Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
In late August 2022, President Joe Biden announced a federal student loan forgiveness program, which will cancel up to $20,000 in student loan debt for qualifying borrowers. While many details need to be fleshed out by the administration, the plan will cancel $10,000 in debt for individuals earning less than $125,000 per year ($250,000 for married couples who file taxes jointly or heads of households) and $20,000 for those who had received Pell grants for low-income families.
Prior to President Biden’s announcement, there was fierce debate among politicians, lawyers, and other stakeholders on whether the president could actually cancel student loan debt. Proponents claim that the president has the authority to cancel federal student loan debt without input from Congress, while opponents argue that the program is an executive overreach and illegal. The debate will rage on, even after the student loan forgiveness announcement; the move will likely be challenged in court in subsequent months to determine if the president can cancel student loan debt.
Can the President Forgive Student Loan Debt by Executive Order?
On the 2020 presidential campaign trail, Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, he floated the possibility — both in Tweets and in campaign speeches — that he supported a proposal to forgive $10,000 in federal student loan debt.
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However, as mentioned above, it was unclear whether the president had the legal authority to cancel federal student debt by executive order and without any legislative action. Even some top aides argued that the president should work with Congress to pass legislation that would cancel student loan debt.
So, as part of the federal student loan forgiveness announcement, the Department of Education released a memo laying out the legal justification that would allow the president and the executive branch to cancel student loan debt.
The memo states that the HEROES Act, which was enacted following the Sep. 11, 2001, terrorist attacks, gives the Secretary of Education the power “to grant relief from student loan requirements during specific periods (a war, other military operation, or national emergency, such as the present COVID-19 pandemic) and for specific purposes (including to address the financial harms of such a war, other military operation, or emergency).”
The Biden administration determined it could cancel federal student loan debt with this justification. And thus, President Biden announced the federal student loan relief plan .
Nonetheless, opponents of the plan will likely challenge the move in the courts, so there is a chance that the widespread cancellation of federal student loans will not be carried out.
Could Student Loan Relief Affect Private Student Loans?
The widespread cancellation of up to $20,000 in student debt will only apply to borrowers with different types of federal student loans, including PLUS Loans.
If you’re looking for private student loan relief, namely to lower your payments, you may want to consider refinancing.
Recommended: The Advantages and Disadvantages of Student Loan Refinancing
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Student Loan Debt That the President Has Forgiven So Far
Before the recent announcement, the Biden administration forgave nearly $32 billion in student loan debt as part of various initiatives.
In mid-August 2022, the administration said it would cancel $3.9 billion in student loan debt for 208,000 students who attended ITT Technical Institute, a now-closed for-profit school. Additionally, the Biden administration erased $5.8 billion of educational debt for all former students of Corinthian Colleges, another now-closed for-profit school. This latter cancellation was the largest single student-debt cancellation ever by the United States government.
Another $7.3 billion in student loans were obliterated for 127,000 borrowers through amendments to the Public Service Loan Forgiveness Program. This allows non-profit and government employees to have their remaining debt forgiven after 10 years or 120 payments.
And more than $8.5 billion in student loans have been forgiven for 400,000 borrowers with a total and permanent disability.
Additionally, $7.9 billion of student loans was forgiven for 690,000 borrowers through borrower defense to repayment. People can apply for borrower defense if their education provider deceived them “or engaged in other misconduct in violation of certain state laws,” according to the ED’s Federal Student Aid office.
Identifying Existing Repayment Options
Borrowers have been in limbo, waiting to know if and how much student loan debt the Biden administration will cancel. But even with a little more clarity, many details still need to be worked out, like how borrowers can apply for forgiveness.
With student loan interest rates climbing, it could be a good idea to focus on the aspects of your educational debt that you 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.
As part of the federal student loan forgiveness plan, the Biden administration also announced that borrowers with undergraduate loans in an income-driven repayment plan would be able to cap their payments at 5% of their monthly income — a change that could reduce bills for millions of borrowers. The government’s current income-driven plans generally cap payments at 10% to 15% of a borrower’s discretionary income. Additionally, loan balances would be forgiven after 10 years of payments, instead of the current 20 years under many income-driven repayment plans, for borrowers with original loan balances of $12,000 or less.
Another place, as mentioned earlier, is to look into student loan refinancing. It’s important to understand the refinancing process. When borrowers refinance federal student loans through a private lender, the borrower forfeits eligibility for federal repayment programs and 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.
President Biden has announced transformative changes to federal student loans, canceling up to $20,000 in student debt for qualifying borrowers. However, questions about whether the president has the authority to cancel this debt remain. Opponents of the executive order will likely challenge the plan in the courts, and it may be some time until there is a definitive answer to the question of can the president cancel student debt.
Even with the federal student loan forgiveness announcement, many borrowers may not qualify for this debt relief. If this sounds like you and you are considering refinancing your student loans, it may be best to act now. After all, interest rates are on the rise from their historic lows. Instead, you could refinance your student loans and lock in today’s low rate.
When will student loans be forgiven?
The Biden administration announced that up to $20,000 of federal student loans will be forgiven for qualifying borrowers. However, details around the plan still need to be fleshed out, like how borrowers can apply for forgiveness and when the debt will be discharged.
Do student loans go away after seven years?
Sorry, there is no program currently in place for that. This belief stems from the fact people see student loans disappear from their credit reports after this amount of time. Seven years after the first missed payment that led to a loan either defaulting or being charged off, the main three credit bureaus (Equifax, Experian, and TransUnion) erase the default status and late payments from reports.
Are student loans forgiven after 25 years?
The answer to this is a “yes, but.” Yes, you can have your student loans forgiven after 25 years, but only if you pay them under an income-driven repayment plan, which only applies to federal loans. The U.S. government offers four income-driven repayment plans.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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