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Biden explores canceling up to $50,000 per person in student loan debt: Here's where the process stands

"I certainly wouldn't count on forgiveness."

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For now, it's an open question if President-elect Joe Biden has interest in testing his presidential power to try to forgive student debt.
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President Joe Biden is looking into student loan cancellation.

The president has requested that Education Secretary Miguel Cardona prepare a report on Biden's legal authority to cancel up to $50,000 in student debt per borrower, White House Chief of Staff Ron Klain said in a Politico interview on Thursday. The plan is only in the exploration phase, he added.

"Hopefully we'll see that [memo] in the next few weeks. He'll look at that legal authority, he'll look at the policy issues around that, and he'll make a decision," Klain said.

The White House initiative comes as many Democrats in Congress, including Senate Majority Leader Chuck Schumer, D-NY, and Senator Elizabeth Warren, D-MA, have pressured Biden to bypass Congress and use executive action to cancel at least some student loan debt. The most recent stimulus package, known as the American Rescue Plan, set the stage for such action by making student debt cancellation tax-free through 2025.

"We do see a willingness out of this administration more so than any administration that I've worked with," says Natalia Abrams, the founder and executive director of Student Debt Crisis, an advocacy group that has been dedicated to reforming student debt and higher education loan policies since 2012.

If Biden were to sign off on a plan to forgive $50,000 in student loans per borrower, that would forgive all of the debt for 80% of federal student loan borrowers, or 36 million people, higher education expert Mark Kantrowitz told CNBC. (Forgiveness is equivalent to cancellation, as the Department of Education sees it; the two terms are often used interchangeably. If your loans are either forgiven or canceled, you no longer have to make payments.)

Federal loan relief runs out September 30

Part of the push for student debt cancellation comes as pandemic relief for student loan borrowers is set to expire. Since March of 2020, federal student loans have been in a forbearance period, which allows those with loans to temporarily stop making payments and sets the rate on qualifying loans to 0%, meaning they aren't accruing interest. The forbearance is scheduled to end on October 1.

Even before the pandemic, student loan debt was overwhelming many Americans. It reached an all-time high in 2020 of more than $1.7 trillion, according to Federal Reserve data.

How that breaks down per borrower: The average 2019 graduate of private or public colleges holds an average of $28,950 in debt, per the Institute for College Access & Success. And Kantrowitz calculates the average monthly student loan payment at $400 a month.

Student loan debt also disproportionately affects people of color. "Black women hold the most amount of student loan debt collectively, so while student loan debt cannot end the racial equity wealth gap, it can certainly help it, and the more debt we cancel, the more we can help with that," Abrams says.

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'I wouldn't count on forgiveness'

While policymakers work towards helping to relieve Americans of student loan debt, Abrams does not expect forgiveness will happen quickly. "We don't want anybody to think that the debt is going to be canceled tomorrow," she says.

Tobin Van Ostern, co-founder at Savi, a service that helps student-loan borrowers determine their best repayment options, agrees: "What I would recommend for anyone who has student loans is not to wait until September to take action," he says. "I certainly wouldn't count on forgiveness at this point. I would take action based on the rules that are on the books today," Van Ostern says.

In the meantime, if you've been financially affected by the pandemic, Van Ostern suggests applying for an income-driven repayment plan, which, when payments resume, would set your monthly obligation at an amount that is intended to be affordable based on your income and family size.

We do see a willingness out of this administration more so than any administration that I've worked with.
Natalia Abrams
Student Debt Crisis founder and executive director

Even while student loans are in forbearance, experts suggest keeping a place for that payment in your budget, but redirecting the funds to a useful goal or savings.

"Instead of sending a check each month to the bank to pay off your student loan, send the same amount of money to a savings account or buy a certificate of deposit that comes due in September," says Joshua Gotbaum, a guest scholar at the Brookings Institution, who has worked in five administrations under presidents of both parties.

And, even if Biden does go ahead with forgiving $50,000 worth of student loan debt per borrower, borrowers should be prepared for some rough patches as the government figures out how to apply that debt cancellation. "It's going to be a tricky thing to administer," says Van Ostern. "It's almost unprecedented. In what other situation would you have 30 million people not have to pay their loan and then the next month be told to start. I worry a lot about hiccups, problems, lack of knowledge."

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