Student Loan Debt
Are you one of the millions of Americans who struggle to make ends meet every month due in part to massive student loan debt? Help could be on the way.
Many federal student loan borrowers were allowed to pause their payments in 2020 due to the COVID-19 pandemic. Experts expect the pause to last through at least January 2021. But a temporary pause might not be the only relief on tap in 2021.
Originally, the US Department of Education extended it through the end of January. This was in addition to the previous extension by the presidential administration. It’s expected that the new administration will further extend it, but it’s uncertain for how long.
Keep in mind, when the extension expires, individual borrowers have the option of requesting personal forbearance or deferment. If you aren’t sure about your financial situation, you can contact your loan service provider to discuss your options. You might also be able to adjust your payments based on your income. If you do this, you’ll pay less per month for up to 25 years and the remaining amount will be forgiven.
Will What I Owe Be Canceled?
Nothing is for certain at this point. However, there’s talk of the new administration canceling a significant amount of student loan debt by executive order. Lawmakers have pressured the president-elect to take action on up to $50,000 in debt per borrower. This is significantly more than then-candidate Joe Biden called for in March 2020 when he tweeted his support for $10,000 in loan forgiveness in a COVID-relief package. The House of Representatives passed similar relief in its HEROES Act in May. Unfortunately, though, the loan forgiveness plan ultimately did not pan out.
It’s expected that the proposed $2000 COVID-relief stimulus will take priority over student loan relief in the New Year. However, that doesn’t mean loan forgiveness is off the table.
What Are My Options If My Student Loan is a Problem?
As everyone awaits what the new administration will do regarding student loans, you have options for relief if you are struggling.
The CARES Act allows employers to give workers more than $5000 a year in tax-free student loan repayment (and tuition assistance). This means your employer could pay a significant part or all of your student loan payment each month without it increasing your taxable income. The Consolidated Appropriations Act passed in December 2020 extended this benefit through 2025.
Financial experts are expecting the passing of the simplification of the student loan repayment process proposed by then-candidate Biden during the campaign. His plan automatically sets payments and interest rates to zero for anyone earning less than $25,000 per year. The plan also included changes to the eligibility rules for income-driven payments and a streamlining of the Public Service Loan Forgiveness Program. Republicans and Democrats support the simplification of the existing repayment plan process, so it’s expected that change will come, even if it is not the exact plan proposed during the campaign.
The future looks bright for those struggling with student loan payments. Still, there is a great deal of uncertainty. If you’re immediate financial challenges due to unaffordable student loan payments, waiting might not be an option. There’s a chance filing for bankruptcy could help you get your situation under control. Most student loan debt is non-dischargeable in bankruptcy. However, filing can dramatically alter your financial situation and allow you to re-prioritize your debt obligations.