The Biden Administration recently announced that borrowers should expect an update regarding student loan forgiveness in the coming weeks.
Since his presidential campaign in 2020, Biden has pledged to cancel at least $10,000 of student loan debt per borrower, and it appears that this campaign promise may actually come to fruition.
While a proposal has yet to be finalized, a decision should be reached before August 31, 2022, when the current federal loan forbearance expires.
This article will break down Biden's latest proposal, how it may affect you, and how you can create your own student loan forgiveness with Chipper Roundups.
How much Should Borrowers Expect to have Forgiven:
While meeting with the Congressional Hispanic Caucus last month, Biden reportedly said he was "looking to forgive most federal student loan debt" leaving many borrowers to wonder if total loan forgiveness might be in store.
Since then, Biden has rolled back that statement saying that he's looking at forgiving "some" federal student loan debt and affirmatively stating that he's "not considering $50,000 in debt reduction" during a recent speech.
Instead, the White House has recently stated that it's exploring a proposal to forgive up to 10k per borrower through an executive order. A proposal that, if finalized, would completely eliminate the debt of approximately 12 million borrowers, according to the Federal Reserve Bank of New York.
While the administration is still working to reach a final decision, the administration is also considering adding an income cap of $125,000—meaning that borrowers earning more would not be eligible for relief through this order.
Though nothing is official yet, high-income borrowers should plan accordingly.
Think your income may exclude you from federal loan forgiveness? Then, you can create your own "forgiveness" with Chipper Round-Ups.
What does Federal Student Loan Forgiveness mean for Borrowers:
While many are hopeful that Biden will make good on his campaign promise and forgive up to 10k per borrower (subject to an income cap), others are concerned about the potential implications of moving forward with this proposal.
First, some borrowers are concerned about the potential tax implications of student loan forgiveness. While outstanding debt discharged through the Public Service Loan Forgiveness program has always been tax-free, discharge of indebtedness is generally treated as a taxable event.
However, a provision of the American Rescue Plan, passed in March 2020, temporarily exempts federal loan forgiveness from being taxed through 2025. While this exemption would apply to federal loans forgiven under an income-driven repayment plan, it would also presumably apply to any student loan debt canceled by the president under an executive order—although this has yet to be officially confirmed.
Though taxes may not be an issue, others are concerned that student loan forgiveness may signal the end of student loan relief.
White House Press Secretary Jen Psaki was recently quoted saying, "between now and August 31, [the student loan pause is] either going to be extended or we're going to make a decision about canceling student loan debt," leaving many to assume that cancellation would mean the expiration of the federal pause.
While many experts initially speculated that we'd likely see an extension through at least after this year's midterm election on November 8th, it's unclear how widespread cancellation may affect ongoing relief.
With this in mind, borrowers should prepare to resume making payments starting in September until we have a better idea of what's to come.
How you can Create your own Loan Forgiveness with Chipper:
Whether you're a high-income earner or someone with more than 10k worth of federal student loan debt –you can still create your own loan forgiveness with Chipper.
With the Chipper Round-ups, you can chip away at your student loan debt with your everyday purchases!
When you use Round-ups, spare change from your everyday purchases are automatically rounded up to the nearest dollar and paid towards your student loans without lifting a finger.
Here's how it works:
- Link your loans to Chipper.app
- Link your card(s)
- Spend as you normally would
- Watch your loan balance go down!
- Skip or pause whenever you want
To learn more, head to Chipper.app/round-ups and start chipping away at your student loans today!