What to do while waiting for news on student loan forgiveness

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It has now been more than seven months since President Joe Biden asked the United States Department of Justice to review its legal authority to cancel student debt.

The agency has yet to release its findings. And although Main Democrats argue that the president can cancel debt through executive action, Biden has said little on the subject.

All uncertainty hangs over Austin Hossfeld, who owes around $ 50,000 with his wife, Hayley.

Every day, he types the same words into Google: “Biden” and “student loans”.

“A lot of times it’s the same items,” said Hossfeld, 26. “I reread them.”

Millions of other borrowers are also likely on the alert, wondering if they will soon see their loans written off or if they will be forced to repay them for years to come.

Here are some answers, based on what we currently know.

Can I count on the cancellation of my student loans?

When can forgiveness come?

If Biden decides to go ahead and write off the loans through executive action, in theory borrowers could have their balances reduced or eliminated fairly quickly.

But such a decision could face legal challenges, which could lead to delays, experts say.

If the White House chooses to leave the cancellation of student loans to Congress, Democrats could try to use the budget reconciliation process, which will take place in the fall, to do so.

This avenue allows them to pass laws by simple majority, which is all they have. Other bills typically need 60 votes to move forward, thanks to Senate rules of procedure. Republicans are mostly hostile to the idea of ​​a student debt jubilee.

How much could we forgive?

The main point of contention among supporters of student loan cancellation today is how much debt to eliminate: $ 10,000 or $ 50,000?

If all federal student loan borrowers got $ 10,000 of their debt forgiven, the country’s outstanding student loan debt would fall to about $ 1.3 trillion from $ 1.7 trillion, according to Kantrowitz. And about a third of federal student loan borrowers, or 15 million people, would have their balances reset to zero.

Canceling $ 50,000 for all borrowers, by contrast, would reduce the country’s student debt balance to $ 700 billion, from $ 1.7 trillion. Meanwhile, the debt of 80% of federal student loan borrowers, or 36 million people, is said to have disappeared completely.

Even with this more generous plan, not everyone would be entirely happy. One-fifth of federal student loan borrowers owe more than $ 50,000 and about 7% of borrowers owe more than six figures.

Do I still have to make payments?

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Most federal student loan borrowers don’t have to pay their bills until January, and during that time interest is suspended.

Given that $ 10,000 for student loan cancellation is the most likely proposition to come to fruition, Mayotte said it sees nothing wrong with people who owe less than that amount redirecting their usual payments to the ‘savings, “gaining a little interest on them, then seeing which way the wind is blowing” as we get closer to winter.

“If it looks like we’re not any closer to forgiveness, pay the funds then,” she said.

Even if you owe more than $ 10,000, it may still be a good idea to take advantage of the government’s break on student loan repayments.

You can use the extra money to eliminate high interest credit card debt, for example, or to build up your emergency savings.

Is there anything else I should be doing at the moment?

According to experts, there are smart steps you can take in anticipation of student loan cancellation.

Millions of people who took out student loans before 2010 under the federal Family Education Loans program have been excluded from the government’s offer to suspend their payments without accrued interest.

There is now some concern that those who have these loans might also be excluded from any discounts.

As a result, these borrowers might want to consolidate their FFEL loans into the main direct lending program, which will be eligible for the remission, Kantrowitz said. The main drawback is that your repayment schedule will be reset; so if you are near the end it may not make sense.

Until the legislation is enacted, you cannot count on anything.

Marc Kantrowitz

higher education specialist

Borrowers who plan to refinance their federal student loans to private loans at a lower interest rate may want to wait, Kantrowitz said. For one thing, the interest rate on most federal student loans is 0% for another four months.

Plus, “they’ll feel stupid if they only refinance for the federal government to announce the loan cancellation,” Kantrowitz said.

Can my private student loans be canceled?

“When it comes to private student loans, it seems highly unlikely that they will be included in the forgiveness plan,” said Elaine Rubin, senior contributor and communications specialist at Edvisors.

Would my canceled debt trigger a tax bill?

Cancellation of student loans is now tax-free, thanks to a provision included in the federal $ 1.9 trillion coronavirus stimulus package that became law in March.

Previously, any student loan debt canceled by the government was considered taxable and withheld at the borrower’s normal tax rate.

According to a rough estimate from Kantrowitz, a $ 10,000 write-off would have triggered $ 2,000 in additional taxes for the average borrower. If $ 50,000 per borrower were set aside, the average person would have to write a check for $ 10,000 to the IRS.

Borrowers would now be released from these bills.

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