There are several pending education loan forgiveness proposals. But even if one of these proposals is implemented, many borrowers will not receive the full forgiveness of all of their student loans… What options do you have if your student loans are not fully canceled?
Student loan forgiveness will be limited
President Biden offered a $ 10,000 federal student loan pardon for each borrower, while Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren offered $ 50,000.
Senators Schumer and Warren want President Biden to use executive action to write off student loan arrears, but President Biden does not believe he has the legal authority to forgive student loans through executive action. President Biden has asked the US Department of Justice and the US Department of Education to conduct a legal due diligence on the matter. This review is not yet complete.
If student loans are forgiven by enforcement action, private student loans will not be eligible.
If Congress passes the student loan forgiveness bill, the threat of a Senate filing could force Democrats to pass the loan forgiveness through the budget reconciliation bill. But budget reconciliation bills must reduce the budget deficit, so any cost increases must be offset by savings or increased revenues. President Biden has an ambitious and costly legislative agenda, so the money available to forgive student loans may be limited.
In particular, loan forgiveness amount and loan forgiveness eligibility may be limited.
- $ 10,000 in loan forgiveness will wipe out the federal student loan debt of one third of borrowers (33%). This means that two thirds of borrowers will still owe money.
- $ 20,000 in loan forgiveness will erase the federal student loan debt of about half of borrowers (54%). This means that about half of the borrowers will still owe money.
- $ 50,000 in loan forgiveness will wipe out federal student loan debt for four fifths of borrowers (80%). This means that a fifth of borrowers will still owe some money.
Thus, even if the student loan debt is forgiven, most borrowers will not fully pay off the student loan debt.
Only borrowers whose debt is fully forgiven will have their monthly student loan payments canceled. Partial student loan forgiveness does not reduce the monthly payment, but reduces the number of outstanding payments. For example, monthly loan payments in an income-driven repayment plan are based on the borrower’s income rather than the amount owed. Monthly loan payments for standard repayment and extended repayment will only change if the borrower re-amortizes or refinances its debt.
Other Student Loan Forgiveness Options
If the borrower does not receive a fully canceled federal student loan, there are other options for forgiving the student loan. Review these options if you are eligible for one.
There are several existing student loan forgiveness programs based on the occupation of the borrower, such as Government Service Loan Forgiveness, Teacher Loan Forgiveness, and the National Health Service Loan Repayment Program. There are also loan forgiveness programs for first responders, volunteers, lawyers, and members of the US military. Some states and cities offer their own loan forgiveness programs.
There are also student loan payments that cancel the borrower’s debt. These include protection of the borrower from repayment, closed school statement, statement of complete and permanent disability, statement of false certificate, statement of identity theft, statement of unpaid reimbursement and statement in case of death. There is also an unloading in a bankruptcy case, which is very rare.
Borrowers who repay their federal student loans under an income-driven repayment plan will be forgiven the remaining debt after 20 or 25 years of repayment.
Many employers now offer Student Loan Repayment Assistance Programs, or LRAPs, where an employer helps its employees pay off their student loans. These programs typically provide $ 100 per month with a cumulative cap of $ 10,000.
All of these options are tax-free until at least the end of 2025.
Other financial aid options
There are several options for saving on student loans.
- Most lenders offer a discount to borrowers who sign up for an auto payment, in which monthly loan payments are automatically transferred from the borrower’s bank account to the lender. Typical discounts include a 0.25% or 0.50% percentage point cut in interest rates.
- Student Loan Interest Deduction allows borrowers to deduct up to $ 2,500 of interest paid on federal and private student loans annually from their federal tax returns. This is an above-the-line income exception, so the borrower does not need to list details to qualify for the deduction.
- Borrowers can increase their monthly loan payments by choosing a shorter repayment plan. This will allow you to pay off the debt faster and save the borrower’s money on interest.
- Make additional payments on the loan with the maximum interest rate. This will help you pay off that debt faster by lowering the average interest rate you pay. Student loans do not have prepayment penalties, so there is nothing wrong with that. But do not forget to tell the lender which loan should receive the copayment. Also inform them that this is an additional payment and not an early payment of the next installment.
If you are experiencing financial difficulties, ask the lender about financial assistance options. (Check the lender’s website first to see what they usually offer.) Federal student loans provide several financial aid options, including:
- Economic hardship, unemployment deferrals and general leniency. Each of them suspends the fulfillment of payment obligations for up to 3 years. Interest may continue to accrue and, if not paid, will be added to the loan balance at the end of the grace period or grace period.
- Income oriented repayment plans such as ICR, IBR, PAYE and REPAYE. If your income is less than 150% of the poverty line (IBR, PAYE and REPAYE) or 100% of the poverty line (ICR), your loan payment will be zero. Income is re-approved annually and can be re-approved early if it changes or you lose your job.