Should I Plan on Student Loan Forgiveness?

Be careful before you make long-term financial decisions based on the possibility of loan forgiveness.

Expectations for student loan forgiveness have been high, and they reached fever-pitch in March when President Biden unveiled his $1.8 trillion “American Families Plan.”

Given the enormous size of the bill, many Americans anticipated the inclusion of loan forgiveness. However, while the American Families Plan provided over $300 billion in support for higher education, none of the money will be directly applied to student loan forgiveness.

Though loan forgiveness remains part of the national conversation, most college graduates are nevertheless expecting to resume their monthly payments starting February 1, 2022

The Current State of Loan Forgiveness

Loan forgiveness remains a top priority for high-ranking Democrats across the country. As of late July, Senate Majority Leader Chuck Schumer amplified his party’s aims to provide up to $50,000 in loan forgiveness:

“With the stroke of a pen, [President Biden] can follow through on his promise and bring life-changing relief for tens of millions of Americans struggling with student loan debt.”

If only it were so simple. According to House Speaker Nancy Pelosi, “People think that the President of the United States has the power for debt forgiveness,” she said. “He does not. He can postpone, he can delay, but he does not have that power.”

Instead, Pelosi emphasized that such action can only be enacted through Congress. The President himself has questioned his executive authority to forgive student debt, and by his command, the U.S. Department of Education and Justice Department have been reviewing the legality of such an action.

If the Education and Justice departments determine the President does not have the authority to forgive student loans, the matter will then officially transfer to Congress.

Expect Senators Schumer and Warren to continue the call for loan forgiveness throughout the fall. Even if such legislation were agreed upon, however, the likelihood that all federal loans get canceled remains slim, and a number of eligibility requirements will likely be installed.

While it seems increasingly unlikely that President Biden will authorize a $50,000 forgiveness policy on his own, he recently extended the loan payment pause and interest waiver moratorium through January 31, 2022 (beyond its original expiration date this fall).

What This Means for Borrowers

President Biden’s proposed relief package could help reduce future student loan debt in two ways: first, by providing two years of tuition-free community college, “so that every student has the ability to obtain a degree or certificate.”

Secondly, it would increase the maximum Federal Pell Grant by $1,400 (thus increasing the average Federal Pell Grant by about $900).

While it’s undoubtedly tempting to hold out for potential student loan forgiveness (and progressive policies that may make higher education considerably more affordable or even free), the current debt crisis remains a sobering call to action.

The numbers speak for themselves – the average borrower holds a debt balance of $38,792 upon graduation and many with much higher numbers.

Many surveys show that the #1 regret of college graduates is taking on too much debt that they have to repay afterward.

The Power of Planning

Proper planning long before college is something that we have been encouraging people to do for years now. Families should know what they can expect, and even more importantly what they can afford or how much they want to commit to College Funding and what the effect will be on their Retirement Planning.

Here are some Vital Questions we need to ask as we plan for our futures.

The consequences of not planning correctly – both for College AND Retirement can be felt for many, many years afterward and could have serious consequences for our futures and the futures of our kids.

Let’s Talk

What is one of the biggest mistakes that most people make after reading this? They ASSUME that they cannot be helped. We have no idea whether we can help a family or not until we have a personal discussion with them to see what their unique circumstances are and then develop a personalized plan for their family.

Please feel free to contact me if you would like to discuss how we can help you with your family’s plan for Retirement or for College, either in person, over the phone, or on Zoom

About Dave

Dave Coen is a Retirement Income Certified Professional (RICP®) and Financial Advisor with SageView Advisory, and CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.