What is Biden Student Loan Forgiveness Program?
The term above refers to a federal student loan forgiveness program under the current administration. Some people, however, use this term to refer to a concept that had existed even before President Joe Biden took office - student loan payment pause. Under the President Donald Trump administration, it was established to provide financial aid to students because of the ongoing pandemic. In this article, we will discuss both.
During his presidential campaign, then-Presidential candidate Joe Biden proposed adjusting to the current student loan payment system, including a freshly-revamped loan forgiveness program. He promised that each borrower would receive $10,000 in student loan relief. On his first day in the office, President Biden fulfilled his promise and froze Federal student loan payments.
Were There Any Adjustments Made to the Original Federal Loans Forgiveness Program?
In October 2021, a series of serious adjustments were made, which helped the Department of Education pinpoint over 100 thousand full-time and part-time students who are now eligible for student loan forgiveness. The students can receive over $6 billion in debt relief. Limited Waiver was introduced to count certain payments that students made towards PSLF.
More student debt relief for millions of borrowers throughout the country means a healthier economy, improved personal finance, and doesn't threaten Americans' financial stability.
What's the Current Status of the Payment Pause?
At the time of writing, all student loan debt under the federal government program is still in the moratorium until August 31, 2022.
As the US economy continues to grow and COVID cases continue to dwindle, the President starts preparing to allow for a seamless lift of the student loan pause period. Biden advocates for the move by saying that the current loan forgiveness extension gave borrowers additional time to gather sufficient resources and cover their debt, ultimately benefiting everyone.
Students, their families, and the US economy still feel the financial consequences of the COVID19 pandemic. Therefore, the continuation of the student loan payment pause enables borrowers to catch up and resolve the pending repayment issues.
What are the Main Requirements for Claiming Student Loan Forgiveness?
Below you will find a list of the main requirements to claim student loan forgiveness. You should know what you need and how to qualify for it.
Original PSLF Requirements
Before you can declare your eligibility for student loan forgiveness and start tackling your student loans, you need to understand the history behind the current administration's program. It involves the PSLF (Public Service Loan Forgiveness), first established in 2007.
The program's ill-defined set of requirements imposed a confusing and difficult-to-comprehend situation for borrowers, and many went without any assistance during the period. Under the original conditions, borrowers needed to:
Be on a direct federal loan. Other types of loan payments didn't qualify.
Be enrolled in an income-driven repayment plan (IDR). Such plans allow the option to divert certain payments to lower monthly installments.
Be enrolled in the 10-year repayment plan. Students that picked extended or guaranteed plans failed to meet the guidelines.
Be employed full-time for a qualifying non-profit or public service entity.
Because of the exceedingly harsh and rigid criteria, it was difficult to determine who qualifies for student loan forgiveness. The program was deemed a failed experiment, and applicants noted a rejection rate of over 97%.
In 2018, Temporary Expanded Public Service Loan Forgiveness (TEPSLF) was introduced to right some wrongs. The program allowed borrowers with repayment plans other than a direct loan to qualify for PSLF. The attempted fix came with inconveniences (most notably those related to repayment plans) and ultimately failed to provide significant debt relief.
Current Student Loan Forgiveness Requirements
Currently, debt forgiveness under the federal program, PSLF, is granted based on a set of laxer rules. The Department of Education eased major requirements: now, payments made on non-direct student loans also qualify, and payments made on any repayment plan qualify as well. Some federal borrowers will be asked to consolidate their loans before becoming eligible.
Borrowers eligible for student debt forgiveness are recommended to fill out the Public Service Loan Forgiveness (PSLF) form available on the Federal Student Aid website.
How Does Biden Affect Student Loan Debt Repayment?
All payments are put on hold with no interest at the time of writing. Private student loans are still not covered under the current student loan forgiveness program or the payment pause.
Students can continue to make monthly payments on their loans even though they are not required to lessen the debt held and help prevent financial obligations from piling up. The Department of Education recently stated that over 500 thousand borrowers continued to make student loan payments during the pause.
It's important to point out that the current pause doesn't come with an end goal to cancel the debt or provide complete debt forgiveness for everyone.
Different Routes for People with Student Loans
If you want to see your student loan payments put on hold, you don't have to do anything. Interest will not be charged, and your loan will remain active. Once again: the payment pause under the Biden administration does not imply any broad loan forgiveness. It does, however, imply that you will be able to improve your situation financially without the additional costs and inconvenience of paying student loan debt.
If you are behind on loan payments, there are several ways you can avoid defaulted loans. Remember that default for federal student loan borrowers can only happen after 270-day delinquency.
If you want to receive loan forgiveness, you shouldn't worry - automatic forbearance under President Joe Biden won't negate your progress towards PSLF. If you continue to work for a passing establishment, months in automatic forbearance will still count towards qualifying.
If you want to resume making payments, you don't have to contact your loan servicer to notify them about your decision, and you simply resume making payments. If you continue to make payments, you won't have to pay interest.
When to Continue Making Payments?
Student loan borrowers face a difficult decision of whether or not it makes sense from a financial standpoint to continue making payments. The most crucial factor affecting this decision is the repayment strategy you picked.
People that select the most common repayment strategy (10 years) might consider continuing to make federal student loan debt payments. This decision yields the highest benefits, and it must be considered if your financial situation allows for it.
Other students that have chosen to enroll in income-driven student loan repayment programs shouldn't feel pressured to continue making payments. These income-driven repayment programs provide a fixed timeframe of broad student loan forgiveness. If you pay now, all you get in return is lower interest.
Student loan borrowers that seek complete forgiveness under the new rules introduced by the Biden administration should not continue paying. Months spent in automatic forbearance will still count towards the 120 payments required to forgive federal student loans.
Pros and Cons of Biden's Student Loans Program
The changes introduced by the President will have an effect on young Americans in major ways. Like with any changes ushered in any administration, there are pros and cons to the effort to make direct loans more manageable for student borrowers.
Let's look at the main factors that help shape the conversation surrounding the adjustments to the program. Below, you will see two lists detailing the advantages and disadvantages of student debt cancellation and/or forgiveness. Let's start with the pros.
Advantages of the Federal Students Loans Forgiveness Program
It will boost the economy.
The question of a responsible federal budget is still a controversial one, but other than that, there is a consensus among economists that doing away with student debt will help un-cripple the economy.
It will stop preventing former students from reaching their goals.
In 2020 a Roosevelt Institute research paper detailed various benefits of student debt cancellation. The research pointed out that they go far beyond the immediate benefits of becoming debt-free and improving credit scores. The paper revealed that it would help people that have already obtained their bachelor's degree attain their financial goals, which, in turn, will stimulate various markets, including, but not limited to, housing.
Disadvantages of the Federal Students Loans Forgiveness Program
It's unfair.
People should be held responsible for their financial choices. Whether it's an unwise decision or a beneficial one, debt cancellation would negate the benefits of many years' worth of hard work that helped certain students pay off their student loans. A 2020 survey revealed that close to 50% of Americans think that debt cancellation is unjust.
It will help privileged students at the expense of the disadvantaged.
High-income individuals stand to benefit more than others.
It's a temporary fix.
The bigger problem that needs to be addressed is the need to fix the nation's higher education system. The costs are incredibly inflated, and a very small percentage of students get a degree that can improve their financial situations quickly.
It will prompt higher tuition and decrease access to higher education.
Debt cancellation will encourage less responsible college students to enroll in college and encourage them to take on more debt. More student debt racked will cause a sharp increase in tuition rates, resulting in fewer people being able to afford college.
How Does Biden's Student Loans Pause Affect the Real Cost of a Student Loan?
Interest on federal student loan payments will continue to be temporarily suspended, which will cost the government approximately $5 billion per month of suspension.
The real cost of student loans will seemingly remain unaffected because of the support from the Federal Reserve. Nevertheless, it is still far too early to discuss the long-lasting economic implications of the student loan moratorium. Perhaps the affected real cost of a federal student loan will be one of the most critical topics of future discussion regarding the burden of student debt in America.
What Can Biden Decide on Student Loans Further?
The decision to extend student loan relief can mean some good things for student loan borrowers, but it can also negatively impact the economy. The payments are set to resume on August 31, 2022.
Wide-spread student loan cancellation seems to be the most unlikely scenario because of the conflict of interest that would result from such a decision. Even though the President has repeatedly voiced his support for eventual debt cancellation, there's still no concrete news regarding any change to the current student loan policies.
With all of that in mind, student loan borrowers should carry on with the assumption that there will be no debt cancellation.
