What is Biden’s impact on student loans in 2022
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Since President Joe Biden’s administration announced its federal student loan forgiveness plan on Aug. 24, there has been much speculation about the details of its plan alongside significant enthusiasm from supporters.
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However, attention has recently shifted to a more critical approach, with some economists voicing the potential pitfalls of the president’s pardon strategy – including negative effects on borrowers’ credit scores, inflation, the federal deficit and potential state taxes imposed on borrowers.
As such, Republican lawmakers opposed to Biden’s plan could also try to block it, making the actual execution of the president’s agenda an uncertain prospect.
Let’s take a look at Biden’s federal student loan forgiveness plan, considering some of its key elements.
How much student debt can I cancel?
The Biden administration has announced it will forgive up to $10,000 in federal student loans in most cases, and up to $20,000 for Pell Grant recipients who meet certain income requirements. According to CNBC, 43 million borrowers could qualify for student loan forgiveness. The majority of them – more than 60% – hold Pell grants. About 27 million debtors may be eligible to receive up to $20,000 in financial relief, according to the White House.
Borrower eligibility and income limits
Biden’s loan cancellation plan targets low- and middle-income borrowers. The administration said nearly 90% of the loan relief will go to people earning less than $75,000 a year. Anyone earning more than $125,000 (or $250,000 for a household) is not eligible for this loan forgiveness.
Types of loans concerned
About 37 million borrowers will be eligible for federal student loan relief. Only federal student loans are eligible. Loans from private banks and lenders are not eligible. According to The Independent, loans for graduates and undergraduates can be waived, as well as Parent PLUS loans taken out by parents or guardians.
Reimbursement of payments made during the loan moratorium
According to the U.S. Department of Education’s Federal Student Aid (FSA) site, “You can get a refund for any payment (including direct debit payments) you make during the payment break (starting March 13, 2020). ).Contact your loan servicer to request a refund of your payment.”
According to Best Colleges, the US bailout does not consider any student loans canceled between December 31, 2020 and January 2, 2026 as income and these will not be federally taxed as such. However, some states may consider canceled student loan balances as taxable income.
According to the Tax Foundation, the 13 states that can require borrowers to receive loan relief with taxes are: Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York , Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin.
Credit Ratings, Inflation and Deficit Problems
Additionally, some experts say the president’s plan may have unfortunate consequences for things like borrowers’ credit scores, the rate of inflation and the federal deficit.
As GOBankingRates previously reported, Raghunandan “Raghu” G – CEO and co-founder of Zolve – said that having no regular student loan repayments in a borrower’s credit mix would hamper their overall score and the Biden’s forgiveness plan would make it harder for borrowers. to build a strong credit history (and resulting score).
Others believe that the sweeping loan relief package will have a detrimental effect on inflation and will essentially run counter to the Inflation Reduction Act (IRA) recently signed into law by the president. The Committee for a Responsible Federal Budget (CRFB) says that Biden’s student debt policy will likely increase the inflation rate by 15 to 27 basis points over the next year, and that it will “undermine the benefits of the IRA and will demonstrate a lack of seriousness”. to meet the economic challenges of our country,” according to an August 26 statement. Suggesting otherwise, the Roosevelt Institute insists that the effects on inflation will be relatively small, according to a previous GOBankingRates report.
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The cost of implementing Biden’s student loan forgiveness plan — and its effect on the federal deficit — is potentially significant. The CRFB estimates that canceling the debt, extending loan repayment until the end of 2022 and expanding the income-contingent repayment (IDR) program could cost between $440 billion and $600 billion. The Wall Street Journal, using the “widely regarded” Penn Wharton budget model, flagged a potential cost that could exceed $1 trillion.
Government officials, however, are adamant that the total cost will be much lower and that a $1.7 trillion deficit reduction is already underway for this year. This would mean the student loan cancellation plan is “fully paid off”, according to National Economic Council deputy director Bharat Ramamurti, who spoke at a press hearing on Aug. 26.
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