Student loan cancellation is possible. Should you stop making payments?


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President Biden has been vocal about his support for student loan relief policies — everything from extending the current federal forbearance period to increasing the value of Pell Grants. One of his more popular proposals is the push to cancel $10,000 of debt for all borrowers with federally owned student loans.

Borrowers with federal student loans may see this as a good time to stop making payments in order to maximize their potential forgiveness. But there are a few things to consider before going this route.

Biden is proposing two avenues for forgiveness

Among Biden’s proposals are two large plans for student loan forgiveness — and while the amount looks the same, not all borrowers would qualify for both types of forgiveness. His proposals currently include:

  • Ongoing student loan forgiveness: Biden wants to forgive $10,000 of undergraduate student debt for every year of national or community service the borrower completes, up to five years. And if you have up to five years of prior service, you’ll also qualify.
  • One-time forgiveness: Biden has proposed forgiving $10,000 in student loans for each federal loan borrower as part of pandemic relief measures.

There are a few ways student loan cancellation can happen. For one, Biden could sign an executive order to cancel student loan debt without Congressional approval. However, he has said that he doesn’t plan to do so. He is more likely to introduce a new stimulus package or wait for Congress to pass a resolution canceling student loan debt.

Student loan cancellation isn’t a popular topic among many Congressional Republicans. It’s been removed from previous stimulus packages and isn’t even included in Biden’s most recent proposal.

However, on Feb. 4, Democrats in both the House and the Senate introduced student loan debt cancellation resolutions. House Majority Leader Chuck Schumer and Sen. Elizabeth Warren reintroduced a bill to eliminate up to $50,000 in federal student loan debt — first introduced last year. It’s unclear whether either resolution has a path to passage.

So, should you still make student loan payments while waiting for forgiveness?

One of President Biden’s first actions in office was to extend the pause on federal student loan payments and interest rates through Sept. 30. This lets borrowers who are struggling to make ends meet avoid making the decision between falling behind on loans and keeping the lights on.

Because your student loans may be eligible for some form of forgiveness, it may be tempting to use this period of forbearance to stop making all payments. However, there are pros and cons to this approach.

Here’s what to consider:

  • Forgiveness is not guaranteed. While canceling student loan debt is top of mind for many lawmakers, any formal policy has yet to be written. It’s possible that Biden’s proposal to cancel $10,000 for all federal borrowers will pass — but it’s just as likely that the parameters for forgiveness will be modified. If you assume that you’ll have your debt forgiven and don’t have a plan to continue paying it, you could find yourself stuck with debt for longer.
  • Making payments lowers your total balance. Even if the $10,000 forgiveness passes, any student loan balance exceeding that will still have to be paid. Taking advantage of the zero-interest period now is a great way to chip away at your total balance and reduce the amount you’d be on the hook for later.
  • It’s all about weighing risk. Making the decision to stop payments in anticipation of student loan forgiveness is a personal risk. If you have no emergency savings built up, or if you’re having trouble paying other bills, it’s worth it to pause your payments right now regardless of any forgiveness policies. If you have a small balance — say $2,000 — you may also choose to put your student loan payments away in a savings account and wait it out until either repayment resumes or your balance is forgiven.

What are the best strategies for paying off student loans?

Since student loan cancellation is merely a mention and not set in stone, you’re still responsible for making payments when they’re due. And, importantly, if you have only private student loans, you likely won’t be eligible for any kind of student loan forgiveness.

Here are some of the best ways to deal with your student loans as the administrative forbearance period continues:

  • Pay private loans now. If you have a mix of private student loans and federal loans (or just private loans), you need to keep making those payments. Private lenders don’t operate with the same rules as federal student loans, meaning there’s no blanket forbearance period. Unless your lender has given you a break, you’ll need to keep making payments.
  • Refinance your loans. If you have only private student loans, you might qualify for a lower interest rate and potentially lower monthly payments if you refinance. Student loan interest rates are at historic lows right now, making this a great time to refinance. But hold off on refinancing your federal loans — not only will you have to immediately resume making payments with interest, but you’ll also lose eligibility for any future loan cancellation.
  • Save potential payments. Since you don’t need to make federal student loan payments right now, that money could go toward immediate needs, like paying for your home, utilities and car. You could also consider putting those payments into a high-yield savings account. That way when your payments resume, you can pay however much you’ve saved as a lump sum.

If you’re struggling to pay your private student loans now, you’ll need to reach out to your lender and see what options you have for your individual circumstances and needs. You might qualify for hardship assistance; eligibility varies by lender, but many have coronavirus-specific options in place.

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
Edited by
Student loans editor