Student Loan Forgiveness: What’s the Prospect for Federal Debt vs. Private Debt?
Student organizations, unions, groups that represent nurses and teachers, special interest groups, and lobbyists of every imaginable persuasion join President Biden’s drive to cancel student debt for millions of Americans. .
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On April 6, the Department of Education announced that President Biden had extended the pause on student loan repayments, collections and interest until August 31, giving him less than three months to finalize a plan. . The pause — a key part of pandemic stimulus programs — applied only to federal loans and did not impact private student debt. Will that same standard apply if the president decides to cancel five-figure student loans for millions of borrowers, as it now appears he will?
Probably yes, but there are a lot of variables. Let’s explore potential scenarios.
So is there a plan?
On April 16, 10 days after the president announced an extension of the repayment pause, Forbes reported on an “explosive announcement from the White House” that the administration was considering large-scale student debt cancellation. .
If President Biden has decided on a course of action, he keeps his cards close to the vest. According to CNBC, it will likely operate most of the time off the clock and delay its announcement until July or August.
How much debt will borrowers lose?
According to Forbes, President Biden has signaled support for eliminating $10,000 in student debt per borrower. He rejected a proposal from the progressive wing of his party to eliminate $50,000, but that plan could gain traction once again.
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According to Forbes, champions of the $50,000 plan say that forgiving:
— $10,000 would eliminate the student debt of 13 million borrowers
— $20,000 would eliminate the student debt of 20 million borrowers
— $30,000 would eliminate student debt for 24 million borrowers
— $40,000 would eliminate the student debt of 28 million borrowers
— $50,000 would eliminate the student debt of 30 million borrowers
According to The Hill, the president has already forgiven $25 billion in student debt, mostly for federal student loan recipients defrauded by their schools, borrowers with disabilities, and borrowers who qualified for the government’s loan forgiveness program. public (PSLF).
Biden has a lot to consider
As with everything today, the topic of student loan forgiveness is politically charged and polarizing — but national consensus and political will aren’t the only things President Biden must weigh when making a decision. According to Bloomberg, the president’s plan must take into account:
Whether the plan he’s pursuing can withstand the legal challenges that are sure to come
Whether federal budgets will be able to bear the financial cost of widespread loan forgiveness
If his actions will add more fuel to the rate of inflation
Will the plan exclude high earners and private loans?
According to Bloomberg, Biden will design the plan to help low- and middle-income borrowers. It will therefore most likely exclude anyone earning $125,000 a year or more. There is also the question of whether or not to include loans borrowed for higher education.
However, in terms of limitations and exclusions, one thing is certain – the plan is almost certain to forgive only state-funded federal student loans and to exclude borrowers who have taken out private loans from banks and other commercial lenders. According to Forbes, the Higher Education Act, on which Biden relies for legal authority to cancel federal loans, does not grant the executive branch the power to waive private debt.
There is no way to convert private student loans to federal student loans, so any cancellation of private debt would require congressional legislation.
According to Newsweek, however, only a small portion of US student debt – around 8% – is owed through private student loans. That’s about $133 billion in private debt, compared to $1.6 trillion in federal student debt.
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This article originally appeared on GOBankingRates.com: Student Loan Forgiveness: What’s the Outlook for Federal vs. Private Debt?