There is good news for student borrowers.
Here’s what you need to know – And what does that mean for your student loans?
The biggest benefit from President Joe Biden’s surprise decision to extend student loan forgiveness for another 90 days Not necessarily what you think. Yes, until May 1, 2022, student loan borrowers will not have to make any federal student loan payments. Yes, student loan borrowers will not have any new accrued interest on their federal student loans. Yes, there will not be any group of student loans defaulting through withholding wages or Social Security checks. However, there is another big benefit to student borrowers and it is less obvious. Let’s explore.
Student loan cancellation: $15 billion for borrowers
The student loan forgiveness due to the Covid-19 pandemic, first passed by Congress in March 2020 through the Cares Act stimulus package, has another hidden benefit for more than 40 million student loan borrowers: student loan cancellation. (Student loans are paused, but here are 6 things to do now.) With the extension of student loan forgiveness, federal student loans will have no new interest. The US Department of Education estimates that student borrowers will collectively save $5 billion in interest costs. With three months of student loan repayment paused, that equates to $15 billion in total student loan cancellation. That’s on top of the $110 billion in student loan cancellation that student loan borrowers will receive from March 2020 through January 31, 2022, the latter of which was the date Biden’s second extension of student loan forgiveness was due to expire. (Here’s who qualifies for student loan forgiveness now.)
Student loan forgiveness hid student loan cancellation
In addition to the $5 billion in interest savings per month, student loan borrowers will be able to get student loan forgiveness faster by making lower mandatory federal student loan payments. (Here’s how to get student loan forgiveness during the Biden administration.) During each month of taking on a temporary student loan, student loan borrowers will receive “credit” to make the student loan payment — even if they don’t pay off a loan. Therefore, student loan non-payments will count toward student loan payments to meet the requirements for public service loan forgiveness and income-driven repayments, for example. In total, federal student loan borrowers can qualify for more than two years of federal student loan payments even if they haven’t repaid any. In the case of public service loan forgiveness, this represents 20% of the total payments required to obtain student loan forgiveness. (More forgiveness may come from the student loan.)
Is this really student loan cancellation?
Some may describe this type of student loan forgiveness as a “real” student loan cancellation. (Biden has extended the student loan forgiveness, but advocates really want to cancel the student loan.) They learn about interest savings or a non-payment account. However, they argue that this is different from the widespread outright student loan cancellation. Although this is not a large-scale student loan cancellation in the traditional sense, this will save student loan borrowers significant money for their student loans. (Is student debt cancellation next?) Remember that this is $125 billion student loan cancellation as a result of student loan forgiveness from Covid-19 as well as Biden canceling $12.7 billion in student loans over the past year. Targeted Student Loan Cancellation has granted student loan forgiveness to public officials, student loan borrowers with complete and permanent disability, and student loan borrowers who have been misled by their college or university.
Student loan forgiveness will not last forever. Make sure you have a game plan to pay off your student loan before your student loan forgiveness expires. Here are some popular ways to pay off student loans faster:
Student loans: related reading
Is canceling student debt next?
Student loans are paused, but here are 6 things to do now
Do this while waiting for student loan forgiveness
Biden Extended Student Loan Forgiveness, But Advocates Really Want Student Loan Canceled