Can I be eligible for student loan forgiveness? Your questions, answers

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Student debt can affect many aspects of a person’s life, starting with the career they are pursuing if and when they can To buy a house

So it’s no surprise that many people feel stuck in limbo as President Joe Biden and other elected officials debate the issue of student loan forgiveness.

CNBC has received hundreds of emails from borrowers asking how likely the anniversary is, who is applying for it, and when it might happen.

Here are some answers based on what we know right now.

Can I Expect My Student Loans To Be Forgiven?

The chances that student loan borrowers will diminish or their balances have been extinguished have never been greater.

President Biden said he supports the abolition of $ 10,000 per borrower and now he asked his secretary for education to prepare a report on his legal powers to wipe out a whopping $ 50,000.

At the same time, according to the expert in the field of higher education Mark Kantrovits, “until the law comes into force, you can not count on anything.”

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Kantrowitz said reports are pending from the US Department of Education and the Justice Department on whether the president has the legal authority to forgive loans through executive action. It is not yet clear when the results will be published.

Meanwhile, he added, “borrowers should not take any hasty action while waiting for a loan to be forgiven.”

When could forgiveness happen?

If Biden decides to go ahead and forgive loans through the executive branch, in theory, borrowers could see their balances shrink or disappear rather quickly. But such a move could be taken up by the court, which could lead to delays.

However, we can better imagine what will happen this summer.

“If Biden decides he can do it by executive order, I think we’ll know by June or July,” said Betsy Mayotte, president of the Institute of Student Loan Advisers.

If the White House decides to leave the student loan forgiveness to Congress, Democrats are likely to take advantage of the budget approval process to do this.

This is because this process allows them to pass the law with a simple majority, and that is all they have. Other bills are usually required to get 60 votes, thanks to the Senate procedural rules. Republicans are largely hostile to the student debt anniversary.

The next budget approval is likely to take place in the fall.

How much could you be forgiven?

At the moment, the main controversy among proponents of student loan forgiveness is whether the amount of debt should be written off: $ 10,000 or $ 50,000?

If all federal student loan borrowers had $ 10,000 written off of their debt, Kantrowitz said, the country’s outstanding education debt would have dropped to about $ 1.3 trillion from $ 1.7 trillion. And roughly one-third of federal student loan borrowers, or 15 million people, will see their balance sheets go to zero.

On the other hand, canceling $ 50,000 for all borrowers would reduce the country’s outstanding student loan debt to $ 700 billion from $ 1.7 trillion. Meanwhile, the debt of 80% of federal student loan borrowers, or 36 million people, will disappear entirely.

Even with such a more generous plan, not everyone will be completely happy. A fifth of federal student loan borrowers owe more than $ 50,000, and about 7% of borrowers owe more than six figures.

With forgiveness on the table, should I still make payments?

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Most borrowers of federal student loans do not have to pay their bills until October, during which time interest is suspended.

Since $ 10,000 in student loan forgiveness is an offer that is likely to turn into reality, Mayotte said she saw nothing wrong with people who owe less than that amount redirecting their regular payments to savings. “Earning small interest on them and then watching where the wind blows in August.”

“If it seems that we are not close to forgiveness, then pay the money,” she said.

Even if you owe more than $ 10,000, it is still wise to take advantage of the government’s suspension of student loan payments. You can use the extra cash, for example, to pay off high-interest credit card debt or to accumulate urgent savings.

In the meantime, what else can I do?

Experts say there are several smart steps you can take while awaiting student loan forgiveness.

Millions of people who took student loans before 2010 Federal family education loans The program was excluded from the government’s proposal to suspend payments without interest.

Currently, there are some concerns that these borrowers may also not receive student loan forgiveness.

As a result, these borrowers may want to consolidate their FFEL loans into principal Direct loan Kantrowitz said the program would be eligible for forgiveness. The main disadvantage of this is that the repayment schedule will be reset; so if you are nearing the end it may not make sense.

Until the legislation comes into force, nothing can be expected.

Mark Kantrowitz

higher education specialist

Meanwhile, borrowers are thinking about refinancing their federal student loans into private loans at a lower interest rate can wait, Kantrowitz said. First, the interest rate on most federal student loans is 0% for another five months.

Moreover, “they will feel stupid if they refinance only for the federal government to announce a loan forgiveness,” Kantrowitz said.

Can my private student loans be forgiven?

Will my forgiven debt pay taxes?

Student loan forgiveness is now tax deductible thanks to a clause included in $ 1.9 Trillion Federal Coronavirus Stimulus Package it became law in March.

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

Kantrovitz estimated that a $ 10,000 cancellation would result in $ 2,000 in additional taxes for the average borrower. If $ 50,000 per borrower were canceled, the average person would have to write a check for $ 10,000 to the IRS.

Borrowers will now be disposed of these promissory notes.

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