Student loan forgiveness is the cancellation of a loan as part of some federal student loan forgiveness programs. Once approved, such plans eliminate any remaining loan payments hence ridding the student of debt. The most common is for those belonging to a particular profession such as teaching or army. However, these programs are only for federal student loans and not private student loans.
Federal student loans and private student loans are the two main types of student loans. The federal government guarantees and subsidizes federal loans. On the other hand, private loans are not backed by the government and have substantially higher interest rates. Private loans should only be used as a last resort due to their high fees and strict terms when federal loans don’t pay all of your college costs, for example.
Biden’s Recent Announcement
As the pandemic affected the economy, the government tried to provide relief for different businesses and people in general. In the same way, to lessen the burden for students during covid, President Biden announced forgiveness of loans worth roughly $10 Billion. This program covers four types of student borrowers:
- $5.8 billion of student loans for borrowers with a permanent disability discharge.
- $1.3 billion in cancellation for student loan borrowers in March
- $1.5 billion for the borrower defense to repayment process
- $1.1 billion student loans canceled through borrower defense to repayment
If you’re confused with the terms discharge, forgiveness, or cancellation, let’s discuss briefly. Forgiveness or cancellation are used interchangeably and have no difference in meaning or context. However, discharge is used mostly when there is death or a permanent disability of the student. All these terms essentially mean forgiveness, the cancellation of a loan as a relief for the student.
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What Has Happened So Far?
As discussed above, student debt worth $10 Billion has been forgiven as part of the Biden forgiveness plan. Also, student debt repayments have been paused or delayed till January 2022. This means you don’t gave to make any payments till then and can save cash.
However, the $10 Billion amount is not significant when contrasted with the total $1.7 Trillion student debt in the US. So far, the current forgiveness announcement covers 1% of total student loan borrowers. So, do not stop making payments or assume that your loan has been forgiven after the information. Make sure that your loan falls under the plan before making any decisions.
In addition to delayed payments, forgiveness for disabled persons and those misled by their schools, student loans have also been made tax-free.
Future Proposals and Expectations
There have been demands and proposals to cancel student debt collectively for all, rather than certain groups. Many groups and politicians have proposed about $50,000 in debt for each student. This would reduce the total student debt to about $700 Billion, a significant drop. However, Biden has responded that if he were to cancel debts, it would not be more than $10,000.
Though there are no detailed budget proposals for forgiveness, there are several relevant recommendations for forgiveness in the 2022 budget, such as an increase in Pell Grants, tuition charge reductions in select universities, and new forgiveness initiatives. Currently, the Biden loan program is limited to a certain type of student loan, but it may be expanded to serve a broader audience in the future. That is dependent upon the Senate, the Democrats, and Republicans, and the President himself.
The power of the President in declaring loan forgiveness is still moot whether he can use an executive order or enact a law through the legislator.
Student Loan Forgiveness Options Available
There are already many options for student loan forgiveness for different groups of students. These are:
- Federal Student Loan Forgiveness programs, mainly for teachers (Teacher Loan Forgiveness), army personnel, and medical staff (Public Service Loan Forgiveness)
- Loan Discharges for those permanently disabled or misled by their institutions
- Income-driven repayment plans; these plans deduct your salary to pay off student debt
These options were already present before the Covid forgiveness plans. See if you qualify and get your forgiveness plan approved.
As a result of the announcement, most students don’t have to make any payments till January. Moreover, no interest will accrue during this time. So, check if you fall under the current plan, and your loan can be forgiven. But bear in mind, do not stop paying until you are sure of forgiveness. Although several proposals are being made, nothing will be certain until a law is passed.