Editorial Note: Forbes Advisor may charge a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.
Compare personalized student loan refinancing rates
Takes up to 3 minutes
For student loan borrowers, 2020 has been an unprecedented year, but 2021 could bring even more dramatic changes.
In response to the Covid-19 crisis, the federal government student loan borrowers received a mandate from the government pause their payments from last March, which should last until January. Now that Joe Biden has been President elect and economic uncertainty persists, debate on student loan cancellation has become essential.
Although Biden has repeatedly said he favors the forgiveness of $ 10,000 in federal student loans, he offered no forgiveness plans, or any other college-related help for that matter, when he announced a $ 1.9 trillion stimulus package Thursday. The “US bailout” includes $ 1,400 stimulus checks for many Americans, extended unemployment assistance, and housing assistance designed to help Americans affected by the coronavirus pandemic.
David Kamin, whom Biden recently appointed deputy director of the National Economic Council, told reporters on Friday the president-elect “supports Congress by immediately canceling $ 10,000 in federal student loan debt per person in response to the COVID crisis,” but provided no specific details.
Here’s what else to expect in 2021 as a student borrower.
Federal Covid-19 student loan forbearance could be extended again
This year could be a relief for students and borrowers in many areas, but a lifeline is about to expire without further action: the suspension of federal student loan payment. Initially in place from March 20 to September 30, 2020, President Trump extended the break until December 31, 2020. The US Department of Education then extended it until January 31, 2021.
The incoming administration is expected to extend this deadline on “day one,” Kamin said, although it is not known how long the extension could last.
Yet, eventually, tolerance will end. When this happens and you anticipate continued financial hardship such as a reduction or loss of income when payments resume, contact your student loan manager as soon as possible.
If the difficulties will be temporary, ask if you wish to opt for adjournment or abstention suspend payments for longer. If you don’t know when your income will reach its previous level, subscribe to income-based reimbursement to get a lower payment for 20 to 25 years, and sorry for the remaining balance after that.
The debate over canceling student loans will likely continue
Some lawmakers have pressured President-elect Biden to forgive up to $ 50,000 in federal student loans by decree once he takes up his duties. He has not publicly supported the plan, making it clear through transition officials that he favors the $ 10,000 forgiveness per borrower passed by law. Some advocates have called on Biden to take executive action to write off student loan debt. It doesn’t seem likely.
The cancellation of student loans was not included in any of the stimulus packages enacted in 2020. But the version of the HEROES law that was passed by the House of Representatives in May called for the cancellation of up to $ 10,000. federal student loan debt and $ 10,000 in private debt per borrower. . The law provided that if the borrower had less than $ 10,000 in outstanding loans, their entire balance would be wiped out.
While that plan did not become law as part of the final version of the law, Biden said he supported $ 10,000 in pardon during a speech on his economic recovery strategy on November 16. And with Democrats controlling both the House and the Senate, some type of student loan cancellation in 2021, especially in the fight against coronavirus, could be on the table.
This is not assured, however, since Democrats have small majorities in both houses of Congress, and other priorities for Covid-19 relief may take precedence over student loan policy, at least initially. .
Businesses May Offer Tax-Free Student Loan Repayment Benefits
The CARES Coronavirus Relief Bill, signed last March, has allowed employers to give workers up to $ 5,250 a year in student loan repayments or tuition assistance. This means that if an employer offers student loan repayment assistance of $ 200 per month as an employee benefit, for example, the benefit will not increase the taxable income of the employees.
The consolidated finance law promulgated at the end of December 2020 extends this advantage by five years, until 2025. To take advantage of it, you must be employed in a company that offers a repayment assistance program; those in higher tax brackets will also benefit the most from tax savings, according to one analysis by the Brookings Institution. This makes this program less useful for borrowers who have difficulty making payments.
Federal student loan repayment plans could be simplified
Linked to Biden student loans campaign promises included clarification of the currently complex set of student loan repayment programs available to federal borrowers.
He proposed an opt-in repayment plan that would automatically set payments and interest rates at zero for borrowers earning $ 25,000 or less. All other federal borrowers would be charged 5% of their discretionary income after their first $ 25,000 and would then receive a tax-free rebate on the remaining balance after 20 years.
This is a substantial change from the current range of options, including several income-driven reimbursement programs with different eligibility rules. Biden also supports the streamlining of the Public service loan forgiveness program so that eligible borrowers are more likely to receive a pardon.
While it’s hard to predict whether the exact changes Biden proposed will materialize, Democrats and Republicans have introduced legislation supporting repayment plan simplification in recent years. President Trump also included the consolidation of income-based repayment plans in his 2021 budget request to Congress.
There is no doubt that lawmakers from both parties support this change. But whether or not he gets passed may be another priority issue in Biden’s busy first year.