Will this be the summer of student debt cancellation? | Personal Finance

The “will he, won’t he” summer of student debt cancellation is upon us.

The “he” is, of course, President Joe Biden.

Some 43 million borrowers are hanging onto hope that Biden will take executive action to relieve at least some of their collective $1.7 trillion debt.

Rumors fly on social media. The Department of Education says it will be ready whenever a cancellation happens. And the White House has been leaking potential details to the press.

“It comes up all day, every day from borrowers,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit. “They’re getting frustrated about the messaging.”

So what is Biden waiting for?

President Biden campaigned on the promise of student debt relief, but his commitment to deliver it wavered once he took office.

Biden at first asked Congress to send him student debt relief legislation — rather than acting on his own — despite the unlikelihood of such a proposal passing with a slim Democratic majority. But, in doing so, he raised questions concerning his legal authority to take executive action to cancel the debt. In addition, he said he would not support canceling debt for borrowers with an Ivy League education.

It seemed as if debt cancellation might remain a pipe dream of borrowers and shift.

But in recent months, Biden’s prior public resistance to canceling student debt through executive order has softened. Most hints from the White House lately have been about the timing and logistics rather than the legal mechanism.

So, will he? Most observers say yes. The real questions now are when, how much, and how many will benefit?

Signs show borrowers could see a cancellation announcement as early as this summer.

Persis Yu, policy director and managing counsel at Student Borrower Protection Center, a nonprofit advocacy organization, says she thinks an announcement is likely before the federal payment pause ends after Aug. 31.

“We need to see some action before that happens so that we don’t have borrowers making payments on loans they don’t owe anymore,” says Yu. “Hopefully the White House is taking the time to make sure they’re getting it right.”

The White House is clearly in no hurry.

On April 28, Biden told reporters he would have an answer on student debt cancellation “in a couple of weeks.” On May 3, Jen Psaki, former White House press secretary, said Biden was considering tying relief to a borrower’s income level. It seemed an announcement was imminent.

The Washington Post reported on May 27 that Biden had hoped to cancel during the University of Delaware commencement the following day but opted not to in light of the shooting at an elementary school in Uvalde, Texas, earlier that week.

By June 6, a White House leak to The Wall Street Journal pushed expectations to July or August. That would put an announcement closer to the anticipated restart of federal student loans on Sept. 1.

While campaigning in 2020, Biden promised to forgive $10,000 in federal student loans. Once he became president, the $10,000 number stuck, despite calls from some Democratic lawmakers to cancel $50,000. Biden has consistently rebuffed this higher figure throughout his presidency.

Recent White House leaks to the press suggest that $10,000 is the figure borrowers can expect.

The cancellation of $10,000 would likely wipe the slate clean for a potential 15.2 million borrowers, federal data shows. For 30.5 million others, $10,000 in cancellation would put them closer to repaying their debt, so long as interest doesn’t accumulate faster than they can repay.

The White House told The Washington Post in a May 27 article that it was debating limiting cancellation to borrowers who earned less than $150,000 in the prior year or less than $300,000 for borrowers who filed jointly.

Income limits complicate cancellation. Borrowers would have to consent to the Internal Revenue Service sharing their income information with the Department of Education. Otherwise, the Education Department won’t have access to it. This barrier to entry means borrowers could miss out on cancellation even if they’re eligible.

“I get why they are talking about means testing for it because it takes some of the political arguments off the table,” says Mayotte. “But it means borrowers will have to take some kind of action.”

Several moving parts could influence Biden’s decision to cancel debt (or not):

• The federal student loan payment pause is set to end on Aug. 31; economists say many borrowers aren’t prepared and another extension is possible, even likely.
• Midterm elections in November — and the calculus around political pushback.
• Aggressively rising inflation, which recently spurred the Federal Reserve to announce the highest interest rate hike in the decades.
• Potential legal challenges to any cancellation. But it’s hard to tell whether that could impact delivery to borrowers. Yu, an attorney, says she is confident Biden has the legal authority to cancel the debt.
• Whether the Education Department and student loan services have the resources to take on a cancellation application process.

It’s worth noting that the Biden administration has already canceled more student loan debt than any other presidential administration through targeted forgiveness programs: Roughly 1.3 million borrowers have already received around $25 billion in debt cancellation.

• $6.8 billion for more than 113,000 public servants through a limited waiver for Public Service Loan Forgiveness that expires Oct. 31.
• $8.5 billion for more than 400,000 borrowers with a total and permanent disability.
• $7.9 billion for 690,000 borrowers whose institutions defrauded them or closed before they could get their degrees.

Unless you have $10,000 or less in student loan debt, you still have to consider what you’ll do when payments restart. Use the time while you wait to make a plan, which means contacting your servicer now to find out about repayment options. It’s unlikely that cancellation will change the amount you will pay each month.

If you work for a public service employer, now is also a good time to apply for the PSLF waiver, which would previously count inligible payments toward the 120 needed for cancellation.