning of the pandemic, you’ve experienced a sort of forgiveness as well. During the forbearance period, all student loan payments were frozen and no new interest was applied. However, Congress included a lesser-known provision in this decision that any non-payments on loans during this period would “count” for forgiveness purposes.
What this means is that even if you didn’t make a payment on your loan between March 2020 and Jan 2022, you can get nearly two years’ worth of payments counted toward a forgiveness program. It’s like getting credit for payments you didn’t make, which in itself is a form of student loan forgiveness. Usually, forgiveness programs require you to have made a certain number of on-time monthly payments and meet other requirements.
Should We Expect Broad Student Loan Forgiveness?
The idea of broad student loan forgiveness is alluring, but many experts believe it will never happen.
Biden has gone on record to support canceling as much as $10,000 of student loan debt per person. However, there has also been back and forth chatter that he does not have the legal authority to enact such a widespread decision. To initiate any form of student loan forgiveness would require the cooperation of Congress.
Speaking of Congress, there’s been talk of a proposal championed by Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren to forgive up to $50,000 of student loans per borrower. If this proposal were to reach Biden’s desk for signing into law, it’s estimated that 36 million student borrowers would have their debt completely wiped out.
The targeting of specific groups, such as disabled individuals, has many students wondering whether Biden will continue forgiving bits and pieces of student debt, ideally before the student loan forbearance period ends. While there are no definitive answers just yet, it’s something that we’ll be keeping a close eye on in the coming months.
What Student Loan Borrowers Should Do Next
Many borrowers in the United States have been riding the forbearance wave and using those funds to pay off other debts, start an emergency savings, or avoid getting behind on other bills. This trend can continue for the next few months, but know that the forbearance period days are numbered and you will soon start having to make student loan payments once again.
Now is a good time to start getting your finances in order so that you can resume making payments in February 2022. If you have been diligently paying off your student loans this whole time, there’s no reason to stop now. Consider it a good money habit so that you can pay down your balance, lower your interest, and hopefully pay off your loans faster, with or without forgiveness.
If you can afford to do so, start back making payments as soon as possible if you have stopped during the pandemic. You’ll save money on interest and can pay down your loans faster.
If your financial situation has changed during the pandemic and you’re not sure whether you’ll be able to work your student loan payments back into your budget, now is a good time to start testing it. Start working on a new budget plan and set aside money each month for your loan repayment (even if you choose to not make the actual payment). See how it affects your finances and what you might be able to cut back on if paying your loan is a struggle.
Now is a good time to do a financial wellness checkup. Explore our free resources to start designing a budget that works for you!