Should I Pay Off my Student Loans if Forgiveness is a Possibility?

A student with his calculator

Key takeaways

  • At this moment in time, the topic has only been discussed by the Biden administration, and nothing is certain

  • The potential amount for loan forgiveness is in flux, with reports of the amount being forgiven ranging anywhere from $10,000 to $50,000

  • If passed, forgiveness would only apply to federal student loans, and not private student loans

To pay now or not to pay at all: the big wait

According to the U.S. Department of Education, approximately 42.9 million Americans have federal student loan debt. And the total amount owed is staggering.

A chart showing the amount of student loan debt in the United States.

With so many Americans saddled with overwhelming monthly payments compounded by accruing interest, the internet has been abuzz since the Biden Administration began hinting at possible loan forgiveness. What was once a pipe dream is now a trending topic, and a major vessel of hope for many.

This possibility has many people with the means to continue making payments, or the means to pay off their loans entirely, wondering whether they should do so, or whether they should hold tight in hopes that it will soon be forgiven.

While there are various factors to consider, we know the legality of cancelling student debt via executive order is unclear at this time; without a legal means through an executive order, President Biden would have to push Congress to draft a law, which would then have to pass both the House and the Senate.

Borrowers have enjoyed a pause from federal student loan payments since March 2020, when Congress passed a package of Covid-19 relief measures. That pause, which has been extended several times, is slated to expire on August 31st. Secretary of Education Miguel Cardona recently testified that another moratorium extension is still a possibility but provided few details on how long it might last.

What if the moratorium isn’t extended?

it would mean that, starting September 1st, 18 million borrowers could see roughly $85 million stripped from their budgets, according to the Roosevelt Institute. The pause has not only saved borrowers money but improved their overall financial health. Forbes reports that the average credit score for borrowers rose from 640 to 668 during the suspension.

Key members of the Democratic Party have cited the positive impact of the loan pause as justification to push for permanent loan forgiveness. In a joint statement in December of 2021, Senator Elizabeth Warren (D-MA), Senate Majority Leader Chuck Schumer (D-NY), Congresswoman Ayanna Pressley (MA-07) recently released the this statement:

[…]the pause on federal student loan payments, interest, and collections has improved borrowers’ economic security, allowing them to invest in their families, save for emergencies, and pay down other debt. Extending the pause will help millions of Americans make ends meet, especially as we overcome the Omicron variant. We continue to call on President Biden to take executive action to cancel $50,000 in student debt, which will help close the racial wealth gap for borrowers and accelerate our economic recovery.

Not all lawmakers agree. Rep. Virginia Foxx (R-NC), the top Republican on the House Committee on Education and Labor, writes that Biden has already approved $400 billion of wide-scale student loan cancellation with the “stroke of a pen.” Foxx says broad student loan cancellation will “lead to more inflation-filled deficit spending."

As the push for forgiveness continues, many are left in limbo wondering what action they should take. For those with private student loans, the answer to this question about paying off your loans is an unequivocal “yes”—the Biden Administration won’t have the means to forgive loans dispersed by the private sector.

For those with federal loans over $50,000, it may be in your best interest to continue to make payments on the loan(s), as currently there is no hint that loans over the $50,000 mark would be forgiven beyond that point. For those who fall under the $50,000 or less of federal loans category, there is clearly much to consider.

In the coming weeks, we may know more. Stay tuned.

NOTE: Unlock Technologies is not a financial advisor. We share articles with you which we think you'll find interesting . We recommend speaking with your financial advisor about any and all of your options.