Student Loan Forgiveness and Payment Extensions: What You Should Know for 2021

If you are struggling to repay student loans, you probably reacted to the news of possible student loan forgiveness with great joy. However, you should understand that Congress has yet to approve this legislation. In this blog, Accolade Financial breaks down what you should know about potential student loan forgiveness and another extension on student loan payments.

No Consensus on How Much Student Loan Debt to Cancel

President Joe Biden stated that he would like to see legislation cancel up to $10,000 of student loan debt. Some legislatures are pushing the new president to cancel up to $50,000 of student loan payments by way of executive order instead.  Biden doesn’t believe he has the authority to do so and would likely push the issue back to the Senate and House of Representatives to decide.

Limitations on Who Would Qualify for Student Loan Forgiveness

Should the student loan forgiveness legislation pass both branches of Congress, it would likely contain limitations on who can take advantage of the debt cancellation. For example, only federal student loans are under consideration for this new legislation. That means you would still need to repay state loans and private loans obtained from a bank or credit union.

You may also need to meet income limitations to qualify for any amount of student loan cancellation. The current proposal is to make the benefit available only to borrowers who earn less than $125,000 per year.

When the Internal Revenue Service (IRS) distributed the first and second rounds of stimulus checks, the income threshold was $150,000 for a married couple and $75,000 for single taxpayers. Congress is currently debating lowering income limits to $100,000 for married couples and $50,000 for single taxpayers. If this part of the stimulus package goes through, the income threshold would also stand for student loan forgiveness.

Student Loan Forgiveness Unlikely to Include Debt Incurred for Graduate School

The wording of the proposed legislation makes it appear that only debt incurred for undergraduate studies would be eligible for potential cancellation. The government reasons that people attend graduate school to obtain professional careers and therefore have the means to repay their loans. Since approximately 50 percent of all student loan debt in the United States belongs to graduate students, the country could not realistically afford to cancel it as well.

Payment Freeze on Student Loans Extended through September 30, 2021

The latest pause on student loan payments and interest accrual was set to expire on January 31, 2021. President Biden extended the freeze by eight months via executive order as soon as he took office. This came after research undertaken by the Department of Education revealed that more than 60 percent of borrowers would face significant struggle resuming student loan payments now due to financial hardships caused by the coronavirus pandemic.

Accolade Financial understands that it can be challenging to keep track of these fast-moving changes. We welcome you to contact us for a consultation where we will help you understand all your college financing options and repayment responsibilities.