The President Already Has Canceled Some Student Debt
In the space of about 10 days during March, the Biden administration canceled about $2.3 billion in student loan debt: $1 billion held by borrowers who said they’d been ripped off by their schools, and another $1.3 billion owed by Americans described as totally and permanently disabled.
Last week, another $500 million got wiped away for former students defrauded by ITT Technical Institute, a chain of for-profit schools that went out of business in 2016.
Altogether, the moves have affected more than 318,000 borrowers a tiny fraction of the roughly 43 million people who owe approximately $1.7 trillion on federal student loans.
Obviously, forgiving up to $50,000 in debt per person would be a massive step, costing the government about $1 trillion, according to multiple sources.
How Are Parents Or Families With Loans Affected
Six percent of loans are owned by parents and guardians through the Parent PLUS loan program$96 billion of outstanding debt, as of the first quarter of 2020. If a parent or a guardian, as defined by the Department of Education, has a Direct PLUS Loan, then forbearance and interest relief is automatic for the next six months. Other loans taken by families, such as through the FFEL Loan program, may also qualify if they are currently held by the Department of Education.
Do You Qualify For Bidens Targeted Forgiveness Programs
With the announcement of the largest forgiveness act in August $5.8 billion, people started to question if they can become eligible for this opportunity. As mentioned, Biden mainly focuses on two forgiveness programs- Total and Permanent Disability and Borrowers Defense against Repayment. This section provides short information about each option, but it is advisable to read Student Loans Resolved blogs for further questions.
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What Additional Relief May Be On The Way
While the student loan measures included in the CARES Act are helpful, many believe they dont go far enough. House Democrats, for example, had included a provision to cancel $10,000 in loans for all borrowers in their version of the coronavirus response bill. Such a provision would help cushion the blow of the loss of income many borrowers are likely to experience as a result of the pandemic.
Cancelling up to $10,000 of student debt would immediately eliminate the entire balance for 35 percent of borrowers. The Student Loan Borrower Assistance Project at the National Consumer Law Center is advocating for this relief to ensure financial relief and economic recovery for those already burdened by debt. But others note that this policy will disproportionately benefit middle and upper-income households, as they tend to hold more student debt.
In addition, many advocates are asking that private lenders also suspend student loan payments during the pandemic. A group of 12 Senators recently sent a letter to private lenders asking them to offer the same relief available in the CARES Act to their borrowers, as well as cancelling delinquent loans and assuring no negative consequences for cosigners. Such relief, if offered, would affect about 8 percent of student loan debt.
Use A Tuition Payment Plan
Use a tuition payment plan instead of long-term loan debt. Tuition installment plans split the college bills into 9-12 equal monthly installments for a nominal up-front fee and no interest. This allows you to save and pay as you go, removing the need to borrow.
One word of caution with some of these plans, understand the players in this type of agreement. While many schools offer this as an actual payment plan through the university. Read the terms and conditions of what happens if you unable to continue making the payments. Some schools will require you to withdraw and withhold transcripts until you pay your balance .
Some schools may use a third-party service. If your school uses a third-party with their payment plan, read all the paperwork! Understand what happens if you are unable to pay, you withdraw, or your school closes.
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Student Loan Debt Associated With More Debt Overall
Many adults with student loans also faced other debt burdens. Of those with student loans, about 23 million had at least one additional type of debt like credit card, vehicle or medical.
Among those with student loans, credit card debt was the most common additional debt , followed by vehicle loans , and medical debt .
Those with debt on top of their student loans also often owed more in student loans.
For instance, the median student debt of those with no credit card debt was $16,000 in 2017. However, those with both student and credit card debt owed a median amount of $20,000 in student loans.
Canceling Student Loans To Get Rid Of Student Loans
In some situations, you can get rid of your student loans altogether, which is referred to as student loan “forgiveness,” “cancellation,” or “discharge.” You must meet very specific criteria. Sometimes, you can cancel part of the loan, but not the entire loan.
What’s the Difference Between Loan Forgiveness, Cancellation, and Discharge?
If your federal student loans are forgiven, canceled, or discharged, you don’t have to pay them. People often use the terms “loan forgiveness,” “loan cancellation,” and “loan discharge” interchangeably, but the federal government uses these descriptions in specific ways. “Forgiveness” or “cancellation” refers to situations when borrowers don’t have to make loan payments because of their occupation. A “discharge” happens when the borrower doesn’t have to make payments due to other circumstances, like a total and permanent disability or school closure.
The circumstances in which you might be able to cancel your student loan include:
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Forgiveness In The Long Run
Another popular opinion is that some portion of student loans will be forgiven. However, it will take a lot of time. If Biden grants it through executive action, the process will be quick. Yet, Biden seems like he is not supporting executive action.
Hence, much time is required till investigations on the possibility of executive action are fully completed. It has already been seven months since the President asked the Justice Department to analyze this solution. Additionally, an executive order can be subject to a lot of lawsuits.
On the other hand, legislative action can be a solution, but it will still take a lot of time. It is hard to convince officials to vote for immediate forgiveness.
Revised Pay As You Earn Repayment Plan
Much like PAYE, under this plan, your monthly payments are 10% of your discretionary income. Your outstanding balance is forgiven if you haven’t repaid the loan in full after 20 or 25 years. The following types of loans are eligible for REPAYE:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS loans made to students, and
- Direct Consolidation Loans that do not include PLUS loans made to parents.
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Getting Your Loan Out Of Collection
When you miss 9 months of payments, your federal student loan is sent to the Canada Revenue Agency for collection. Once in collection, you are no longer able to get student aid. To be able to get student aid again, you must bring your loan up to date.
- Contact the CRA to make a payment arrangement and bring your loan up to date
For the provincial or territorial part of your student loan, you need to contact your province or territory. For borrowers from Saskatchewan you may contact the CRA for both federal and provincial parts of your student loan.
Tips To Manage Student Loan Debt
If you have student loans you know that managing this debt can be a challenge even at the best of times. Faced with difficult times like we are experiencing now, managing your student debt may seem nearly impossible. To help alleviate the burden of student loan debt, the federal government recently announced the following assistance. For more information, visit the National Student Loans Service Centre.
- The interest on the federal portion of all student loans will be frozen at zero per cent until March 31, 2021
- You have the option to defer federal student loan payments if your annual income is $40,000 or less. This is an increase from the previous annual income of $25,000.
Will this government assistance be enough? We know that Canadians under 35 have been struggling with student loan debt for years. Our 2020 Affordability Index, which was released in the middle of a tough pandemic year, revealed that a significant number of younger adults said paying off their student loan debt is their toughest financial challenge. Unfortunately, along with student debt challenges, theres the financial hit that this demographic has experienced due to COVID-19. A recent Ipsos survey found that about four-in-10 Canadian adults under 35 say their financial situation has declined in the past year.
Are you interested in learning more about student debt and your debt relief options? Read more here.
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Federal Perkins Loan Cancellation
Federal Perkins Loans have a separate forgiveness program because your school is the lender, not the federal government. To apply, contact the financial aid office at the school that administered your Perkins Loan and request the application forms. You need to be a full-time employee in a qualified career.
Qualifying Perkins Loan Forgiveness Jobs:
- Soldier in hostile fire or imminent danger pay areas
- Firefighter
- Law enforcement or corrections officer
- Nurse or medical technician
- VISTA or Peace Corps volunteer
- Librarian with a masters degree
- Attorney employed in a federal public or community defender organization
- Employee for public or nonprofit organization that serves high-risk children and their families from low-income communities
- Staff member for educational component of the Head Start program
- Staff member for a state-licensed or regulated pre-kindergarten or child care program
- Professional provider of early intervention services for the disabled
- Speech pathologist with a masters degree
- Special education teacher for children with disabilities in public, other nonprofit schools or educational service agency
- Teacher in a field designated by the state as teacher shortage areas
- Teacher in a designated educational service agency that serves students from low-income families
- Faculty member at a tribal college or university
Potential Pitfalls Of Forgiveness
The IRS likes to tax things, and forgiven debt is no exception. Public service loan forgiveness is not taxable. But any balance wiped out through an income-driven repayment plan can be counted as income and taxed. It’s important to prepare for this eventual tax bill. Consider setting aside money in a dedicated savings account.
Note that the American Rescue Plan , passed by Congress and signed by President Biden in March 2021, includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
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Qualify For A Federal Student Loan Forgiveness Program
The first way to eliminate your student loan debt applies to people with Federal student loans. These are student loans that are typically handled by the Department of Education or one of the student loan servicing companies. These include many different student loan programs handled by the Federal government.
There are three major, and several smaller student loan forgiveness programs. The most popular Federal student loan forgiveness program is Public Service Loan Forgiveness. This program offers student loan forgiveness to people who work in public service for 10 years. Public service not only includes government jobs, but it also includes many non-profit jobs, education jobs, and service jobs like law enforcement or public safety.
The other two common ways to get Federal student loan forgiveness is to be a teacher, which has it’s own Teacher Loan Forgiveness Program , and military service loan forgiveness .
Biden Is Exploring The Opportunity Of An Govt Order
How possible its that this measure will move relies upon partly on the small print of the coverage, says monetary assist professional Mark Kantrowitz. Sens. Elizabeth Warren and Chuck Schumer have additionally put strain on Biden to extend the forgiveness quantity to $50,000, so the small print about how a lot forgiveness a student loan borrower may obtain might change.
Whether or not Biden will use an govt order for student loan forgiveness has been the topic of debate. On Nov. 16, 2020, Sen. Warren tweeted, Student loan debt is holding back a whole generation from buying homes, starting small businesses, and saving for retirement all things we rely on to grow our economy. Executive action to #CancelStudentDebt would be a huge economic stimulus during and after this crisis.
Biden has historically favored the concept of going by means of Congress to move student loan reform. However, Biden not too long ago requested Secretary of Education Miguel Cardona to discover the opportunity of canceling student loan debt by means of an govt order. Depending on the outcomes of the memo, we may even see Biden change his thoughts on canceling student debt by means of an govt order.
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Cancelled Student Debt For Some Defrauded Borrowers
So far, Cardona has cancelled over $2.6 billion in student debt for borrowers defrauded by for-profit schools.
For-profit institutions that shut down years ago, such as Corinthian Colleges and ITT Technical Institutes, were accused of violating federal law by persuading their students to take out loans, and Cardona’s new policy helped approximately 72,000 of those students receive $1 billion in loan cancellation in March.
“Borrowers deserve a simplified and fair path to relief when they have been harmed by their institution’s misconduct,” Cardona said in a statement. “A close review of these claims and the associated evidence showed these borrowers have been harmed and we will grant them a fresh start from their debt.”
On June 16, Cardona cancelled student debt for 18,000 additional borrowers defrauded by ITT Technical Institutes, totaling to about $500 million in debt relief.
The Education Department announced in a press release that 18,000 borrowers who attended ITT Tech will get 100% of their student debt forgiven, and the department will begin notifying borrowers of their approvals for loan forgiveness in the coming weeks and will work quickly to discharge those borrowers’ loan balances.
“Our action today will give thousands of borrowers a fresh start and the relief they deserve after ITT repeatedly lied to them,” Cardona said in a statement.
Financial Wellness Podcast Transcript
Tera:
Hello, youre listening to the BDO Financial Wellness podcast and Im your host TeraBeljo.Much has changed in the world since our 2017 survey about student debt. Five years ago, we found that three-quarters of post-secondary grads regretted their student loans. And about 60 per cent of grads under 40 were still paying off their student debt. Whilewewerent surprising results, they were concerning.And the student debt struggle continues. The differenceisthe financial challengesforCanadiansunder35havent gotten better. In fact, they continue to increase.
Since COVID, young Canadiansreportthe worst economic and emotional stress of anyage group.Canadians under 35 are disproportionately losing full-time jobs, short-term jobs and paid hours. And then theres the pandemic. Generally, younger adultshave beenlastin line to get vaccinatedso may not benefit from looser restrictions for vaccinated Canadians. One quote I read recently said,It makes it very complicated to have strategies for opening things to only people who have vaccines. Because then you disadvantage a group who have given so much over the past year, and potentially will suffer economically for the rest of their lives.
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What Is Biden Actually Doing To Address The Student
While the president has shown little enthusiasm for blanket student-debt forgiveness, his administration is trying to mitigate borrowers burdens through regulatory action and legislative proposals. On his first day in office, Biden extended the moratorium on student-loan repayment through the end of September . Meanwhile, Bidens COVID-relief bill, the American Rescue Plan, included a provision that makes income derived from forgiven student loans untaxable through the end of 2025, which is to say, if you have your student loans forgiven before 2026, you will never owe taxes on that income. That clears a potential hurdle to mass forgiveness, although the provision did not come at Bidens request, and its ultimate significance remains unclear.
The administrations most significant actions on student debt will likely come through regulatory rewrites of existing debt-forgiveness programs. The White House has already taken steps to eliminate red tape and make it easier for borrowers to qualify for forgiveness. But its full package of regulatory reforms will take time to implement, as they must be enacted through an arduous process of hearings and deliberation. Among the changes the administration is pursuing are:
The Biden administration is working to restore Obamas accountability standards. In March, it canceled $1 billion in student debt for roughly 72,000 defrauded borrowers.
This piece has been updated.
Cancelled Student Debt For Some Borrowers With Disabilities
On March 29, Cardona cancelled $1.3 billion of student debt for about 41,000 borrowers with disabilities.
He also waived an Obama-era requirement for those borrowers to submit documentation during a three-year monitoring period to verify that their incomes did not exceed the poverty line of $12,880 annually for a single person.
A 2016 report from the Government Accountability Office found that 98% of reinstated disability discharges occurred because borrowers did not submit the required documentation not because their incomes were too high.
“Borrowers with total and permanent disabilities should focus on their well-being, not put their health on the line to submit earnings information during the COVID-19 emergency,” Cardona said in a statement. “Waiving these requirements will ensure no borrower who is totally and permanently disabled risks having to repay their loans simply because they could not submit paperwork.”
But experts said this action did not make up for the significant number of borrowers who never received loan forgiveness simply due to paperwork.
“Today’s announcement is not cause for celebration but rather for outrage,” Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said in a statement at the time. “It is scandalous that the Department revoked the loan discharges for 41,000 borrowers with total and permanent disabilities due to paperwork issues during a pandemic.”
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