Pay close attention to the new dunning checks. They can be a good predictor of what to expect in the event of a student loan cancellation.
Here’s what you need to know—and what it means for you.
Congress debates the new stimulus plan, and stimulus checks are in the foreground. Notice the difference between the Democratic and Republican proposals for stimulus checks. They provide an overview of what’s to come for any potential student loan cancellations:
- Amount: $ 1,400 stimulus checks
- Returned: $ 75,000 or less ($ 150,000 for spousal or married filers)
- Amount: $ 1,000 stimulus checks
- Returned: $ 50,000 or less ($ 100,000 for spousal or married filers)
Democrats want to provide more economic stimulus to a wider range of beneficiaries. Republicans, concerned about federal spending, want to target stimulus checks on those most in need of financial support. These competing prospects could also play with the cancellation of student loans. Why? Let’s learn more.
How Much Student Loan Cancellation Will You Get?
The first question is “How Much Student Loan Cancellation Will You Get?“There is no guarantee that Congress will write off student loan debt. One thing is certain: expect a student loan showdown. However, suppose for a moment that Congress is considering canceling student loans. President Joe Biden wants cancel student loans immediately. He has proposed $ 10,000 to cancel student loans in response to the Covid-19 pandemic, but wants Congress to cancel student loans through legislation. There have been several proposals in Congress to write off student loan debt, including a plan by Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) to write off until $ 50,000 in student loans for every borrower who earns less than $ 125,000. However, it’s not as simple as assuming that a student loan cancellation will be one of those amounts. Biden says he will not cancel student loans by executive order, and it is unlikely that he will support $ 50,000 in student loan cancellation.
Senate Republicans generally do not support outright cancellation of student loans. Yes the cancellation of the student loan is included in the new stimulus plan or taken up in Congress, one option is for Republicans to completely oppose any attempt to cancel student loans. An alternative option (although less likely) is for Republicans to dispute the amount of the student loan cancellation. Their proposal for stimulus checks can be a good barometer for their approach. Tax conservatives will be wary of $ 10,000 in student loan cancellations for every borrower, which could cost close to $ 400 billion. Therefore, under this assumption, Republicans might seek to limit the amount of the student loan forgiveness to a lower fixed number, such as $ 2,500 or $ 5,000. This same strategy happened with dunning checks and unemployment insurance. With UI, for example, Democrats offered $ 600 a week for improved UI and Republicans offered $ 300 a week. If Congress approaches student loan cancellation in a bipartisan fashion (with an emphasis on “if”), expect a battle over the student loan forgiveness amount.
Will you be eligible for your student loan cancellation?
Not everyone will get their student loan canceled. Plan accordingly. Despite what you may have read, it is unlikely that every student loan borrower will get a student loan discount. If Congress cancels student loans, expect requirements, qualifications, and limitations. There are several ways that Congress could limit student loan cancellation. For example, Congress could limit the cancellation of student loans to federal student loans only, or more specifically to certain types of federal student loans. Likewise, Congress could grant a student loan waiver only to borrowers with indebtedness to college and exclude borrowers with indebtedness for graduate studies.
Republicans have proposed limiting stimulus checks based on income. Republicans could try the same tactic with canceling student loans. If Republicans don’t completely oppose canceling student loans, they could support a lower income threshold to qualify. Warren and Schumer have Attachment of the cancellation of the student loan to $ 125,000 of annual income. It is possible, like stimulus checks, that the income threshold will be lowered to $ 50,000, for example. That doesn’t mean Democrats will agree to a lower threshold, but don’t be surprised if it is offered.
Student loan cancellation without republicans
There may be several changes to your student loans in 2021. Senator Bernie Sanders (I-VT) says Congress should passing $ 2,000 stimulus checks and canceling student loans without Republicans. Sanders believes Congress can cancel student loans through the budget reconciliation process, which could potentially save Democrats from needing 60 votes to pass major legislation. However, Congress does not have a universal plan for large-scale student loan cancellation. First, Republicans in the House and Senate are likely to oppose a large-scale student loan forgiveness. Second, Democrats must decide if they can find common ground as a party on canceling student loans. Progressive Democrats in Congress will push for higher student loan cancellation amounts for more student loan borrowers. Moderate Democrats may align with Biden’s plan, while some may opt for no student loan cancellations or come up with changes to income-driven repayment plans.
Will your student loans be canceled?
Will your student loans be canceled? Without internal consensus on the amount and terms of student loan cancellation, student loan cancellation will not become a reality in the short term. Biden proposed to cancel student loans in three ways. If Democrats don’t align with outright student loan cancellation, they could universally support other means of canceling student loan debt. However, if Recent tweets are one indication, it has become increasingly clear that canceling a student loan is not a foregone conclusion. Therefore, do not rely on automatic student loan cancellation. Instead, get a student loan game plan. Start with these three options, all free: