Federal student loans have more than doubled over the past 10 years. As of the end of 2020, there are about 43 million people who collectively owe $1.6 trillion in federal student loans, according to the Department of Education. In 2010, there were about 34 million people with a total of $750 million in loans.
With so many Americans dealing with what can be crushing debt that keeps them from making bigger purchases, buying houses or starting families — all things that can help the U.S. economy — the topic of student loans and specifically student loan forgiveness, has been pushed into the political spotlight.
Since President Biden took office, there have been several developments. Here’s what you need to know about student loans and student loan forgiveness.
The Call for Canceling $50,000
Democrats in Congress helped push through Senate Resolution 46 and House Resolution 100 that called for Biden to cancel up to $50,000 of federal student loan debt through an executive order. Since then, a group of attorneys general representing 16 states and the District of Columbia have also sent a letter of support for those resolutions.
The amount comes from the Department of Education data that shows that about 80 percent of borrowers owe less than $50,000. Data also shows that canceling that amount would more positively impact Black graduates, who tend to take out loans at a higher rate and average $25,000 more compared to their white counterparts.
Biden Committed to $10,000 Forgiveness
Despite the push from others in his party, Biden balked at canceling $50,000 during a recent town hall. But he said he is “prepared to write off $10,000,” which he has supported since he began his presidential bid.
That amount ties to the numbers that show that one-third of borrowers owe less than $10,000. Most people who default also have less than $10,000 in loans.
The president, through his press secretary, has said that his preference would be for the loans to be canceled through legislation proposed and passed through Congress. However, the administration is considering doing so through executive order; first, though, they must figure out if they have the legal authority to do so.
No Timeline Yet
While there has been a ton of talk about student loan forgiveness as of late, there is no specific timeline on when action would be taken. Keep in mind, we have seen this trajectory before.
The HEROES Act passed by the House of Representatives in May included the cancellation of $10,000 of federal or private student loans for “economically distressed borrowers.” But, that bill never made it to the Senate and was not included in the December 2020 stimulus package.
CARES Act Extended
For now, federal borrowers do still have the relief of the extended CARES Act provisions.
One of the primary things Biden did on his first day in office was sign a slew of executive orders. Among these was an extension of the CARES Act that was first passed at the end of March 2020.
As part of the full COVID-19 relief package, the CARES Act put a pause on all federal student loan payments and set the interest rate to 0 percent until September 2020. Former President Trump extended the deadline to Jan. 31, 2021, before Biden’s executive order pushed it back to Sept. 30, 2021.
This means that anyone who has loans that are held by the federal government is not required to make payments right now or have any interest accrue. This does not include any private loans, including those held by banks or schools. While federal loan borrowers can simply wait until Oct. 1 to make payments again, this is a great time — if you are financially able to — to make as much of a dent as possible in your loans while interest is not a factor.
Because the outcome of such proposed legislation is still up in the air, we encourage you not to remove student debt repayment from your budget just yet. Continue making payments as you normally would or consider accelerating your payments to take advantage of this zero interest environment.
As always, should you have questions regarding these or other legislative changes, we are here to guide you. Feel free to reach out through email or call the office directly with your concerns.