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Should I Wait for Debt Cancellation or Student Loan Forgiveness for All?

Many top Democrats are calling for President Biden to erase student debt with a stroke of his pen. Waiting to pay off your student loans might make sense for some borrowers.

Written By: Michael P. Lux, Esq.

Published:

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Should I Wait for Debt Cancellation or Student Loan Forgiveness for All?

Many top Democrats are calling for President Biden to erase student debt with a stroke of his pen. Waiting to pay off your student loans might make sense for some borrowers.

Written By: Michael P. Lux, Esq.

Published:

Affiliate Disclosure and Integrity Pledge

President Biden has already significantly expanded opportunities for student loan forgiveness. Additional student loan help is likely on the way.

Many politicians are calling for $10,000, or even $50,000, in student loan forgiveness for all.

These developments are great news for borrowers. They also justify thinking twice before paying off your student loans. Nobody wants to spend thousands to pay off their student loans and then find out a few months later that they missed out on student loan forgiveness.

However, waiting and hoping for loan forgiveness is a potentially risky and expensive debt elimination strategy.

The Cost of Waiting for Student Loan Forgiveness

Your student loans generate interest every single day.

Thus, if you have money in the bank and choose not to pay off your student loans, you are choosing to spend extra money on your student loans in the hope of forgiveness.

In other words, you are betting on student loan forgiveness.

Without a crystal ball, we can’t say for sure whether it is a good bet or not. We might look back and think it was foolish hoping for politicians to make our lives better. We might look back and wish we didn’t rush repayment during the worst of the student loan crisis. Nobody knows.

The only certainty is the daily interest on student loans.

Don’t Forget the Federal Interest Freeze: Until February 1, 2022, there are no interest charges on federally-held student loans.

Borrowers can delay payments during this time without spending money on interest.

The Chances of Student Loan Cancellation Happening

Student loan forgiveness for all isn’t likely to happen, but it is a possibility.

Prominent politicians like Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren have repeatedly called for President Biden to cancel $50,000 of student loans through an executive order.

President Biden has taken the position that he supports $10,000 of student loan forgiveness for all. However, he wants Congress to pass a bill authorizing forgiveness.

The debate about whether or not the President can cancel student debt via executive order is one of many obstacles in the way of forgiveness. Not all Democrats support student loan cancellation and Republicans are uniformly opposed.

In short, there is some support for student loan forgiveness, but it appears limited, and supporters don’t even agree on how it should happen or how much.

Sherpa Thought: I’ve spent nearly a decade closely monitoring student loan legislation and proposals.

Based on the discussion so far, I think that 2024 is the earliest that forgiveness might happen, and the only way things change in 2024 is if a president is elected who is more aggressive about debt cancellation.

Thus far, President Biden seems more focused on fixing known problems with current programs to help borrowers.

The Benefits of Delaying Payments and Waiting

Even though debt cancellation is unlikely, hoping for student loan forgiveness isn’t necessarily a risky decision.

For some borrowers, waiting to pay off student loans opens up new opportunities. Pursuing other financial goals before paying off your student loans leaves the door open for forgiveness.

Borrowers have several reasonable options:

Putting money in an Emergency Fund – A well-funded emergency fund helps ensure that a minor setback doesn’t become a financial catastrophe. Leaving money in a savings account earning almost no interest is frustrating, but an emergency fund is essential — even for student loan borrowers.

Saving for Retirement – Balancing the crisis of the present, student loans, with the crisis of the future, retirement, is a challenge for many. If you delay knocking out your student loans and put the money to work in a retirement account, you leave the door open for forgiveness and strengthen your finances.

Buying a House – The math on this option gets tricky fast — especially because student debt has a huge influence on getting a mortgage. However, some borrowers may decide that the possibility of student debt cancellation justifies shifting their focus to saving for a home.

Loan Balance and Debt Elimination Strategy

If the possibility of student loan forgiveness is a consideration, the size of your loan balance also matters.

Balances of $10,000 or less are the most likely to benefit from cancellation. If forgiveness somehow happens, these smaller balances drop to $0.

Balances between $10,000 and $50,000 are less likely to be erased in full. That said, these balances fall within the range of the options discussed.

Balances above $50,000 are highly unlikely to get forgiven. Borrowers with larger balances should focus on finding a more realistic strategy to eliminate their debt.

Other Opportunities for Student Loan Forgiveness

Chasing after student loan forgiveness isn’t necessarily a bad idea. An executive order canceling loans for all borrowers may never happen, but there are other options for forgiveness.

This page tracks the various federal programs available for student loan forgiveness.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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