There’s good news for student loan borrowers.
Here’s what you need to know — and what it means for your student loans.
The biggest takeaway from President Joe Biden’s surprise decision to extend student loan relief for another 90 days isn’t necessarily what you think. Yes, through May 1, 2022, student loan borrowers won’t have to make any federal student loan payments. Yes, student loan borrowers won’t have any new interest accrue on their federal student loans. Yes, there’s won’t be any collection of student loans in default through garnishment of wages or Social Security checks. However, there’s another huge benefit for student loan borrowers that is less visible. Let’s explore.
Student loan cancellation: $15 billion for borrowers
Student loan relief due to the Covid-19 pandemic, which Congress first passed in March 2020 through the Cares Act stimulus package, has another hidden benefit for more than 40 million student loan borrowers: student loan cancellation. (Student loans are paused, but here’s 6 things to do now). With the extension of student loan relief, federal student loans won’t have any new interest accrue. The U.S. Department of Education estimates that student loan borrowers collectively will save $5 billion a month in interest costs. With a three-month postpone of the student loan payment pause, that equates to $15 billion of total student loan cancellation. This is in addition to $110 billion of student loan cancellation that student loan borrowers will have received from March 2020 through January 31, 2022, the latter of which was the date that Biden’s second extension of student loan relief was scheduled to end. (Here’s who qualifies for student loan forgiveness right now).
Student loan relief has hidden student loan cancellation
In addition to $5 billion a month in interest savings, student loan borrowers will be able to get student loan forgiveness faster by making fewer mandatory federal student loan payments. (Here’s how to get student loan forgiveness during the Biden administration). During every month of temporary student loan forbearance, student loan borrowers will get “credit” for a student loan payment — even if they didn’t make one. So, non-payment of student loans will count toward student loan payments to meet the requirements of public service loan forgiveness and income-driven repayment, for example. In total, federal student loan borrowers can qualify for more than two years of federal student loan payments even if they didn’t make any. In the case of public service loan forgiveness, that’s 20% of the total payments required to get student loan forgiveness. (More student loan relief could be coming).
Is this really student loan cancellation?
Some may label this type of student loan forgiveness as not “real” student loan cancellation. (Biden extended student loan relief, but advocates really want student loan cancellation). They recognize the interest savings or the counting of non-payments. However, they argue this is different from direct, wide-scale student loan cancellation. While this isn’t wide-scale student loan cancellation in the traditional sense, this will save student loan borrowers substantial money for their student loans. (Is student debt cancellation next?) Remember, this $125 billion of student loan cancellation as a result of Covid-19 student loan relief is in addition to Biden cancelling $12.7 billion of student loans over the past year. That targeted student loan cancellation has granted student loan forgiveness to public servants, student loan borrowers with a total and permanent disability, and student loan borrowers who were misled by their college or university.
Student loan relief won’t last forever. Make sure you have a game plan for student loan repayment before student loan relief ends. Here are some popular ways to pay off student loans faster: