Biden Might Cancel Student Loans. Should You Still Pay?

(Bloomberg Opinion) -- Shortly after Joe Biden was announced the president-elect, Americans began to contemplate what a Biden administration would mean for them. For the 45 million Americans with student loan debt totaling just shy of $1.7 trillion, the potential for student loan debt cancellation became a modest possibility.

Biden hasn’t even been sworn into office and already a coalition of Democrats is pushing for him to bypass Congress and use executive action to cancel $50,000 of student loan debt per person in an act of economic stimulus. Biden has made no such promises outside of saying he’d offer forgiveness for public servants, but a Democratic administration still offers hope to millions.

These millions are also wondering: Should I keep aggressively paying off my student loans or prioritize other financial goals if the debt will end up being canceled? 

In 2018, I got married, and student loans came with the marital ledger: My husband is a public-school teacher and had just north of $50,000 in both private and federal student loan debt. Despite his job making him eligible for the U.S. Public Service Loan Forgiveness program, which allows you to apply for debt forgiveness after 10 years of service, we decided to go ahead and attack his loans.

The PSLF had just an approximately 1% approval rate of eligible applications by the end of 2018. Notably, the program was established in 2007, and the first wave of eligible applications occurred in 2017. As of September 2020, 229,215 applications had been submitted and only 5,069 applicants had been deemed eligible. Of those approved, $260,487,126 in student loan debt had been forgiven.

We were able to become debt-free in about a year and a half due to our aggressive debt repayment plan, but sometimes I reflect on the returns that money could’ve gotten if we’d paid the minimum due, hoped for the best with PSLF approval, and invested the difference. Still, I don’t begrudge anyone who benefits from cancellation. Millions of Americans aren’t in a position to pay off debt in the manner we did — certainly not post-pandemic.

Programs like PSLF could make a huge difference in the trajectory of people’s lives. There is hope that, at the very least, a Biden presidency could mean an overhaul of established but chaotic forgiveness programs, by making the terms clearer to borrowers and ensuring people are on track for approval. During his campaign, Biden did suggest a program that offers $10,000 of debt relief per year of qualifying public service for up to five years, in addition to overhauling the current system. 

Whether borrowers should take the repayment strategy my husband and I did or opt for a slower route depends entirely on how bullish you are about the actual cancellation of student loans. It does seem unlikely that the Biden administration will cancel all federal student loan debt with the stroke of a pen. However, there is certainly potential for a partial cancellation. 

As someone who has aggressively paid off such loans, my experience is that you don’t regret them being gone. However, hedging your bets by slowing down your debt-attack plan to focus on other financial goals — like the down payment on a home — could help you take advantage of any potential cancellation. Should that not come to fruition, you could use the money you saved for another financial goal to pay off student loans if you’d then rather ditch the debt. 

Of course, those contending with private student loans should prioritize paying those off over their federal counterparts. Even if the Biden administration forgives some federal student loans, that doesn’t absolve the private debts. It would be prudent to focus on knocking out the latter while still paying the minimum due on federal loans after administrative forbearance ends.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Erin Lowry is the author of “Broke Millennial,” “Broke Millennial Takes On Investing” and the forthcoming “Broke Millennial Talks Money: Stories, Scripts and Advice to Navigate Awkward Financial Conversations.”

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