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GET READY FOR STUDENT LOAN REPAYMENT
Each passing day brings 43 million federal student loan borrowers closer to resuming the payments that have been paused since March 2020 — and further from the chance that life-changing loan forgiveness is coming anytime soon.
Borrowers had reason to hope.
Student debt, now at $1.7 trillion, was a crisis long before COVID-19. But the pandemic became an inflection point: Relief came quickly, with payments halted interest-free as debtors sought to cope with lost jobs and reduced work hours. Forgiveness became the rallying cry of progressives, helped by promises of support from both candidate and President Joe Biden.
But the quick fix of a White House executive order hasn't emerged, and there is no legislative remedy in the pipeline. Biden's first budget plan, released May 28, 2021 didn't carve out any money for forgiveness either.
That means struggling borrowers hoping for at least some cancellation before payments restart may need to reset their expectations and focus instead on how they'll make payments in September 2022.
Current chances for forgiveness
While campaigning, Biden called for $10,000 of student loan forgiveness as coronavirus relief. He also called to cancel tuition-related debt for those who attended public colleges and earn under $125,000 per year.
Debt forgiveness of $10,000 would cancel debt entirely for about 15 million borrowers, according to a NerdWallet analysis of federal data.
Since then, the president has been reluctant to commit to taking action. He has publicly questioned his authority to grant cancellation and is awaiting a memo from Education Secretary Miguel Cardona exploring his ability to do so.
Robert Kelchen, associate professor of higher education at Seton Hall University in South Orange, New Jersey, says he thinks it’s unlikely Biden will forgive loans en masse.
“I think that if President Biden wanted to do widespread loan forgiveness through executive action, he would have already done so,” he said in an email.
Debt relief advocates like Braxton Brewington, press secretary for Debt Collective, a membership-based union for debtors, are undeterred.
“Borrowers are just as frustrated and stressed as they were on Day One of [Biden’s] administration because this is something Joe Biden should have done on Day One,” Brewington says. He adds that Debt Collective remains optimistic that broad cancellation is still possible under COVID-related relief — “because it is COVID relief,” Brewington says.
Keeping the pressure on
Democratic lawmakers, meanwhile, introduced a pair of resolutions in February to both houses of Congress calling on the president to cancel $50,000 of student debt. Democratic lawmakers, progressive activists and even cities like Washington, D.C., and Philadelphia regularly voice support for canceling debt, but there’s no active legislation to this effect.
Some student loan experts are skeptical legislation can pass in a politically polarized Congress. Cody Hounanian, program director at Student Debt Crisis, a student borrower advocacy organization, says moving forgiveness through Congress will be “an uphill battle” that will take time borrowers no longer have. “But executive action is something we know can be done immediately; it will bypass Congress, and [Biden] has the authority to do it,” Hounanian adds.
The conversation around loan forgiveness is unlikely to end anytime soon, says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. Coval says forgiveness could still happen, and it’s possible borrowers might see more targeted cancellation by factors like debt amount or income — though there has been no proposal of this nature thus far.
Changes to current forgiveness plans
While broad forgiveness isn’t off the table, there are still some existing targeted debt cancellation programs available to borrowers. However, these programs are underperforming and in need of reform, according to experts and lawmakers.
Public Service Loan Forgiveness, for example, is granted to borrowers who made payments while working full-time for an eligible public service employer. It has only a 2.2% approval rate, according to federal data. Other programs, like borrower defense (for students whose colleges defrauded them) and income-driven repayment forgiveness, also are helping far fewer borrowers than designed.
Biden’s budget proposal included a sentiment that his administration plans to work with Congress on improving income-driven repayment and PSLF programs, which could help millions of borrowers with relief. While campaigning, Biden called to repair PSLF with a new plan forgiving $10,000 of student debt relief for up to five years of public service.
Legal and student loan experts such as the National Consumer Law Center and Student Borrower Protection Center blame red tape, misinformation and mismanagement for the dysfunction that mars existing forgiveness programs. But this could change soon: The education department announced recently it would hold feedback hearings in June to get input on potential future rule-making topics, including these programs.
“Streamlining the process for both income-driven repayment plans and Public Service Loan Forgiveness won't be as flashy as debt forgiveness, but both of these plans will forgive at least some debt for many Americans,” Kelchen says.
Strategies for resuming payments
With loan forgiveness proposals unlikely to bear fruit anytime soon, and payments set to restart for borrowers September 2022, here’s how you can strategize repayment, depending on your situation:
If you’re financially stable, consider making additional payments before September to pay off your debt faster — you can chip away faster at your principal while your loan isn’t collecting interest.
If you anticipate having difficulty making payments, contact your servicer now to discuss enrolling in an income-driven repayment plan to keep payments manageable. It’ll cap your payments at a portion of your discretionary income and extend repayment. If you’re out of work or underemployed, your payment can be $0.
If you won’t be able to make payments but don’t want to enroll in an income-driven repayment plan, contact your servicer to discuss an unemployment deferment or forbearance. These options are best if you expect to be out of work or are managing a short-term financial hardship.
If you’re pursuing Public Service Loan Forgiveness, keep in mind that each month of nonpayment counts toward the 120 needed for forgiveness so long as you’ve remained employed full time. Continue making payments on an income-driven plan when they restart.
If your loans were delinquent before the pandemic, it will be restored into good standing when repayment begins.
If your loan was in default before the pandemic, it may still be in default once repayment begins. Make sure you review your options and take steps to get out of the default during the pause. Once in good standing, make sure you have a plan to stay on track, like enrolling in an income-driven plan.