President Joe Biden (Photo by Scott Eisen/Getty Images)
Student loan borrowers will have received at least $90 billion of student loan forgiveness due to the Covid-19 pandemic.
Here’s what you need to know.
Student Loans
President Joe Biden and Congress may be debating the future of student loan cancellation, including who, if anyone, will cancel student loan debt and how much, if any, student loan forgiveness there will be. Amidst this ongoing debate, it’s important to highlight that more than $90 billion of student loans will be cancelled through September 30, 2021. How is this possible? Let’s explore.
Student loan cancellation: $90 billion of student loan forgiveness
Under the Cares Act — the $2.2 trillion stimulus package — Congress enacted several temporary benefits for student loan borrowers, including:
- pausing federal student loan payments;
- setting interest rates to 0%; and
- halting collection of student loan debt in default.
These student loan benefits were scheduled to expire on September 30, 2020. However, President Donald Trump extended this student loan relief twice until January 31, 2021. When Biden became president, Biden extended this student loan relief through September 30, 2021. While this student loan relief is expected to end September 30, 2021, it’s possible that Biden could extend student loan relief beyond this date.
What does this have to do with student loan cancellation?
The U.S. Department of Education released data that confirmed student loan borrowers collectively have saved approximately $5 billion each month since student loan payments have been paused and interest hasn’t accrued. Between now and September 30, 2021, student loan borrowers will save another $25 billion. That represents a major savings for student loan borrowers.
Does this mean student loan borrowers get $90 billion of student loan forgiveness?
It’s important to clarify what this means. First, this student loan cancellation applies only to federal student loans owned by the U.S. Department of Education. Second, there is no direct one-time student loan cancellation of existing student loan debt. Rather, this student loan cancellation is due to student loan borrowers not having to pay interest during the Covid-19 pandemic. Therefore, consider this student loan forgiveness for interest that won’t accrue on your principal balance. That might not feel as exciting as one-time student loan cancellation of your existing student loan balance, but the amount can be significant. Why? Effectively, from March 2020 to September 30, 2021, student loan borrowers will have zero interest added to their federal student loans for 19 months. Consider this future student loan forgiveness (from the student loan interest you won’t be paying) rather than current student loan forgiveness.
How much have borrowers saved on average?
It’s estimated, according to Yahoo Finance, that student loan borrowers have saved $2,000 on average.
Biden also cancelled $2.3 billion of student loans
The $90 billion of student loan forgiveness isn’t the only student loan debt that has been cancelled during the Covid-19 pandemic. For example, Biden already has cancelled $2.3 billion of student loans. (You can learn if you qualify for the $2.3 billion of student loan forgiveness here). First, Biden cancelled $1 billion of student loans for 72,000 student loan borrowers and second, he cancelled another $1.3 billion of student loans for 41,000 borrowers with total and permanent disability. America has reacted to Biden’s student loan cancellation in different ways. In addition to direct student loan cancellation and student loan forgiveness due to no interest, student loan borrowers also have benefitted in another way during Covid-19 pandemic. For example, student loan borrowers who are pursuing public service loan forgiveness got “credit” for making a monthly student loan payment, even if they didn’t actually make one. This is also a significant benefit because student loan borrowers potentially got 1.5 years of student payments counted toward the requirement of 10 years of student loan payments (120 monthly payments). This student loan cancellation is independent of any one-time student loan cancellation. If Congress or the president enacts student loan cancellation, it would be incremental to the student loan forgiveness that will continue through September 30, 2021.
As you evaluate your options for student loan repayment, make sure you consider these potential options:
