Congress May Cancel Student Loans In New Incentive Package

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Updated January 15, 2021

Your student loans can be canceled in the new incentive package.

Here’s what you need to know.

Student loans

President-elect Joe Biden has released a $ 1.9 trillion stimulus package that includes additional stimulus checks, unemployment benefits, and state and local assistance. However, one thing is missing – student loan forgiveness. Will you get student loan cancellation? It is possible that Congress could include the cancellation of the student loan in the new stimulus package, even if Biden did not include it in his stimulus plan. Why? Biden wants Congress cancel student loans immediately… Several House and Senate Democrats also support the abolition of the student loan. Thus, Congress could potentially abolish student loans in a new incentive bill or pass a separate bill. However, before Congress or Biden cancels student loans, they must agree on how much of the student loan will be canceled, and who gets the student loan cancellation… Here are 5 ways Congress can cancel student loans in the new stimulus package:


Option 1. Cancellation of US $ 10,000 student loans for all federal borrowers.

First, while student loans were excluded from the latest incentive packageCongress may cancel $ 10,000 student loans for all federal student loan borrowers. Under this potential proposal, Congress may cancel student loans such as direct loans, including Stafford loans. Congress may also cancel the FFELP and Perkins loans. However, the Care Act – a $ 2.2 trillion stimulus plan passed by Congress in March – excluded FFELP and Perkins loans from student loan exemptions such as suspended payments. Why? FFELP loans and Perkins loans are not owned by the federal government, which can make it difficult to cancel student loans for borrowers who own these types of federal loans. Congress will have to repay FFELP loan holders (such as financial institutions or institutional investors) and Perkins loans (such as colleges and universities).


Option 2: Cancellation of $ 10,000 for Certain Federal Borrowers

Second, Congress could cancel $ 10,000 federal student loans for some student loan borrowers. This proposal is similar to the first, but Congress may exclude FFELP and Perkins loans that are not owned by the federal government. If Congress goes this route, it will be the same types of student loans found in the Cares Act. However, starting with the Cares Act, Democrats and some Republicans have proposed including FFELP loans and Perkins loans so that all federal student loan borrowers can obtain student loan cancellation.


Option 3. Cancel $ 10,000 if your income is less than $ 125,000.

Third, Congress can cancel student loans of $ 10,000 for each borrower. who makes less than $ 125,000 a year… There is many ways to change your student loans this yearand canceling a student loan is one option. Congress could choose a higher or lower income threshold, but President-elect Joe Biden specified that amount in his student loan plan. Proponents of student loan forgiveness usually want to increase the number of potential recipients who get student loans canceled. Opponents want to limit student loan forgiveness entirely, or at least to a small sample size. Income cap is one way to cut the pie, although opponents may insist on a lower income threshold, such as $ 75,000, which was the threshold for incentive check


Option 4. Cancel $ 10,000 if you have “economic problems”

Fourth, Congress may cancel $ 10,000 student loans for borrowers who are “in economic distress.” The wording appeared in the Heroes Act, which is an incentive package passed by House Democrats last year and on the basis of which Biden said he wants to base his new incentive plan. “Economically disadvantaged” can be defined in different ways. In Heroes Law, the term “economically disadvantaged” refers to a student loan borrower who would otherwise pay $ 0 per month under an income-driven repayment plan, defaulted on a student loan, or did not repay a student loan for 90 days … According to this definition, millions of student loan borrowers will not receive student loan forgiveness. Alternatively, Congress could, for example, define the “economically disadvantaged” as unemployed or otherwise materially affected by the Covid-19 pandemic.


Option 5: Cancel $ 50,000 student loans if your income is less than $ 125,000.

Fifth, Congress could cancel student loans up to $ 50,000 for each borrower who earns $ 125,000 or less in annual income… This is a proposal by Senator Elizabeth Warren (Massachusetts) and Senate Minority Leader Chuck Schumer (New York). Warren and Schumer believe their proposal will stimulate the economy, reduce inequality, and help a generation of Americans start a life without the threat of student loan debt. Warren and Schumer want Biden to cancel his student loan debt directly through a decree. Anyway, Biden won’t cancel $ 50,000 student loans… Biden has consistently advocated for the write-off of $ 10,000 student loans and said he was unlikely to use the order. Given the potential cost, this proposal is the least likely to be included in the new incentive package.


How to pay off student loans faster

What is the best way to pay off student loans? There is no guarantee that Congress will abolish student loans in a new stimulus package or in separate legislation. Biden and several members of Congress want to cancel student loan arrears, but Congress also wants to pass other rules, such as incentive checks first, which could delay cancellation of any student loan. This is why it is important for you to put together a student loan game plan now. Get started with these three options, all of which are free:


Related reading

5 changes to the student loan for 2021

Biden Wants To Cancel Student Loans, But That Must Happen First

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