Due to the high price of college, millions of Americans have taken out student loans. However, many Americans are finding it difficult to keep up with their monthly payments. The crisis has only been exacerbated by the coronavirus pandemic.
With nowhere else to turn, many former students are looking to the Biden administration to forgive some or all of their debt from federal student aid. In this article, we’ll give you the rundown on what broad student loan forgiveness entails and speculate on how the current administration might handle it throughout 2021 and 2022.
Can President Biden Cancel Student Loans?
There have been a few programs for targeted student loan forgiveness, but there hasn’t been much evidence that President Biden will forgive federal student loans for all Americans. Here are some of the groups he’s promised to help with student loan repayment:
- $5.8 billion will be set aside for borrowers with disabilities who are unable to work.
- $1.5 billion will be set aside in borrower defense for people who have been deceived and scammed by universities like ITT Tech.
- $4.5 billion will be set aside for public servants like law enforcement officers and educators.
While these programs will assist many Americans, they don’t benefit all Americans the way wide-scale student loan cancellation would. At this point, Biden would need Congress’ approval to enact broad student loan cancellation.
What Does President Biden Have Planned for Student Loans in 2021 and 2022?
President Joe Biden has been consistently hounded by proponents of wide-scale student loan forgiveness. However, his administration will likely focus on canceling loans for targeted groups. In the next few sections, we’ll go over some ways the administration might handle student loan forgiveness.
What Does Biden Mean When He Refers to “Fixing Student Loans”?
While Biden does support up to around $10,000 of broad loan cancellation, he’s more focused on offering debt relief to certain groups of student loan borrowers, like public service workers, victims of fraud, military service members, and those with disabilities.
Rather than enacting a new program to cancel student loans for all students, the U.S. Department of Education, led by Education Secretary Miguel Cardona, will be tasked with improving the inadequate student loan program that currently exists.
The Public Service Loan Forgiveness Program (PSLF) was created as part of the College Cost Reduction and Access Act of 2007. However, there has been a slew of problems that have stopped the program from working efficiently.
The first year benefits from the program became available, only roughly 1% of applications for PSLF got approved. Even today, the number of borrowers who have been approved for the program is very small compared to the number of applicants. Here are a few reasons applicants have been rejected:
- Their federal loans aren’t issued in the correct time period. Only payments after Oct. 1, 2007, have eligibility for PSLF forgiveness. Borrowers have to make on-time monthly payments for at least 10 years (120 payments) to qualify. That’s why no one was eligible to receive benefits until 2017.
- They don’t have the right type of loans or repayment plan. Only Direct Loans (loans issued directly from the federal government) being paid under an income-based repayment program (IBR) are eligible for PSLF benefits. Even though Federal Family Education Loans (FFEL) — indirect loans issued by private lenders — are guaranteed by the government, they’re not eligible for student loan cancellation.
- They don’t have a qualifying job. Public service loan forgiveness is offered to people who work full time in government jobs, 501(c)(3) nonprofit organizations, other nonprofit organizations that provide a public service, and volunteer organizations like the Peace Corps. Benefits aren’t available to people who work in labor unions or nonprofits that don’t offer an eligible public service.
- They’ve missed payments or made incorrect payments. Not only are borrowers rejected if they haven’t made enough qualifying payments, but they’re also rejected if their student loan payments are late or short by even a small amount.
- They have paperwork errors. Applications with missing information or the wrong documents are dismissed immediately.
Even a number of student loan servicers get confused by the program’s qualifications. Many borrowers have been assured that their payment plans make them eligible for student loan cancellation only to find out later that their servicers are mistaken.
During its current overhaul of the PSLF program, the Biden administration plans to make several changes. For example, one of its goals is to give military personnel credit toward PSLF during periods of active duty, even if the soldier’s loans are on deferment.
Biden also seeks to make it easier for people to be approved for PSLF. For instance, people with disabilities no longer have to apply for loan discharge. Instead, the government will automatically distribute their total and permanent disability (TPD) discharge benefits using Social Security Administration (SSA) records.
What Are the Main Arguments for Broad Student Loan Forgiveness?
There’s a number of reasons proponents of broad student loan forgiveness support the idea. Here are a few of their most pertinent arguments:
- Wide-scale student loan cancellation would help minority people. Statistically, certain racial groups, like African Americans and Latin Americans, have more difficulty paying off their loans and can end up with crushing amounts of debt. This problem only exasperates the already prevalent racial wealth gap in the U.S.
- Broad student loan forgiveness could serve as a catalyst to re-energize the economy. Issues like the COVID-19 pandemic have wreaked havoc on the economy, leaving many businesses on the brink of failure and causing others to shut their doors permanently. Unbridled by student loans, Americans would be able to spend more money to stimulate the economy.
- Without the financial and emotional strain of federal student loan debt, people would live more fulfilling lives. Debt-free Americans could spend their money on things like purchasing homes, planning for retirement, starting families, and building their own companies. They’d also be happier and avoid the anxiety of living in debt.
What Are the Main Arguments Against Broad Student Loan Forgiveness?
Of course, not everyone’s on board with broad forgiveness. Some see the proposal as a misguided solution to a very complex problem. Here are a few key arguments brought up by opponents to broad loan cancellation:
- It only benefits a small percentage of Americans. Less than one-fifth of U.S. adult citizens actually owe money for higher education. However, almost everyone suffered financially or emotionally due to the coronavirus pandemic. Opponents of broad forgiveness believe that monetary relief should be spread equally to all Americans in the form of stimulus checks or other assistance.
- It isn’t fair. Clearly, broad student loan forgiveness isn’t fair to people who have already paid off their student loans. What’s less obvious is that broad loan forgiveness can also be unfair to students in lower-income brackets who really need financial help. Almost half of student loan debt comes from graduate school students, many of whom secure high-paying jobs soon after graduating. Why should taxpayers give them assistance when there are students who truly need it?
- Not all the savings go back into the economy. People who already can’t pay their loans likely won’t spend more money. Opponents argue that broad student loan forgiveness won’t redistribute enough capital back into the economy to justify the $600 billion in taxes that Americans will pay.
- It doesn’t address the core problem. Why do people take out giant loans for college? Because higher education is extremely expensive. The cost of a college education skyrockets every year. To address this issue, President Biden and other Democrats, like Elizabeth Warren, have suggested creating free two-year and four-year education programs.
Learn More About Student Loans and Loan Forgiveness at CollegeFinance.com
College is hard enough without worrying about how you’re going to pay for it. Weighing your financial aid options can get overwhelming. CollegeFinance.com has great resources, tools, and information that can make things like taking out a student loan or applying for loan forgiveness a little less intimidating. Our experts can help you navigate the complicated process of paying for your education so that you can have a bright financial future.