82°F
weather icon Mostly Cloudy

Student loan forgiveness: What’s outlook for federal vs. private debt?

Updated July 1, 2022 - 11:24 am

Student loan forgiveness: What’s the outlook for federal vs. private debt?

Student organizations, labor unions, groups that represent nurses and teachers, special-interest groups and lobbyists of every imaginable persuasion are chiming in on President Biden’s push to forgive student debt for millions of Americans.

Cash App borrow: How to borrow money on Cash App

Learn: Here’s how much cash you need stashed if a national emergency happens

On April 6, the Department of Education announced that President Biden had extended the pause on student loan repayment, collections and interest until Aug. 31, which gives him less than three months to finalize a plan. The pause — a vital part of the pandemic recovery programs — applied only to federal loans and did not impact private student debt. Will that same standard apply if the president decides to forgive five-figure student loans for millions of borrowers, as it now appears he will?

Probably yes, but there are a whole lot of variables. Let’s explore the potential scenarios.

So, is there a plan?

On April 16, 10 days after the president announced an extension of the repayment pause, Forbes reported on a “bombshell announcement from the White House” that the administration was considering wide-scale student debt cancellation.

If President Biden has decided on a course of action, he’s keeping his cards close to the vest. According to CNBC, he’ll probably run most of the time off the clock and delay his announcement until July or August.

How much debt will borrowers shed?

According to Forbes, President Biden has signaled support for eliminating $10,000 in student debt per borrower. He rejected a proposal from his party’s progressive wing to eliminate $50,000, but that plan might be gaining traction once again.

Live Updates: Inflation, Gas Prices, Social Security and More

According to Forbes, champions of the $50,000 plan argue that forgiving:

— $10,000 would eliminate student debt for 13 million borrowers

— $20,000 would eliminate student debt for 20 million borrowers

— $30,000 would eliminate student debt for 24 million borrowers

— $40,000 would eliminate student debt for 28 million borrowers

— $50,000 would eliminate student debt for 30 million borrowers

According to The Hill, the president has already canceled $25 billion in student debt, mostly for federal student loan recipients defrauded by their schools, borrowers with disabilities, and borrowers who qualified for the Public Service Loan Forgiveness program (PSLF).

Biden has a lot to consider

As with everything today, the topic of student loan forgiveness is politically charged and polarizing — but national consensus and political will aren’t the only things President Biden has to weigh when making a decision. According to Bloomberg, the president’s plan has to consider:

Whether the plan he pursues can stand up to the legal challenges that are sure to come

If federal budgets will be able to endure the financial cost of widespread loan forgiveness

Whether his actions will add more fuel to the rate of inflation

Will the plan exclude higher earners and private loans?

According to Bloomberg, Biden will design the plan to help low- and middle-income borrowers. It will, therefore, most likely exclude anyone earning $125,000 a year or more. There’s also the question of whether or not to include loans borrowed for graduate school.

However, in terms of limitations and exclusions, one thing is certain — the plan is almost sure to forgive only publicly funded federal student loans and exclude borrowers who took out private loans from banks and other commercial lenders. According to Forbes, the Higher Education Act, which Biden is drawing on for the legal authority to forgive federal loans, does not grant the executive branch the authority to waive private debt.

There is no way to convert private student loans into federal student loans, so any cancelation of private debt would require Congressional legislation.

According to Newsweek, however, only a small portion of America’s student debt — about 8% — is owed through private student loans. That’s about $133 billion in private debt compared to $1.6 trillion in federal student debt.

More From GOBankingRates

10 best countries to live on just a Social Security Check

Stimulus updates to know for summer 2022

Take these 5 key steps today to retire a millionaire

This article originally appeared on GOBankingRates.com: Student loan forgiveness: What’s the outlook for federal vs. private debt?

Don't miss the big stories. Like us on Facebook.
THE LATEST
Bay laurel trees struggle with hot temperatures

Q: Our sweet bay laurel trees face east and are watered by a drip irrigation system on a separate line for trees only. Obviously, these trees are not doing well. They were originally 24-inch boxed trees planted in 2013. Our HOA contends they are close to the end of their lives, and they will be removed. Any ideas?

Several possible reasons recirculating pump not working

There are several possible reasons for not getting hot water after a new water heater installation. Recirculating pumps need electricity to run, and so it may be as easy as plugging the unit back in or testing the outlet for power.

School district reports 1st monkeypox case, in Summerlin

The Clark County School District said Friday it was notified by the Southern Nevada Health District of a confirmed case at Palo Verde High School.

CDC drops COVID-19 quarantine, screening recommendations

The nation’s top public health agency on Thursday relaxed its COVID-19 guidelines, dropping the recommendation that Americans quarantine themselves if they come into close contact with an infected person.

 
9 ways to pamper your pup for National Dog Month

The idea of a story about “dog-friendly” places in Las Vegas stopped making sense around the time Fashion Show mall started allowing pets. So we’re taking a look at places where you can absolutely spoil your canine companions.