Student loan forgiveness could provide financial relief to eligible borrowers. It's something the current administration continues to push for, despite objections.
President Joe Biden supports canceling $10,000 in debt for those owing federal student loans, as well as canceling $10,000 in federal loans per year for public servants. He also supports tuition-free public college for students whose family incomes are less than $125,000 annually.
Getting such legislation through Congress is another story, though. Biden didn't include federal student loan forgiveness in his latest federal budget proposal, released May 28. The American Families Plan, which was signed into law on April 28, makes no mention of student loan cancelation.
Whether college debt relief will materialize remains to be seen. If it does, there are three key areas where it may fall short.
No help for past or future loan borrowers
The proposed $10,000 forgiveness program for federal student loan debt has been a focal point of the plan set out by the Biden administration, but not all borrowers will meet the eligibility requirements. This one-time debt relief measure, intended to help those struggling financially as a result of the COVID-19 pandemic, does not apply to past student loan borrowers or to those who plan to take out student loans in the future.
That means if you've already paid off your federal student loans, you won't be able to claim any student loan cancellation benefits retroactively. Likewise, any new student debt you take out to pay for school won't qualify for loan forgiveness either. If you're considering taking out new federal student loans or private student loans, using an online student loan repayment calculator can help with estimating monthly payments and interest costs.
Attending college will not become cheaper
According to CollegeBoard, the average in-state tuition and fees for students attending four-year public universities full-time was $10,560 during the 2020-21 academic year. Out-of-state students paid nearly three times that, averaging $27,020 for the year. Meanwhile, students attending four-year private universities paid $37,650 on average for tuition and fees.
While the Biden administration's plans for student loan forgiveness do include mention of making college tuition-free for some students, this isn't universal. And the plan does nothing to address the cost of college itself.
If you're a student or the parent of a student, that means you may be facing higher tuition costs year over year which can translate to a greater need for student loans. Taking on private loans may be necessary to fill the gap when federal student loan funds fall short. You can visit Credible to review private student loan options if you've hit federal loan limits.
It might not apply to everyone enrolled in college
Another potential shortcoming with the plan centers on the fact that student loan borrowers with private loans are excluded. If you have private student loans, then you won't meet the eligibility requirements for federal student loan forgiveness.
You can, however, consider refinancing private student loans to help make monthly payments more manageable. With student loan refinancing, you can get a new private loan to replace existing loans. This can result in saving money if you're able to qualify for lower rates.
Doing some comparisons with an online student loan refinance calculator can give you an idea of how much you might be able to save over the course of your student loan repayment period.
Those making over $25,000 may also be excluded from loan forgiveness for federal student debt. As the plan currently stands, those making under $25,000 per year would not be required to make payments on their federal loans and no interest would accrue. But considering that the average 20-something earns between roughly $32,000 and $46,000 per year, this income threshold might exclude a sizable number of borrowers.
Refinancing federal student loans is something you might consider. This involves taking out a private student loan to pay off federal loans. Just keep in mind that refinancing federal student loans could cause you to lose access to student loan repayment program options, including income-driven repayment plans and the temporary forbearance period prescribed by the CARES Act.
Student loan forgiveness could be on the way, but not for every borrower. If you currently have private student loans and you're struggling to make your payments, refinancing may be able to lower your loan payment and save you money on interest over time. You can visit Credible to compare student loan refinance rates and weigh your repayment options.
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