Stimulus checks and student loans stimulus packages don’t seem to possess much in common. the previous is extra money; the latter is debt forgiveness. However, the proposals in Congress for stimulus checks — and therefore the ensuing legislative dance — shed light on how Congress may operate during the primary two years of the Biden administration. The $2,000 stimulus checks could also be bad news for student loan cancellation. Democrats control the White House and Congress. While the new congressional term is merely weeks old, Republicans, because the minority party, will still be vociferous. Senate legislator Mitch McConnell (R-KY) are going to be as active as legislator as he was as legislator . Expect a student loans showdown. for instance , Republicans proposed two changes to stimulus checks within the new stimulus package: smaller stimulus checks ($1,000 stimulus checks) and lower income threshold ($50,000 for people and $100,000 for married or joint filers). Why? Republicans want to limit federal spending and target economic relief to those that need it most.
Before there’s any student loan cancellation, Congress must agree on what proportion student loan forgiveness and who qualifies. during a push for national unity, Biden prefers bipartisan legislation in Congress. This doesn’t mean he won’t sign legislation that only Democrats support. However, while there are many changes for student loans this year, Biden may prefer legislation that comes with input from both parties in Congress. this might have potential implications for student loan cancellation. for instance , Republicans need a lower income threshold to qualify for stimulus checks. Schumer and Sen. Elizabeth Warren (D-MA) want student loan cancellation for borrowers with an annual income of but $125,000. If stimulus checks are limited by size, income threshold, or both, this might be a preview of what may accompany student loan cancellation.
This stimulus package for student loans did not cover private loans. In general, private borrowers could not benefit much from the government aid programs. Unfortunately, private loan borrowers do not have many options to deal with debt as the federal borrowers do. Yet, read till the end of this guide to get familiar with private loan opportunities.
Additionally, Federal Family Education Loans do not qualify for the stimulus package for student loans if commercial lenders distributed them. Currently, such loans are owed by more than 6 million debtors. In other words, at least 6 million federal loan borrowers who got the debt from commercial lenders cannot benefit from the COVID-19 relief.
How to Get Eligible in Stimulus Package for Student Loans?
Although many old federal debt types do not qualify for a stimulus package for student loans, borrowers can benefit if they consolidate. It is possible to consolidate existing loans to make them Direct Consolidated loans. In this case, the borrowers can freeze the payments and enjoy 0% interest during the forbearance period.
However, debtors should keep in mind that they can lose the points earned for Income-Based Repayment or Public Service Loan Forgiveness programs. Usually, in such forgiveness opportunities, payments made after consolidation are considered. All payments before consolidation are left out in counting the number of qualifying payments.
Implications for Defaulted Loans
Some borrowers apply to student loan rehabilitation to get rid of default status on their debt. After making payments for nine months, borrowers achieve this goal. These payments should be consecutive, which is why debtors were worried that the forbearance due to COVID-19 would be a barrier. On the contrary, the forbearance period even supports the rehabilitation process. $0 payments during the non-collection period count for the rehabilitation requirements.
Collections through Different Means
When borrowers cannot repay the debt, the lender can get the payment through wage garnishments or tax refunds. Debtors should be aware that the non-collection period also involves different repayment ways. In other words, the collection through salary or tax refunds is also stopped.
How does Employer Contribution Work?
The stimulus package for student loans involves tax deductions for employers contributing to an employee’s student loan repayment plans. In March 2020, such a stimulus was granted till January 2021 (which is again prolonged for five years).
The advantage of this contribution is still questionable. Some experts claim that this element is more for employers’ favor rather than employees. The contribution to student loans can reduce employees’ mobility and pressure them to stay with the employer. Besides, employers might use student loan repayment contributions as an excuse for higher wages or other benefits.
January 2021- Forbearance Extension
In his first days of presidency, Joe Biden requested the Education Department to extend the debt collection process till the end of September. Before the relief was announced, many people were worried that they would be obliged to repay the debt starting January 2021.
More optimistic experts thought that Biden would be able to extend the collection suspension period till March-end. Luckily, the government prolonged the debt non-collection period, even for a longer period- 8 months. Currently, borrowers are not obliged to make debt payments till September end.
Like previous forbearance periods, people will not be obliged to repay the debt for eight months. During this 8-month suspension period, no interest will accrue. Suspension on collection also applies to wage garnishments and tax refunds. The difference is that this time, the extension is much longer, and there is a reason.
We always advise the borrowers to use the forbearance periods as an opportunity to think about debt resolution tools and develop a plan. However, this period is not only beneficial for debtors. Sure, the government also needs to plan how to resume the debt collection.
When people deal with natural emergencies, the loan default rates spike as soon as debt collection starts. If the lenders start to collect payments in September, there is a high chance that many borrowers will be unable to pay. Hence, default rates can increase. Therefore, such a long suspension period allows the officials to invest time developing sound plans for student loan borrowers.
Federal debt forgiveness programs exist to bring up to 100% debt reduction. Usually, forgiveness is granted in return for service. For example, the Public Service Loan Forgiveness allows full debt cancellation after serving a minimum of 10 years and making 120 qualifying payments. In turn, Teacher Loan Forgiveness reduces the debt by $5,000 or $17,500 in return for five years of service.
There is another program called Borrower’s Defense to Repayment, which does not require mandatory service. This program is accessible to borrowers if they face misconduct by the school. If a school lies about true education costs, job replacement rates, etc., the debtor can oppose the debt repayment. In this case, the Education Department reviews the case and grants some discharge percentage.
Like forgiveness programs, discharge options can bring up 100% debt cancellation. However, eligibility to discharge is out of the control of the borrower. For example, debtors can make 120 payments while choosing to work in a qualifying workplace for the PSLF program.
Meanwhile, borrowers cannot progress toward loan discharge due to death, disability, bankruptcy, closed school, false certification, etc. These conditions either happen or not, and if they happen, the debt is forgiven.
Repayment plans, especially Income-Driven repayment, serve multiple functions for federal borrowers. First, borrowers get simpler terms to repay the debt effectively. As the monthly payment amount is based on the income level, debtors do not face many difficulties affording it. Besides, after some payment period, borrowers get a chance to eliminate the rest of the debt.