If you have one of these student loans, they may not be canceled.
Here’s what you need to know.
As Congress and President Joe Biden consider large-scale student loan forgiveness, you may not be eligible for student loan cancellation if the following describes you. While there is no guarantee, this is the latest on student loan forgiveness based on the latest proposals:
Private student loans
If you have private student loans, don’t expect student loan cancellations. sen. Bernie Sanders (I-VT) and others in Congress want to cancel $1.7 trillion in student loans. However, the leading bill in Congress from Senator Elizabeth Warren (D-MA) and Senate Leader Chuck Schumer (D-NY) calls for student loan forgiveness for federal student loans. So if you have private student loans, you will need to consider other student loan repayment options. With record low interest rates, student loan refinancing is a smart option for your private student loans. With student loan refinancing, you can get a lower interest rate, get a lower monthly payment, choose a fixed or variable rate, and choose a student loan repayment term of 5-20 years.
Certain Federal Student Loans
Here’s a shock to some student loan borrowers: Not all federal student loans are likely to qualify for any student loan cancellation. That may sound confusing, but there is a difference between federal student loans. For example, most FFELP loans and Perkins loans are not owned by the federal government. FFELP loans were primarily issued by banks prior to 2010, and may be owned by financial institutions or outside investors. Perkins loans are issued through colleges and universities. Student loan borrowers with FFELP loans or Perkins loans are largely excluded from the student loan exemption of the Cares Act, including interrupted student loan payments. Federal student loans such as direct loans, subsidized student loans and unsubsidized student loans are expected to be eligible. The U.S. Department of Education is reviewing Biden’s legal authority to cancel student loans, so it’s possible that: These 5 Changes In Student Loan Forgiveness Can Happen.
You earn more than $125,000 per year
Any student loan cancellation is expected to have an income cap. If that sounds unfair to you, understand that it’s part of the Warren and Schumer proposal. For example, under their plan, only student loan borrowers earning up to $125,000 per year would be eligible for large-scale student loan cancellations. Like the incentives, an income cap means that millions of student loan borrowers may not get student loan waivers.
Parent PLUS borrowers and parent loans
Most of the discussion about student loan forgiveness has centered on: student loan borrowers. However, parents also borrow to pay for college and graduate school. There are two main types of loans for parents to finance education. Parent Loans are private loans borrowed from a private lender while Parent PLUS Loans are offered through the federal government. Parental loans are considered private student loans, so they are unlikely to be included in a student loan cancellation. That leaves Parent PLUS Loans, which are owned by the federal government. The latest student loan debt statistics show that there are approximately $100 billion in Parent PLUS loans outstanding. Parents who owe Parent PLUS loans can retire and therefore have limited income, even if they have higher net worth. Warren and Schumer’s plan probably includes these Parent PLUS loan borrowers, but there’s little discussion about how to help parents with student loans compared to student loan borrowers.
There is no explicit mention of excluding graduate loans from student loan cancellation. However, there are references to the focus on undergraduate student loans. Why? For example, borrowers pursuing graduate degrees in law, business, medicine, or dentistry have higher incomes on average. It’s possible that Biden or Congress, to appease fiscal conservatives, will limit the type of student loan cancellation degree. Of course, not all graduate students are high-income earners, but there may be restrictions on certain programs.
If you have student loans, consider these smart options when paying off student loans:
Student Loans: Related Literature