Should You Plan for a $ 50,000 Student Loan Forgiveness?
Last week, President Biden asked the Department of Education to review its legal mandate to use executive action to write off student loan debt, rekindling hope for many of the 45 million borrowers who collectively owe $ 1.7 trillion in student loans. But how should this affect your repayment strategy and should you be betting on a possible write-off of $ 50,000 in federal loans?
There are no guarantees
Since taking office in January, President Biden has shown a willingness to tackle student loan arrears through a variety of policies, including extending the student loan moratorium until September (charging 0% interest and freezing payments), expanding student loan forgiveness rights for public sector workers and cancellation of debts of students defrauded by commercial schools .
Biden said he supported canceling the $ 10,000 student loan debt secured by the federal budget, but that it should be passed through Congress, saying in February City Hall, “I don’t think I have the authority.” It is not clear, however, that Democrats have enough votes to pass legislation to write off debts through Congress, which might explain why the progressive wing of the party pressured Biden to pursue executive action and increase the write-off to $ 50,000.
Biden’s legal review now suggests a greater willingness to consider executive action, especially since White House chief of staff Ron Klein confirmed that the legal review will consider a debt forgiveness of up to $ 50,000 , an amount that Biden did not previously support (“ I am ready to write at least $ 10,000 of debt, but not $ 50,000, ”he said in the February City Hall).
Does this mean there will be a $ 50,000 debt forgiveness? It’s impossible to know for sure, although it is certainly less likely than $ 10,000. Legal due diligence is optional as it simply answers the question of whether Biden has executive powers, not whether he should use them or how much debt should be written off, as Zach Friedman points out at Forbes . The bottom line is that President Biden has yet to publicly endorse a $ 50,000 student loan debt cancellation.
What to do with student loan repayment?
As Lifehacker’s Jordan Calhoun states in his post on the February topic :
Should I continue to make regular federal loan payments to reduce my principal? If you have no cash, the answer is no.
The argument is that with zero interest rates on student loans, it is actually safer to temporarily set aside the allocated cash to repay the loan into low-risk savings or an emergency fund in case the pandemic worsens. The main thing is not to spend money at all (except in emergencies), since you will still have an outstanding balance and you will have to make payments to this effect after you cancel the freeze of payments.
Instead, consider saving that money, if possible, by making a very big safety net for yourself. Then, if you don’t need it, you can pay the large lump sum on September 29th or any other day that interest eventually resumes.
As Ashley Norwood-Struppa of AccessLex Education and Financial Opportunity Center told CNBC Select :
If forgiveness is announced in the future, you will replenish your emergency fund and will not lose any of the loan forgiveness benefits. If no forgiveness occurs, you may decide if it makes financial sense for you to take the saved amount and pay off your student loan.
In light of Biden’s legal review, if your student loan balance is less than $ 50,000, you can defer any lump sum repayment until the student loan moratorium expires in October, or until it is clear if the loan will be forgiven. Even if, say, there is a 1% chance that a $ 50,000 student loan forgiveness does happen, why not wait and see?
Of course, this is just one approach (Bankrate has a good overview of all of your other options, including further avenues for debt relief here ) and should never interfere with your ability to pay off student debt.