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If you have any of these student loans, they might not get cancelled.
Here’s what you need to know.
As Congress and President Joe Biden consider wide-scale student loan forgiveness, you may not be eligible for student loan cancellation if the following describes you. While there is no guarantee, this is the latest on student loan forgiveness based on the latest proposals:
If you have private student loans, don’t expect any student loan cancellation. Sen. Bernie Sanders (I-VT) and other in Congress want to cancel $1.7 trillion of student loan debt. However, the leading proposal in Congress from Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) calls for student loan forgiveness for federal student loans. So, if you have private student loans, you will have to consider other options for student loan repayment. With record low interest rates, student loan refinancing is a smart option for your private student loans. With student loan refinancing, you can get a lower interest rate, get a lower monthly payment, choose a fixed or variable interest rate, and choose a student loan repayment term from 5-20 years.
Here’s a shocker for some student loan borrowers: not all federal student loans likely will qualify for any potential student loan cancellation. That may sound confusing, but there is a difference between federal student loans. For example, most FFELP Loans and Perkins Loans aren’t owned by the federal government. FFELP Loans were issued prior to 2010 mostly by banks and may be owned by financial institutions or third party investors. Perkins Loans are issued through colleges and universities. Student loan borrowers with FFELP Loans or Perkins Loans have largely been excluded from the student loan relief from the Cares Act, including paused student loan payments. Federal student loans such as Direct Loans, subsidized student loans and unsubsidized student loans are expected to be eligible. The U.S. Department of Education is reviewing Biden’s legal authority to cancel student loans, so it’s possible that these 5 changes to student loan forgiveness could happen.
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Any student loan cancellation is expected to have an income cap. If that sounds unfair to you, understand that it’s part of Warren and Schumer’s proposal. For example, under their plan, only student loan borrowers who earn up to $125,000 annually would be eligible for wide-scale student loan cancellation. Like the stimulus checks, an income cap means that millions of student loan borrowers may not get student loan forgiveness.
Most discussion related to student loan forgiveness has centered around student loan borrowers. However, parents also borrow to pay for college and graduate school. There are two main types of loans for parents to fund education. Parent Loans are private loans borrowed from a private lender, while Parent PLUS Loans are offered through the federal government. Parent Loans are considered private student loans, so they are unlikely to be included in any student loan cancellation. That leaves Parent PLUS Loans, which are owned by the federal government. The latest student loan debt statistics show that there are approximately $100 billion of Parent PLUS Loans outstanding. Parents who owe Parent PLUS Loans may be retired and therefore have limited income, even if they have higher net worth. Warren and Schumer’s plan likely would include these Parent PLUS Loan borrowers, but there is little discussion on how to help parents with student loans compared with student loan borrowers.
There hasn’t been an explicit mention of excluding graduate student loans from student loan cancellation. However, there have been references to focusing on undergraduate student loans. Why? Borrowers who pursue a graduate degree in law, business, medicine or dentistry, for example, on average, have higher income. It’s possible that to appease fiscal conservatives that Biden or Congress limits the degree type for student loan cancellation. Of course, not all students who pursue graduate degrees are high income earners, but it’s possible there could be some limitation for certain programs.
If you have student loans, consider these smart options as you pay off student loans:
- Student loan refinancing (lower interest rate, lower monthly payment)
- Income-driven repayment plans (lower monthly payment for federal loans)
- Public service loan forgiveness (student loan forgiveness for federal loans)
