Education Secretary Betsy DeVos (Photo by Mark Wilson/Getty Images)
What changes are coming to your student loans?
Here’s what you need to know.
There are several hot button issues regarding your student loans. With multiple proposals in Congress and on the presidential campaign trail, it’s possible that some student loan changes may be coming soon. The outcome of the 2020 election, the trajectory of the COVID-19 pandemic and the speed of economic recovery are several factors that could impact your student loans. If these proposals become law, they could have a major impact on your financial life. Here are some key student loan issues to watch:
Student Loan Forgiveness
Student loan forgiveness is one of the hottest topics in student loans. There are many ways to get student loan forgiveness, but most options take many years. There have been multiple proposals to cancel student loan debt, particularly in Congress. For example, U.S. House Democrats proposed $30,000 of student loan forgiveness, while a U.S. Senate student loan forgiveness plan would forgive at least $10,000 of federal student loans for all borrowers. Most recently, the Heroes Act included a proposal to cancel $10,000 of student loans for your federal student loans and $10,000 of private student loan forgiveness. However, before the bill was passed in the House, House Democrats amended the Heroes Act and weakened the final provision for student loan forgiveness. The Heroes Act is unlikely to become law in its current form, which is one reason that you should not expect any new student loan forgiveness soon. Will student loan debt get cancelled? Stay tuned.
Cancel Student Loan Debt In Bankruptcy
Can you cancel student loan debt in bankruptcy? Traditionally, you can’t discharge your student loans in bankruptcy. However, for certain borrowers, it is possible to receive student loan forgiveness through the bankruptcy process based on financial hardship. Former Vice President Joe Biden also has called for student loans to be discharged in bankruptcy. There is also bipartisan support in Congress to allow borrowers to discharge their student loans in bankruptcy. This is an issue to watch, particularly during the economic recovery from COVID-19.
“Free College” was a hot button issue on the presidential campaign trail and in Congress. Senators Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) both called for tuition-free college. Biden has said that we should forgive all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for borrowers who earn less than $125,000 per year. However, most “tuition-free” college proposals assume that state governments would “pay” (with the federal government) a portion of this student loan forgiveness. Given the economic impact of Coronavirus on many state coffers as well as concerns about whether many colleges and universities can even reopen this fall, “free college” may be on the back burner for now.
The CARES Act – the $2.2 trillion stimulus package – provided many benefits for student loan borrowers. For example, Congress paused all payments for federal student loans through September 30, 2020. Congress also set interest rates at 0%, so interest will not accrue on your federal student loans during this period. Some states have even reached agreements with student loan servicers to pause payments for private student loans. It’s possible that Congress could extend the forbearance period for federal student loans beyond September 30. The Heroes Act includes a provision to extend the period by one year. That said, any decision to extend would be based on several factors, including the pace of economic recovery by this fall, other stimulus spending such as a second stimulus check, and the level of bi-partisan support.
Lower Interest Rates
There’s good news on the horizon about interest rates on student loans. Student loan rates on new federal student loans will drop to their lowest rate ever. That means if you are borrowing a student loan this fall, you’ll be paying lower interest. The same applies to variable interest rate loans, which are also low due to interest rate cuts.
How to pay off student loans faster
What’s the best way to pay off student loans faster? Start with these four options, all of which have no fees:
In an election year with a public health crisis, high unemployment and economic hurt, anything can happen with your student loans. In the meantime, make sure you’re not hoping or waiting for student loan relief that may not come. Invest the time to create a student loan debt repayment plan so you can pay off your student loans faster.