One of the many reasons why Biden won the 2020 presidential election was no doubt his promise of cancelling or reducing student loan debt for the many American borrowers who desperately need relief.
However, cancelling or reducing student loan debt has yet to be enacted. And it’s not included in the new stimulus package set to be passed by Congress this month (March 2021). Biden has made it clear he will not make student loan cancellation or reduction an executive order—Congress will need to decide when and for how much. So why wasn’t student loan cancellation or reduction included in the new March stimulus package?
It’s just not top of mind for Congress right now. Since student loan payments and interest are paused, Congress is more concerned about providing actual dollars in the pockets of those who need financial support the most. Specifically those who make less than $75,000 per year and couples making less than $150,000 per year, given their 2019 or 2020 tax returns. This change in the compensation cap stipulation will likely be the same for when (if) student loan cancellation/reduction comes to play. Those who make over a certain income amount will likely be expected to still pay back their loans in full, but for those who make under a certain amount, they could have their loans canceled or reduced.
Biden said he will NOT cancel $50,000, but he said he is prepared to cancel $10,000 through pandemic relief legislation, according to Forbes.
This is still great because more than a third of the 46 million borrowers owe less than $10,000 in federal student loan debt, according to federal data. Those who have less than $10K in debt typically didn’t finish college so they most likely are earning less, making it more difficult for them to pay back their loans thus resulting in higher rates of default.
If you have less than $10K in debt, you could consider not paying anything right now as you don’t want to pay extra that could be canceled by way of executive action, especially since payments and interest are paused until at least this October.
If you owe more than $10K and can afford to make payments right now, you could consider paying down your loans as a way to chip away at the principal. Be aware though to not pay more than you need to, meaning make sure you still have a balance of $10K if you’re optimistic about the $10,000 student loan cancellation.
If your income has been impacted by COVID-19 or you’d like to lock-in lower monthly payments beyond 2021, we can help! Cap your payments in proportion to your discretionary income by enrolling in an income-driven repayment plan. Discover which plans that are available to you, we can even help you decide which plan will be best for you.