Editor’s Note: This article was originally published on October 8, 2020, it has been updated to include President Trump’s support of student loan forgiveness as part of the Covid-19 relief bill.
The idea of $10,000 worth of federal student loan forgiveness to combat the economic fallout from Covid-19 has been in discussion for several months.
As of early October, the idea is still being discussed, most notably by Joe Biden. However, the most recent Coronavirus legislation out of the House of Representatives did not include any student loan forgiveness.
Fortunately for borrowers, the latest proposed Covid-19 relief package would include some student loan assistance.
The Legislation Recently Passed in the House
Last week the House of Representatives passed legislation to address the Coronavirus pandemic.
The house bill has little chance of becoming law because it was not the result of negotiations with Republicans. Additionally, President Trump has tweeted that he wants to table all negotiations until after the election. However, he has backed off of this position.
At this point, the current bill’s value is that it presents the best snapshot of the priorities within the Democratic party.
Democrats are looking to extend the current interest rate and payment freeze until September of 2021. Such a move would be a massive boost for all borrowers, including those who are chasing student loan forgiveness.
Additionally, Democrats want to expand the federal student loan relief to include the borrowers with FFEL loans and Perkins loans. This would shift the Covid-19 help to include all federal student loans, instead of just “federally held” student loans.
Learn More:The House Appropriations Committee has released a detailed summary of the latest version of the HEROES Act. Subtitle C, starting on page 17, is the section of note for student loan borrowers.
Joe Biden’s Plan for Student Loan Forgiveness as Covid-19 Relief
In a recent town hall, Biden explained that he was calling for $10,000 of federal student loan forgiveness to help Gen Z and Millenials affected by the Covid-19 pandemic.
Joe Biden addresses Gen Z at Florida town hall: “You’re the best educated, you’re the most open, you’re the least prejudiced generation in American history. The future is yours and I’m counting on it.” #BidenTownHall pic.twitter.com/8hhAXycAsw
— NBC News (@NBCNews) October 6, 2020
This relief would apply to borrowers from families making less than $125,000 per year.
How Likely is Student Loan Forgiveness as Coronavirus Aid?
Whether or not any debt is forgiven appears to hinge on the election.
Republicans have thus far been supportive of freezing interest and payments on federal student loans.
However, they have not called for student loan forgiveness. (Update: President Trump recently called for forgiving a small portion of federal debt, but the details of the plan have not been released, and support within the Republican party seems limited.)
The much-discussed $10,000 worth of federal student loan forgiveness likely depends upon two things happening:
- Joe Biden getting elected, and
- Democrats winning a majority in the Senate.
It is conceivable that forgiveness could happen even if Republicans stay in power. It is also possible that Democrats fail to follow through on their promises. However, the best hope for borrowers is likely Democratic gains.
What About Borrowers who Need More Help?
Plans offered by Elizabeth Warren and Bernie Sanders that called for massive debt cancellation appear highly unlikely.
The most likely help for borrowers will be:
- A maximum of $10,000 of federal student loans forgiven,
- An extended payment and interest freeze, and
- A new repayment plan with payments capped at 5% of a borrower’s discretionary income.
The big problem for many borrowers right now is private loans.
Unfortunately, there is little indication that help is on the way for private borrowers. Those who still have a job may be able to refinance their private loans at a lower interest rate.
However, the borrowers facing the toughest private loan hardships may be out of luck. Sadly, the best chance for these borrowers might be working directly with their lender.