With all the headlines on student loan cancellation, let’s separate fact from fiction.

Here’s what you need to know and what it means to you.

Student loans

Before hoping to cancel a student loan, it is important to recognize the following elements to fully understand the latest news in student loan cancellation:

1. No guarantee that the student loan will be canceled

President Joe Biden wants to immediately cancel student loans. Likewise, Democrats in Congress want to cancel student loans now. However, this is where the deal ends. While Biden wants $ 10,000 in student loan cancellation, some Democrats including Senator Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) want $ 50,000 in cancellation student loan. The differences don’t end there. Biden wants Congress to pass student loan cancellation legislation, while Democrats want Biden cancel $ 50,000 in student loans by decree. Warren and Schumer, using a textualist approach to the legislative interpretation of the Higher Education Act of 1965, claim that Biden already has the power of Congress to cancel student loans through executive order. Biden says he’s unlikely to do so, implying that he doesn’t think the president has the unilateral power to write off billions in student loans. Instead, Biden, a former U.S. senator from Delaware, likely agrees that Congress is the appropriate branch of government to decide federal spending. The good news for borrowers is that Biden considers cancellation of student loan by decree. However, there is no guarantee that Biden can unilaterally cancel student loans or any guarantee that Congress has enough voice to cancel student loans.

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2. You Won’t Get Your Student Loan Canceled For All Your Student Loans

This may come as a surprise to many student loan borrowers, but there is no question of canceling all student loan debts. (Here is what the new stimulus package says about canceling student loans, if that indicates where things stand). It is important to clarify this point so that borrowers can level their expectations. Senator Bernie Sanders (I-VT) has proposed to write off the $ 1.7 trillion in student debt. However, Congress is not considering his proposal, and Schumer, Warren or Biden are not expected to endorse this position. The Warren-Schumer and Biden proposals also focus solely on federal student loans. That said, Congress could adopt this other student loan forgiveness proposal by Sanders.

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3. Not everyone will get a student loan discount

Another potential surprise for student loan borrowers is that not everyone will get a student loan discount. It’s not as simple as saying “student loan forgiveness” or “no student loan forgiveness”. Even though Congress approves student loan cancellation and Biden signs the legislation, there will be limitations. For example, only federal student loans will likely be eligible. Second, there may be income limitations on eligible persons. Currently, Warren and Schumer claim that only borrowers who earn $ 125,000 or less per year would qualify. If Congress lowers the income threshold for stimulus checks in the new stimulus package, it could be bad news for student loan cancellation. It is possible that Congress will also lower the income threshold for canceling student loans. For example, Congress could potentially limit the qualification to $ 50,000 for individuals and $ 100,000 for married or spousal filers, which is the same income limit proposed for the new stimulus package.

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4. The cancellation of the student loan can only concern the university debt.

If you only have graduate student loans, you can’t get student loan forgiveness. It is possible, although not guaranteed, that Congress cancels student loans for university debt only. Many of Biden’s student loan cancellation proposals apply only to student loans. Why? Almost 50% of student loan debt is held by graduate student loan borrowers, many of whom earn higher incomes as doctors, lawyers, and dentists. Therefore, if Congress cancels student loans, Congress could focus on college debt only to exclude high-income borrowers with professional degrees.

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5. Congress could change repayment plans based on income

It’s important to remember that if you have federal student loans and are having trouble paying off your student loans, income-based repayment plans offer a student loan forgiveness. These plans include Income Based Reimbursement (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income Based Reimbursement (ICR ). While the student loan forgiveness is not immediate, you can get student loan forgiveness after 20 years (college student loans) or 25 years (graduate student loans) of monthly payments. With income-based repayment plans, your monthly payment can be as low as $ 0 and is based on discretionary income, family size, and state of residence. Biden has a plan to improve income-driven repayment plans for borrowers. In addition to (or instead of) the initial student loan cancellation, Congress could choose to modify existing repayment plans based on income. Potential changes, for example, include capping monthly payments at 5% of discretionary income or tax exemption for borrowers.

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Will your student loans be canceled?

Will your student loans be canceled? The reality is this: it is not clear. This is not to scare you; student loan borrowers are under enough pressure to try to repay their student loans. Rather, the goal is to provide more transparency based on current circumstances so that you know what to expect if you don’t get your student loan canceled. It is possible that Congress will cancel student loans, but currently Congress is focused more on pressuring Biden to cancel student loans rather than passing stand-alone legislation. Biden proposed Three Ways to Cancel Student Loan Debt, so Congress could also adopt other student loan discounts. Until that happens, however, it’s unclear if or when student loan cancellation will become law. So, in the meantime, make sure you have a student loan game plan. Start with these three options, all free:

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Related reading

What the new stimulus package means for your student loans

Biden considers cancellation of student loan by executive order