How Biden’s Cancellation of Student Loans Can Change the Economy

Biden’s Cancellation of Student Loans

Since his inauguration, President Joe Biden has been active in canceling student loans through changes to student loan forgiveness.

The country’s Department of Education will select up to 500,000 student loan borrowers to have their loans canceled. In aggregate, the students will get a reported value of $6.2 billion in cancellations, roughly $10,000 per borrower.

Prominent Democrat officials have become active voices for students who struggle to pay off their student loans. U.S. Rep. Alexandria Ocasio-Cortez and independent senator Bernie Sanders recommend canceling all student loans, while Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer agree that every student loan borrower should have $50,000 of their debt canceled. 

Sen. Warren even released a tweet last June 2021 saying: “Student loan debt is holding back tens of millions of people across this country who can’t buy homes, buy cars, or start small businesses.”

There is also relevant data that backs her claims: 14.8 million Americans aged 25 to 34 are still paying off their student loans. What’s more, the average lender will take 18.5 years to pay off their student loan debt.

How student loan cancellations change the economy

Millions of Americans have dealt with the burden of paying off their student loans for multiple years. According to the Brookings Institution, student loan debt makes up the second-biggest share of household debt, making families in low-income areas tentative about enrolling their kids in college. 

Aside from clearing up around $10,000 in debt from student loans, here’s why canceling or paying off a portion of student loans can help the economy:

  • The price of premier education has risen, while wages have remained stagnant
  • It boosts the country’s gross domestic product (GDP) 
  • The cancellations are only targeted to individuals who need them the most
  • It decreases unemployment rates as borrowers can repurpose the money to construct a house or start a small business  

How to get approved for student loan forgiveness

Before you apply for student loan forgiveness, make sure you comply with the following requirements:

  • Make 120 monthly student loan payments while enrolled in an income-driven repayment plan
  • Work for a qualified service or non-profit employer

For an approved application, it needs to be perfect.

Applicants can file until October 31, 2022, to apply for limited student loan forgiveness. 

Take note of some of these common mistakes when filling out your application:

  • Incomplete paperwork (grammar errors, typos, missing information, etc.)
  • Ineligible student loan 
  • Failure to enroll in an income-driven payment plan (IBR, REPAYE, or what your loan officer recommends)
  • Assume their employers are non-profit or qualified public servants

What are the new changes to Student loan forgiveness?

The following changes to student loan forgiveness from the Biden administration are the following:

  • Get credit whether payments were made for Direct, FFEL, or Perkins loan
  • Count student loan payments made under any student loan repayment plan
  • Receive student loan forgiveness if you’re not employed or employed by a qualified employer at the time of application
  • Late or partial student loan payments paid before student loan consolidation are now counted, even if you were on the wrong repayment plan

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