Misconceptions about student loan cancellation

Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

Among President Joe Biden’s student loan policies is the idea of student loan cancellation. Biden wants to tackle student loan cancellation from two angles: a one-time relief measure canceling $10,000 of debt for all federal student loan borrowers and an ongoing option canceling up to $10,000 per year for up to five years for borrowers involved in national or community service.

Biden’s proposals haven’t made their way to Congress yet, but the idea of student loan forgiveness has been popular among several Congressional Democrats. With that said, student loan cancellation does come with a few key caveats. Here’s what to know.

What student loan cancellation won’t do

The current talks of a plan for student loan forgiveness do not include a plan to get rid of all student debt now and forever. It has many limitations and restrictions, and it won’t solve all student debt problems for borrowers.

It won’t cancel all debt

It’s easy to assume that student loan forgiveness means eliminating all student debt, but that won’t be the case. As of 2020, the student loan debt amount totaled over $1.7 trillion, which would be a hefty bill for the government to foot.

Biden has discussed canceling $10,000 of student loan debt per borrower, while others, such as Sen. Chuck Schumer and Sen. Elizabeth Warren, have pushed to forgive $50,000 of student loan debt per borrower. If you’re tens of thousands of dollars in debt, you may still have student loans left to pay even if cancellation measures pass.

It won’t help past or future borrowers

Biden’s proposal for a sweeping $10,000 for all borrowers would be part of pandemic relief measures. That partial forgiveness would be offered as a one-time deal. It wouldn’t apply to those who have already paid off their student debt, and it wouldn’t offer forgiveness to any future borrowers either.

A similar situation is true for the ongoing $10,000 forgiveness for borrowers participating in public service — most likely, this forgiveness would not apply retroactively.

It may not apply to all current borrowers

Not all borrowers will qualify for student loan forgiveness. For one, private student loans are not included in any of the current proposals, and it’s unlikely that they would be in the future. Additionally, it’s possible that there could be an income threshold for forgiveness — meaning if you make above a certain amount, you may not be eligible.

It won’t change the price of college

Biden has discussed the need for cheaper or free college education, and two years of free community college is included in his 2022 budget proposal. However, there are currently no plans to reduce the cost of four-year colleges, so borrowers will continue to amass debt even if forgiveness passes.

How to manage your student loans without forgiveness

It’s hard to say what will happen with student loans in the future, as Biden has stated that he will not enact a student loan forgiveness plan through executive order and would like Congress to pass the plan. The feasibility of such a plan is still uncertain, but there are a few things you can do to manage your student loans in the meantime.

Apply for student loan reimbursement if you are eligible

Borrowers with loans from institutions that engaged in misconduct may be able to see their loans forgiven. On March 18, 2021, the U.S. Department of Education streamlined the process for borrowers in this situation to receive relief through what’s known as “borrower defense to repayment.” Under the previous administration, many borrowers who qualified for the provision failed to receive the full loan discharge promised.

If this applies to you, you should receive a notification from the Department of Education over the next few weeks. You can learn more about eligibility for this type of loan forgiveness at the Federal Student Aid website.

Take advantage of the interest-free period

Most federal student loans are currently exempt from interest charges and required payments. These terms will remain in place until at least Sept. 30, 2021.

If you are able, use the interest-free period as an opportunity to get ahead on your student loans. Pay as much as you can now before interest starts accruing again, or put the money you would be paying toward other debt — including private student loans or credit card debt.

Apply for a different repayment plan

While federal student loan borrowers are automatically enrolled in the standard 10-year repayment plan, you have other options if you’re struggling with monthly payments, including income-driven repayment plans. These plans use your income and family size to create a student loan payment plan for you. After 20 or 25 years (depending on the plan you choose), the remainder of your student loans will be forgiven.

There are also student loan forgiveness plans for borrowers in certain careers. These plans included Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF) plans. Consider applying for one of these programs if you are a teacher or have a career in public service.

Also note that any student loan debt forgiven between now and Dec. 31, 2025, will not be considered taxable income. This change is part of American Rescue Plan and includes debts forgiven through any federal student loan forgiveness program.

Refinance your loans

Both federal and private student loans can be refinanced through private lenders. While refinancing your federal loans will cause you to lose the current 0 percent interest period, it could be smart to refinance your private loans. Refinancing your private student loans could help you get a lower interest rate or a longer repayment period, which would decrease your monthly payment.

Use deferment or forbearance

If you have trouble making your student loan payments, consider applying for deferment or forbearance with your lender. Both allow you to forgo making payments on your student loans, though it’s possible that interest will continue to accrue. Most federal loans are in administrative forbearance automatically through Sept. 30, 2021, but forbearance options for private loans vary by lender.

Learn more:

Written by
Emma Woodward
Contributing writer
Emma Woodward is a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet.
Edited by
Student loans editor
Reviewed by
Nationally recognized student financial aid expert