By Zack Friedman, Forbes
The new stimulus package says this about student loans and student loan cancellation.
Here’s what you need to know — and what it means for you.
The new, $1.9 trillion stimulus package that President Joe Biden proposed doesn’t include any student loan cancellation. The stimulus plan instead focuses on other policy priorities like $1,400 stimulus checks and $400 a week unemployment insurance. Senate Republicans have proposed a separate $618 billion stimulus package — about a third the size of Biden’s stimulus plan — that also excludes student loan cancellation and offers $1,000 stimulus checks as a response to the Covid-19 pandemic.
So, what does this all mean for student loan cancellation?
1. Congress may not cancel student loans in the stimulus package
Biden wants Congress to cancel student loans immediately. Biden also has a comprehensive plan for student loans. Under his proposal, student loan borrowers would get $10,000 of student loan forgiveness in response to the Covid-19 pandemic. The operative word in this statement is “Congress,” meaning that the legislative branch, not the president through executive order, will be tasked with student loan cancellation. It’s still possible that Congress passes student loan cancellation in the stimulus package. However, there are several roadblocks. First, Republicans don’t support widescale student loan cancellation. Second, Biden’s stimulus proposal doesn’t include student loan forgiveness. Third, Congress dropped student loan cancellation from the last stimulus package. While Senate Majority Leader Chuck Schumer (D-NY) says student loan cancellation is a top priority, Schumer has focused on pushing a $50,000 student loan cancellation plan on Biden. For example, Schumer tweeted at Biden — a fellow Democrat — to cancel student loans, even though Biden said he’s unlikely to do so and wants Congress to act instead.
2. Watch stimulus checks for guidance on student loan cancellation
Stimulus checks and student loan cancellation don’t seem to have much in common. The former is extra money; the latter is debt forgiveness. However, the proposals in Congress for stimulus checks — and the ensuing legislative dance — shed light on how Congress may operate during the first two years of the Biden administration. The $2,000 stimulus checks may be bad news for student loan cancellation. Democrats control the White House and Congress. While the new congressional term is only weeks old, Republicans, as the minority party, will continue to be vociferous. Senate Minority Leader Mitch McConnell (R-KY) will be as active as minority leader as he was as majority leader. Expect a student loans showdown. For example, Republicans proposed two changes to stimulus checks in the new stimulus package: smaller stimulus checks ($1,000 stimulus checks) and lower income threshold ($50,000 for individuals and $100,000 for married or joint filers). Why? Republicans want to limit federal spending and target economic relief to those who need it most.
3. Student loan cancellation may be available for fewer student loan borrowers
Not everyone may get student loan forgiveness. Before there’s any student loan cancellation, Congress needs to agree on how much student loan forgiveness and who qualifies. In a push for national unity, Biden prefers bipartisan legislation in Congress. This doesn’t mean he won’t sign legislation that only Democrats support. However, while there are many changes for student loans this year, Biden may prefer legislation that incorporates input from both parties in Congress. This could have potential implications for student loan cancellation. For example, Republicans want a lower income threshold to qualify for stimulus checks. Schumer and Sen. Elizabeth Warren (D-MA) want student loan cancellation for borrowers with an annual income of less than $125,000. If Congress passes student loan cancellation, will Congress shrink the pie through various qualification hoops? For example, will Congress lower the income threshold for student loan cancellation to $100,000 or $50,000? Will only federal student loans be included? Will there only be certain types of federal student loans (excluding FFELP loans and Perkins Loans)? There are different ways to expand or limit student loan forgiveness. If stimulus checks are limited by size, income threshold, or both, this could be a preview of what may come with student loan cancellation.
4. Bernie Sanders: Cancel student loans without Republicans
Sen. Bernie Sanders (I-VT) has perhaps the most aggressive student loan cancellation plan, both substantively and procedurally. Substantively, Sanders proposed to cancel all $1.7 trillion of student loans. This is considerably higher than any of the current proposals in Congress, which would cancel $10,000 or $50,000 of student loans per borrower with less than $125,000 of annual income. Procedurally, Sanders has a plan to get stimulus checks and student loan cancellation without Republicans. Sanders proposed using budget reconciliation to pass stimulus checks — which effectively can be done without Republicans. Sanders says budget reconciliation can be used for student loan cancellation. While budget reconciliation to cancel student loans wouldn’t be bipartisan, there’s no guarantee that Schumer would adopt this approach or that Biden would endorse it.
Will your student loans get cancelled?
Will your student loans get cancelled? Biden has proposed to cancel student loans three ways. This means Congress could cancel student loans through one or more of these proposals. There’s no guarantee, however, that Congress will cancel student loan debt. If there is student loan cancellation, it’s unclear what qualifications will be imposed and how many student loan borrowers may get excluded. Therefore, make sure you are prepared and have a game plan for your student loans, if Congress doesn’t cancel student loans or limits student loan cancellation. Start with these three options, all of which have no fees: