Can I count on the student loan forgiveness? Your questions, answers

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Student debt can impact many aspects of a person’s life, from the careers they pursue to whether and when they are able to buy a home.

It’s no wonder, then, that many people feel stuck in limbo as President Joe Biden and other elected officials debate the subject of student loan cancellation.

CNBC has received hundreds of emails from borrowers with questions about the likelihood of a jubilee, who would qualify, and when it might happen.

Here are some answers, based on what we currently know.

Can I count on the cancellation of my student loans?

The chances that student loan borrowers will have their balances reduced or eliminated has never been greater.

President Biden has said he supports the cancellation of $ 10,000 per borrower, and now he has asked his education secretary to prepare a report on his legal authority to erase up to $ 50,000 for all.

That being said, “until the legislation is enacted, you can’t count on anything,” according to higher education expert Mark Kantrowitz.

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Currently, there are pending reports from the US Department of Education and the Department of Justice on whether the President has the legal authority to implement the loan cancellation through executive action. , Kantrowitz said. It is still unclear when the results will be released.

In the meantime, he added, “borrowers should not take any hasty action in anticipation of a loan forgiveness.”

When could forgiveness come?

If Biden decides to go ahead and write off the loans through executive action, in theory borrowers could see their balances reduced or eliminated fairly quickly. But such a decision can face legal challenges, which could lead to delays.

Still, we may have a better idea of ​​what will happen this summer.

“If Biden decides he can do it by executive order, I expect we will hear about it by June or July,” said Betsy Mayotte, president of the Institute of Student Loan Advisors.

If the White House chooses to leave the cancellation of student loans to Congress, Democrats will likely use the budget reconciliation process to do so.

That’s because this process allows them to pass laws by simple majority, which is all they have. Other bills typically need 60 votes to move forward, thanks to Senate rules of procedure. Republicans are largely hostile to the idea of ​​a student debt jubilee.

The next budget reconciliation process will likely take place in the fall.

How much could we forgive?

The main point of contention among supporters of student loan cancellation today is how much debt to remove: $ 10,000 or $ 50,000?

If all federal student loan borrowers got $ 10,000 of their debt forgiven, the nation’s outstanding student debt would drop to about $ 1.3 trillion from $ 1.7 trillion, according to Kantrowitz. And about a third of federal student loan borrowers, or 15 million people, would have their balances reset to zero.

Canceling $ 50,000 for all borrowers, by contrast, would reduce the country’s student debt balance to $ 700 billion, from $ 1.7 trillion. Meanwhile, the debt of 80% of federal student loan borrowers, or 36 million people, is said to have disappeared completely.

Even with this more generous plan, not everyone would be entirely happy. One-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, do I still have to make payments?

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Most federal student loan borrowers don’t have to pay their bills until October, and during that time interest is suspended.

Given that $ 10,000 for student loan cancellation is the most likely proposition to come to fruition, Mayotte said it sees nothing wrong with people who owe less than that amount redirecting their usual payments towards it. ‘savings, “gaining a little interest on them, then seeing which way the wind is blowing in August.”

“If it looks like we’re not any closer to forgiveness, pay the funds then,” she said.

Even if you owe more than $ 10,000, it may still be a good idea to take advantage of the government’s break on student loan repayments. You can use the extra money to eliminate high interest credit card debt, for example, or to build up your emergency savings.

In the meantime, do I have to do anything else?

According to experts, there are smart steps you can take in anticipation of student loan cancellation.

Millions of people who took out student loans before 2010 under the federal Family Education Loans program have been excluded from the government’s offer to suspend their payments without accrued interest.

There is now some concern that these borrowers could also be excluded from any student loan forgiveness.

As a result, these borrowers might want to consolidate their FFEL loans into the main direct lending program, which will be eligible for the remission, Kantrowitz said. The main downside is that your repayment schedule will be reset; so if you are near the end it may not make sense.

Until the legislation is enacted, you cannot count on anything.

Marc Kantrowitz

higher education specialist

Meanwhile, borrowers who plan to refinance their federal student loans to private loans at a lower interest rate may want to wait, Kantrowitz said. For one thing, the interest rate on most federal student loans is 0% for another five months.

Plus, “they’ll feel stupid if they only refinance for the federal government to announce the loan cancellation,” Kantrowitz said.

Can my private student loans be canceled?

“When it comes to private student loans, it seems highly unlikely that they will be included in the forgiveness plan,” said Elaine Rubin, senior contributor and communications specialist at Edvisors.

Would my canceled debt trigger a tax bill?

Cancellation of student loans is now tax-free, thanks to a provision included in the federal $ 1.9 trillion coronavirus stimulus package that became law in March.

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

According to a rough estimate from Kantrowitz, a $ 10,000 write-off would have triggered $ 2,000 in additional taxes for the average borrower. If $ 50,000 per borrower were set aside, the average person would have to write a check for $ 10,000 to the IRS.

Borrowers would now be released from these bills.

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