President Joe Biden’s administration has announced major changes to a federal student loan forgiveness program that could relieve borrowers of more than $4.5 billion in debt.
The overhaul also will help hundreds of thousands of other Americans move closer toward seeing their student loan balances wiped clean, the U.S. Department of Education says.
That would give them more financial room to save, invest or get a handle on their other debts.
But who qualifies? And what’s happened to the idea that Biden might erase student loan debt in a more sweeping manner, for tens of millions of people?
Relief for those who have ‘had our back’
The Education Department says it’s shaking up the government’s Public Service Loan Forgiveness program, which was launched in 2007 on a promise that student loan debts of various public service employees would be canceled after 10 years on the job, and after 10 years of qualifying payments.
That promise has largely been unkept. Government data released earlier this year showed more than 98% who requested forgiveness through the program were turned down, primarily because of bureaucratic hassles.
“Teachers, nurses, first responders, servicemembers, and so many public service workers have had our back especially amid the challenges of the pandemic,” Education Secretary Miguel Cardona says in a statement. “Today, the Biden Administration is showing that we have their backs, too.”
Thanks to changes announced by Cardona’s department this week, 22,000 borrowers are now eligible for $1.74 billion in immediate student cancellation. Another 27,000 will see $2.82 billion in loans erased if the workers’ length of employment in government service checks out.
Plus, the rules on what constitutes “qualifying payments” under the program are being eased, so 550,000 public service employees will move an average two years closer toward having their loan balances forgiven, officials say.
Broad loan forgiveness remains a question
When you include the new, immediate cancellation, the administration says so far this year it has forgiven more than $11.5 billion in student loans. That may sound like a lot, but it’s puny next to the total U.S. student loan debt of $1.7 trillion, owed by 45 million people across the country.
During the campaign and earlier this year, President Biden expressed interest in canceling $10,000 in federal student loan for every borrower. Democrats in Congress have been urging him to go bigger — and knock out up to $50,000 per person.
Biden could do that “with the flick of a pen,” according to a line that Senate Majority Leader Chuck Schumer has been using over and over, for months.
“It would free these Americans to finally buy that house, save on the kids’ education, get going on starting a small business or going into the profession that they desire,” Schumer said during an event in September. “It could unleash a wave of economic activity missing from our country today.”
Biden hasn’t been enthusiastic about the $50,000 idea, but he asked Secretary Cardona — months ago — to look into it. There’s been no update, and no real movement in Washington toward wide-scale loan forgiveness, either $10,000 or $50,000.
How to deal with your student debt in the meantime
If you haven’t been eligible for any of this year’s piecemeal loan forgiveness and you need relief from overwhelming student debt, there are a few things you could do to make your life a little easier.
First, consider refinancing your student loans. Interest rates on student loan refinances from private lenders have been hitting record lows this year, so replacing your debt with a new private student loan can slash your monthly payments.
Refinancing a federal student loan into a private one would make you ineligible if federal loan forgiveness ever happens.
If you’re a homeowner, take a look at whether to refinance your mortgage, if you haven’t already done that. Rates on home loans are still historically low, and throughout the pandemic millions of borrowers have typically reduced their mortgage costs by hundreds per month through refinances at lower rates.
The best rates go to borrowers with the highest credit scores. If you haven’t seen your score in a while, it’s easy these days to take a peek at your credit score for free and see where you stand.
Finally, you might try some low-stakes investing to drum up a little extra income in the stock market. One popular app helps you build a diversified portfolio by merely investing your “space change” from everyday purchases.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.