What Happens If There Is No Student Loan Forgiveness?

It seems like a new student loan forgiveness plan is being touted every few months, and this continues as the student loan debt crisis deepens further.

Recently, the House of Representatives even got in on the fun, suggesting $10,000 in federal student loan forgiveness in the original HEROES Act proposal. Joe Biden’s campaign has also made some promises including $10,000 in loan forgiveness for everyone. His campaign also hopes to make two-year colleges free and public, four-year schools tuition-free for families who earn less than $125,000 per year.

However, it remains to be seen if these plans are just a pipe dream or if they could actually make it through the legislative process and land on any President’s desk for approval.

That’s why I find it strange how many borrowers seem to be waiting for government intervention when it comes to their student loans. It makes complete sense why someone might be skipping payments on federal student loans right now since payments are paused and no interest is accruing until January 1st of next year (I’m a big believer in not paying extra).

But really, there’s no feasible hope for forgiveness right now — at least not at the moment. So why are people still fantasizing that their student loans will just magically disappear?

What Happens If Forgiveness Never Comes?

The answer to this question is remarkably simple — not a lot. If loan forgiveness is never offered on a broad scale like has been suggested in the past by politicians like Bernie Sanders, borrowers with debt will have to keep making payments until their loan balances are gone or they qualify for forgiveness through a separate program they’ve signed up for. 

And, even if $10,000 in forgiveness is offered to almost everyone, that’s just a drop in the bucket for people with a ton of student loan debt – just look at the average student loan debt by year! Whether you owe $40,000, $100,000, or $200,000 on your loans, you’d be left to deal with whatever is left.

According to financial attorney Leslie Tayne, borrowers should not wait for forgiveness since there’s no telling what’s in store for potential student loan forgiveness programs in the future. It is highly possible forgiveness plans will never come to fruition, or that specific loans won’t even qualify, she says. 

Tayne also points out that you should continue making at least the minimum payments on your loans regardless of whether you plan to wait it out for forgiveness or not — at least starting next year on federal loans since that’s when the government forbearance period ends. 

Keep in mind that, if you don’t make the payments on your student loans or sign up for some sort of forbearance, you can face myriad negative consequences. You could have your wages garnished, your credit score might tank, and your loan holder could even take you to court. Most likely, you’ll want to avoid all of this drama regardless of whether you think forgiveness is on its way. 

John Mantia, co-founder and director of finance at PARCO headquartered in Washington, D.C., says that this choice is an example of a moral hazard many people and companies have faced over the past decade during an era of bailouts. You may feel like it’s smart to take a “wait and see” approach, he says, but this tactic will only pay off if things go your way. And if not, you have to be willing to live with the consequences.

Student Loan Moves To Make While You Wait

Mantia says that, while you can’t control the future, you can control your actions. In doing so, you give yourself the power to better your own position. 

“Once there is more data on the political climate or a student loan forgiveness program becomes more of a reality, then it may make sense to adjust your course,” he says. “For now, it’s recommended that you pay your bills and keep an eye out for shifts in law as they happen.”

With that being said, this doesn’t mean you don’t have options that could make repayment easier. Tayne says that federal student loans are eligible for income-driven repayment plans that can help borrowers pay a percentage of their discretionary income for 20-25 years until their remaining balances are ultimately forgiven. Since the payments on these plans are based on your income and how it compares to the federal poverty limit, borrowers who struggle the most may be able to qualify for extremely low payments that can take the sting out of being in debt.

According to the U.S. Department of Education, your payment could even be as low as $0 per month depending on how much you earn. 

For borrowers with private student loans that have good credit, Tayne also points out that refinancing can be worth considering. And with interest rates at record lows, refinancing student loans right now can lower your monthly payment and help you save on interest over the long run. 

Another option is Public Service Loan Forgiveness, or PSLF. This plan helps workers who commit to jobs in eligible non-profits see their loans forgiven after they serve in a qualified position for 10 years and make 120 on-time payments on their loans.

Face Your Loans Head On….For Now

Wait for forgiveness if you want, but experts agree you shouldn’t let your finances fall apart in the meantime. There’s simply too much at stake, and that’s especially true if you want good credit so you can buy a first home, borrow money to purchase a business, or rely on good credit in other areas of your life

The reality is that “the debt won’t merely go away,” says Tayne. “It takes time to pay it off, but ignoring it or thinking it will somehow disappear isn’t the best way.”

By and large, your best bet is making the lowest payment you can if that’s all you can afford, and perhaps seeking out income-driven plans or other loan forgiveness plans based on your field of work. 

If loan forgiveness happens, you’ll still benefit. If not, you won’t be stuck dealing with the fallout that inevitably comes with delinquency and default.