(NerdWallet) – Every day, 43 million federal student loan borrowers are approaching resumption of payments suspended since March 2020, further reducing the likelihood of a life-changing loan forgiveness coming soon.
The borrowers had reason to hope.
Student debt, which now stands at $ 1.7 trillion, was a crisis long before COVID-19. But the pandemic was a tipping point: aid came quickly, payments were stopped interest-free as debtors struggled to cope with lost jobs and reduced working hours. Forgiveness was a rallying cry for progressives, fueled by promises of support from both the candidate and President Joe Biden.
But a swift decision by the White House executive order has not emerged, and there is no legislative remedy in the works. Biden’s first budget plan, released on May 28, also does not include any money for forgiveness.
This means that needy borrowers who are hoping for at least some cancellation before payments resume may have to reconsider their expectations and instead focus on how they will make payments in October.
Current odds of forgiveness
During the campaign, Biden called for a $ 10,000 student loan write-off as coronavirus relief. He also called for the elimination of outstanding tuition fees for those attending public colleges and earning less than $ 125,000 a year.
A $ 10,000 debt forgiveness will completely cancel the debt by about 15 million borrowers, according to the analysis of federal data by NerdWallet.
Since then, the president has refused to take action. He has publicly questioned his powers to abolish and is awaiting a note from Education Minister Miguel Cardona examining his ability to do so.
Robert Kelchen, an associate professor of higher education at Seton Hall University in South Orange, New Jersey, believes Biden is unlikely to forgive loans en masse.
“I think if President Biden wanted to achieve mass loan forgiveness through executive action, he would have done so already,” he said in an email.
Debt cancellation advocates such as Braxton Brewington, a spokesman for Debt Collective, a membership-based union of debtors, are not stopping.
“Borrowers are as frustrated and stressed as they were on the first day [Biden’s] administration, because that’s what Joe Biden had to do on the first day, says Bruington. He adds that Debt Collective remains optimistic that widespread cancellation is still possible under COVID assistance – “because this is COVID assistance,” says Brewington.
Keeping the pressure on
Meanwhile, Democratic lawmakers in February submitted a couple of resolutions to both houses of Congress urging the president to write off a $ 50,000 student debt. Democratic lawmakers, progressive activists, and even cities such as Washington DC and Philadelphia have regularly spoken out in support of debt cancellation, but there is no legislation in force.
Some student loan experts are skeptical about the passage of the law in a politically polarized Congress. Cody Hunanyan, program director at Student Debt Crisis, an advocacy organization for student borrowers, says pushing forgiveness through Congress will be a “tough battle” that will take time borrowers no longer have. “But executive action is something that we know can be done immediately; he will bypass Congress, and [Biden] has the right to do so, ”adds Hunanyan.
The talk about loan forgiveness is unlikely to end anytime soon, said Megan Koval, vice president of policy and federal relations with the National Association of Student Financial Aid Administrators. Koval says forgiveness could still occur, and it is possible that borrowers may see more targeted cancellations on factors such as the amount of debt or income – although there have been no offers of this kind so far.
Changes to current plans for forgiveness
While widespread forgiveness is not ruled out, there are still targeted debt relief programs available to borrowers. However, these programs behind and need reform, according to experts and legislators.
A public service loan forgiveness, for example, is provided to borrowers who made payments while working full time for a suitable public service employer. According to federal data, his approval is only 2.2%. Other programs, such as borrower protection (for students whose colleges have defrauded them) and income-based payment forgiveness, are also helping far fewer borrowers than planned.
Biden’s budget proposal suggested that his administration plans to work with Congress to improve income-based repayment and PSLF programs that could help millions of borrowers with relief. On the campaign trail, Biden called for the renovation of PSLF with a new plan to write off $ 10,000 in student debt for up to five years of public service.
Legal and student loan experts such as the National Consumer Advocacy Center and the Student Borrower Advocacy Center blame red tape, misinformation, and mismanagement for dysfunction that interferes with existing forgiveness programs. But that may soon change: the Department of Education recently announced that it will hold a feedback hearing in June to get information on potential future rule-making topics, including these programs.
“Streamlining the process for both revenue-based repayment plans and forgiving government service loans will not be as flashy as debt forgiveness, but both of these plans will write off at least some of the debt for many Americans,” says Kelchen.
Payment renewal strategies
Considering that loan forgiveness offers are unlikely to bear fruit anytime soon and payments to borrowers will resume on October 1, here’s how you can develop a repayment strategy based on your situation:
- If you are financially stable, consider making additional payments before October 1 to pay off your debt faster – you can pay off the principal faster while your loan is not paying interest.
- If you expect to have difficulty making payments, contact your support staff now to discuss participating in an income-based repayment plan to keep payments manageable. It will limit your payments to a fraction of your discretionary income and extend the repayment. If you are unemployed or part-time, your pay may be $ 0.
- If you are unable to make payments but do not want to participate in an income-driven payment plan, contact your service staff to discuss an unemployment grace period or grace period. These options are best if you plan to be unemployed or are dealing with short-term financial difficulties.
- If you are seeking forgiveness for a government service loan, keep in mind that each month of non-payment counts towards 120 forgiveness required, provided you remain in full-time employment. When restarting, continue to pay with an income-driven plan.
- If your loan was overdue before the pandemic, it will be renewed in good standing. Make sure you have a plan to stay on track, such as signing up for an income-driven plan.
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Anna Helhoski writes for NerdWallet. Email: email@example.com… Twitter: @AnnaHelhoski.
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