Editor’s Note: Since the writing of this article, the Biden administration has extended the pause on federal student loan repayment through Aug. 31, 2022.
On the 2020 presidential campaign trail, Joe Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, Biden floated the possibility—both in Tweets and in campaign speeches—that he supported a proposal to forgive $10,000 in federal student loan debt. All of this might lead borrowers to wonder, “Can the president cancel student loan debt?”
Still, the economic upheaval brought about by COVID-19 has underscored the demand for student loan reform—by members of both the Republican and Democratic parties. But different governmental leaders have diverging ideas of how student loan reform might get addressed.
Presently, there’s no clear answer to how student loan relief will be handled—including whether the new president aims to forgive some federal student loan debts. Student loan reform is likely to remain a political lightning rod in the upcoming months and years.
Right now, the Congressional balance is in limbo until the Georgia runoffs for Senate on January 5, 2021. And regardless of the outcome of those races, new legislative proposals can often take months or years to wind their way through the US Congress. Proposals passed into law can often look quite different than the campaign talking points.
While the political environment is evolving quickly and there’s a lot of uncertainty, here’s an overview of some ways the next president might tackle the question of student loan forgiveness—including a discussion of which sorts of student loans could be impacted.
Can the President Forgive Student Loan Debt by Executive Order?
So, can the president unilaterally cancel student debt? Such sweeping federal student loan reform has not yet happened via an executive order. And, given the close partisan split in Congress, it’s uncertain whether the next president will opt to pursue student loan cancellation via executive action.
Recently, current Senate Minority Leader Chuck Schumer suggested that President-elect Biden could have the power of executive order to eliminate up to $50,000 of student loan debt. And, while it may technically be under the legal authority of a president to forgive federally-issued student debt, Biden has not indicated that this is something he would undertake by executive order.
An executive order cancelling student loan debt would likely be a controversial move. Consequently, it may be more likely that the next president would use executive orders to extend a pause in federal student loan repayments. As part of the CARES Act, which passed in March 2020, debt repayments to existing federal student loans were put into forbearance and interest was set at 0%.
President Trump then signed an executive order in August, which extended the suspension of payments and 0% interest through the end of 2020. (Update: the suspension has since been extended to January 31, 2021.) Once President-elect Biden takes office on Jan. 20, 2021, he may further extend the CARES Act’s provision for federal student loan forbearance.
Student Loan Relief As Part Of a New Stimulus Package
It’s possible that a lame-duck Congress will pass an additional stimulus bill in the upcoming weeks. The severity of the COVID-19 crisis in the country has prompted bipartisan calls for action.
And, congressional leaders have discussed resuming stimulus discussions in the upcoming weeks. But what’s still unclear is what additional federal stimulus money would be appropriated for. Right now, Congress is at an impasse as to the scope of new stimulus funds.
In October 2020, the House of Representatives passed an updated HEROES Act, addressing ongoing COVID-19 relief measures. The act extended federal student loan forbearance, while also expanding the types of educational loans eligible for relief to include:
• Institutionally held Perkins loans
• Federal Family Education Loans
• Health and Human Service student loans
Since then, however, the HEROES Act has stalled in the Republican-controlled Senate— with an ongoing conversation between the parties focused on the size and scope of any potential stimulus relief in the near future.
Could Student Loan Relief Affect Private Student Loans?
Politicians championing relief, including $10,000 forgiveness options, have not specified what types of loans this forgiveness would cover.
Some legislation proposed by Democrats has proposed forgiving $10,000 in private loans (aka educational debt not held by the US government). But, it’s unclear how the mechanics for this sort of private student loan forgiveness policy would be enacted or funded.
Given that Senate Republicans have been actively pushing for a scaled-back stimulus package, it seems unlikely there will be comprehensive student loan reform in the next stimulus bill (assuming there is a next one).
Of course, a multitude of factors can impact the future of stimulus legislation—including which party will control the two chambers of Congress. Senate control will not be decided until after the Georgia runoff election on January 5, 2021.
Identifying Existing Repayment Options
With uncertainty about whether a presidential executive order might extend federal student loan forbearance (or even cancel some student debts), some borrowers may feel as if their financial obligations are held in the hands of Congress.
For borrowers with student loans, it could be a good idea to focus on the aspects of their educational debt that they can control. One place federal borrowers can start is to determine if they qualify for existing federal student loan repayment programs—including income-driven repayment, deferment, and public service student loan forgiveness.
Those whose federal student loan repayments are (currently) scheduled to resume in February may want to come up with a plan for paying down what they owe in educational debt.
Federal borrowers whose financial circumstances have taken a hit may be eligible for an economic hardship deferment on federal student loans—even if there is no additional stimulus legislation surrounding forbearance.
Some borrowers are also taking cues from the economy. The Fed’s pledge to maintain a low interest rate for the years ahead has led some private lenders to lower their student loan interest rates. Some individuals may opt to explore the pros and cons of student loan refinancing.
When discussing student loan refinancing, it’s important to understand the refinancing process. For example, SoFi refinances private and federal student loans.
When federal student loans are refinanced through a private lender, the borrower forfeits eligibility for federal repayment programs as well as federal protections like forbearance and deferment. (With private loan refinancing, a new private loan replaces the borrower’s existing educational debt—generally including new loan terms and rates).
Certain private lenders offer hardship programs to provide a cushion for the unexpected—like being laid off for no fault of your own. (Not all lenders offer these programs, so it’s key to read the lender’s terms and fine print). For example, SoFi offers unemployment protection to eligible borrowers.
When weighing whether to pursue student loan refinancing, some borrowers find it useful to research the rates and terms offered by lenders, including any fees or penalties.
The Takeaway: Keep an Eye on Government Actions
Dramatic headlines can spread like wildfire on social media. But it’s important to understand what legislation (if any) is behind politicians’ promises and press releases.
Until legislation passes both chambers of Congress, it’s unlikely that federal student loan debt will be unilaterally cancelled in the near future (but not legally impossible with a presidential executive order).
That said, federal COVID-19 stimulus discussions may yet fast-track certain changes, such as the possibility of continued forbearance on federal student loan repayments well into 2021.
Keeping up to date on communication with lenders may help borrowers stay on top of any necessary payments or paperwork, if or when the laws or orders affecting student loans change.
There may also be ongoing legislation on a state level in regards to student loan reform. For example, after the CARES Act act was passed in March, New Jersey approved payment relief options for residents who hold private student loans. This included forbearance relief, waived late payments, and working with eligible borrowers on assistance programs.
Keeping an eye on national and state-specific legislation could help borrowers to understand any changes to how some types of student loans debts are calculated or repaid.
And, naturally, if a Tweet or rumor sounds too good to be true, borrowers can do due diligence—researching how much of the news is political rhetoric vs. enacted policies with legal weight behind them.
In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more.
Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.
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