Nightmare Scenario: No Student Loan Cancellation And Student Loan Payments Restart
Imagine this nightmare scenario: no student loan cancellation, and your student loan payments restart.
Here’s what you need to know — and what it means for your student loans.
President Joe Biden has a monumental decision in the coming weeks. The president is expected to decide whether to enact wide-scale student loan cancellation for millions of student loan borrowers. The White House has denied that Biden has decided to cancel $10,000 of student loans for student loan borrowers. However, Biden could forgive $10,000 for student loan borrowers, and if progressive Democrats in Congress get their way, it could be up to $50,000 of student loan cancellation. That said, Biden also must weigh whether to extend the student loan payment pause or let it expire as planned. While many student loan borrowers expect wide-scale student loan cancellation and an extension of the student loan payment pause, preparing for another scenario is essential. What if Biden decides there won’t be any student loan cancellation, and your student loan payments will restart on September 1, 2022? It could happen — and for many borrowers, it’s their worst student loan nightmare.
How monster inflation could ruin your student loans
Student loan borrowers have faced some of the worst inflation in the past 40 years. From gas to groceries, price tags are higher, and wallets are slimmer. The Federal Reserve has been aggressively raising interest rates to curb inflation. However, inflation is still significantly high even with multiple interest rate increases. The midterm election is on November 8, 2022, and the economy and inflation will be the top issue for voters. The Biden administration will likely weigh the impact of student loan cancellation and the student loan payment pause on inflation. For example, Republicans in Congress have expressed concern that Biden’s $400 billion of student loan cancellation and another extension of the student loan moratorium could increase inflation. Why?
The argument goes like this: if student loan borrowers don’t have to pay student loans, then they have more cash flow, which they could spend in the economy. That incremental spending adversely impacts the supply-demand balance, which could increase inflation. That logic may sound warped to student loan borrowers. However, when student loan payment restart, spending in the economy would be lower, as more student loan borrowers spend their money paying federal student loans. Biden hasn’t commented publicly on this potential scenario, but the White House says wide-scale student loan forgiveness would have a minimal impact on inflation.
Student loan forgiveness and the student loan payment pause
Biden doesn’t have to choose this scenario. It’s possible that Biden provides wide-scale student loan cancellation but doesn’t extend the student loan payment pause. Alternatively, Biden could forgo student loan forgiveness but extend the student loan payment pause. The president could even extend the student loan moratorium and extend wide-scale student loan cancellation. No matter which approaches Biden chooses, he will be under a microscope politically. This week, the U.S. Department of Education announced major changes student loan forgiveness. These changes, which are expected to be implemented in July 2023, will provide more student loan forgiveness to borrowers. However, they don’t include an extension of the student loan payment pause, and they don’t apply to every student loan borrower. If Biden decides on both topics, expect a decision before August 31, 2022, when the student loan payment pause expires. In the meantime, get a student loan repayment plan in place. Start with these options to save money and pay off student loans faster:
- Student loan refinancing (lower interest rate + lower payment)
- Income-driven repayment (lower payment)
- Student loan forgiveness (federal student loans)