The “he will, he won’t” summer of student debt cancellation is upon us.
“He” is, of course, President Joe Biden.
Some 43 million borrowers are pinning their hopes on Biden taking executive action to relieve at least some of their collective $1.7 trillion in debt.
Rumors abound on social media. The Ministry of Education said it would be ready should cancellations occur. The White House has been leaking potential details to the media.
“It happens to borrowers every day,” said Betsy Mayotte, president and founder of the nonprofit Student Loan Advisors Association. “They were frustrated with the information.”
So what is Biden waiting for?
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what happened so far
Biden’s presidential campaign promised student debt relief, but his promise to deliver on that promise faltered when he took office.
Biden initially asked Congress to send him student debt relief legislation — rather than act on his own — although such a proposal is unlikely to pass with a narrow Democratic majority. In doing so, however, he raised questions about his legal authority to take executive action to cancel the debt. In addition, he said he does not support debt cancellation for Ivy League-educated borrowers.
It appears that debt cancellation may remain a pipe dream for borrowers and activists.
But Biden’s previously public opposition to canceling student debt through executive orders has softened in recent months. Most of the White House’s recent hints have been about timing and logistics, not legal mechanisms.
So, will he? Most observers say yes. The real question now is when, how many and how many people will benefit?
Indications are that borrowers could see cancellation notices as early as this summer.
Persis Yu, policy director and management consultant for the nonprofit advocacy group Student Borrower Protection Center, said she thinks an announcement could be made before the federal payment moratorium ends after Aug. 31.
“We need to take some action before that so we don’t let borrowers pay back loans they no longer owe,” Yu said. “Hopefully the White House takes the time to make sure they get it right.”
The White House is clearly in no hurry.
On April 28, Biden told reporters that he would get answers about canceling student debt “within a few weeks.” On May 3, former White House press secretary Jen Psaki said Biden was considering tying relief to a borrower’s income level. Looks like an announcement is coming soon.
The Washington Post reported on May 27 that Biden had hoped to announce the cancellation at the University of Delaware’s commencement ceremony the next day, but given that earlier this week at a Uwald, Texas, university There was a shooting at the elementary school, and he chose not to.
By June 6, a White House leak to the Wall Street Journal pushed expectations to July or August. That would bring the announcement closer to the expected reopening of federal student loans on Sept. 1.
During the 2020 campaign, Biden pledged to forgive $10,000 in federal student loans. After he became president, the $10,000 figure remained despite calls from some Democratic lawmakers to remove the $50,000. Biden has rejected that higher number throughout his presidency.
Recent White House leaks to the media suggest that $10,000 is a figure borrowers can expect.
How many people will benefit?
A $10,000 cancellation could wipe out a potential 15.2 million borrowers, federal data show. For another 30.5 million people, the $10,000 cancellation will bring them closer to paying off their debt, as long as interest doesn’t accumulate faster than they can pay it back.
The White House told The Washington Post in a May 27 article that it was discussing limiting loan cancellations to borrowers who earned less than $150,000 in the previous year or less than $300,000 for borrowers filing jointly .
Income restrictions complicate removal. Borrowers must agree to the IRS sharing their income information with the Department of Education. Otherwise, the Department of Education will not have access to it. This barrier to entry means borrowers may miss out on cancellations even if they qualify.
“I see why they’re talking about means testing it, because it removes some of the political debate,” Mayotte said. “But that means borrowers are going to have to take some kind of action.”
What’s getting in the way?
Several moving parts could influence Biden’s decision to cancel (or not) the debt:
- The federal student loan payment moratorium is set to end on Aug. 31; economists say many borrowers aren’t ready for another extension, if not possible.
- November’s midterm elections — and the calculations surrounding political resistance.
- Inflation has risen sharply, recently prompting the Federal Reserve to announce the highest interest rates in decades.
- Any cancellations could face legal challenges. But it’s hard to say whether that will affect deliveries to borrowers. Attorney Yu said she believes Biden has the legal authority to cancel the debt.
- Whether the Department of Education and student loan servicers have the resources to conduct the cancellation application process.
Biden has forgiven some debt
Notably, the Biden administration has cancelled more student loan debt than any other presidential administration through targeted forgiveness programs: Some 1.3 million borrowers have received about $25 billion in debt cancellation.
- Provided $6.8 billion to more than 113,000 public servants through a limited waiver of public service loan forgiveness due Oct. 31.
- $8.5 billion for more than 400,000 borrowers with total and permanent disability.
- $7.9 billion for 690,000 borrowers whose institutions fraudulently or closed their degrees before they earned their degrees.
What Borrowers Can Do While Waiting
Unless you have $10,000 or less in student loan debt, you still have to think about what you’ll do when you start paying again. Take advantage of the time waiting to make a plan, which means contacting your provider now for repayment options. Cancellations are unlikely to change the amount you pay each month.
If you work for a public service employer, now is also a good time to apply for a PSLF waiver, which counts previously ineligible payments toward the $120 required to cancel.
Article Will This Be the Summer of Student Debt Cancellation? Originally appeared on NerdWallet.