Recently, some politicians have been vocal about canceling student loans. If you’re a student or former student who took out a federal loan for your schooling, that’s something that will certainly appeal to you.
However, you might not be clear on precisely what canceling a student loan means. We’ll talk about that right now.
Student loans are pretty common, and many people have to deal with the payments long after they graduate. There is typically a grace period of a few months after you graduate, during which you can look for a job and get ready to start paying back those loans. During this time, you might use a tool like a monthly loan repayment calculator to assess how much you must pay back each month to eventually get clear of that debt.
To put it as simply as possible, canceling a student loan means that you would not have to make any payments on it from that moment forward. In other words, you would be free and clear of that financial obligation.
Federal vs. Private Student Loans
At this point, we should differentiate between federal and private student loans. If you got a federal student loan to help you pay for your higher education, that means the federal government is the entity to which you owe money. If you got a private student loan, you received the money from another entity.
There are different companies that will allow you to borrow money if you decide not to get a federal student loan. If you find one that gives you a favorable rate, this can be a smart move.
If federal student loan forgiveness happens, though, you will still need to pay back the entirety of your loan if you borrowed from a private entity. When President Biden or other politicians speak about canceling student loans, they’re only talking about ones the federal government issued.
There’s one more thing about federal student loans that we should mention as well. If canceling federal student loans is something that eventually happens, you will not be expected to pay anything more on that loan since it will effectively disappear. The federal government will presumably keep any payments you already made.
Is This Going to Happen?
President Biden has seemed hesitant about canceling federal student loans in the past. It is mostly a younger, more progressive chorus of political voices that keeps pushing for this possibility.
As time has passed, though, some older and more established politicians have started to lobby for canceling federal student loans as well. Chuck Schumer, the Senate Majority Leader, has talked about canceling student loans of up to $50,000. President Biden could accomplish this through executive action.
It’s far from certain, but it’s also not inconceivable that the president might cave, especially as midterm elections approach or if he tries to run for reelection in 2024. Canceling student loans would help many individuals around the country who have struggled during the pandemic. Lockdowns and business closures have hurt the economy, and President Biden canceling federal student loans could be an easy win for him.
There’s Uncertainty Moving Forward
At the moment, student loan payments have been paused until May 1st. That is an extension from a previous deadline that the Biden administration set last year.
There’s no question that the economic relief afforded to millions of Americans if the president canceled federal student loans would win him some goodwill with voters. The question is whether the president thinks canceling the revenue currently due through loans to the federal government is worth it.
It’s genuinely difficult to tell how all this will play out. One thing is undeniable, though. If you’re one of the millions who currently owes the federal government money through a student loan, you’re likely hoping cancellation eventually happens.