A young relative of mine is in school and is paying part of her way herself. She has enough assets/income to pay the rest of what she owes, but is thinking of taking about $10K in student loans for the sole reason of having it wiped away by Biden’s plan to forgive $10K in student loans. I realize that the exact details of what he plans to do are probably not known at this time, but am wondering if based on what’s already been announced there’s specific reason to think this won’t work.
Some possibilities which come to mind are if 1) it only applies to older student debt and not to people taking new debt, 2) if it’s only forgiving $10K if that’s below X% of the total debt, but if for example $10K is the entire debt, then it won’t work.
Or possibly something else. Anyone have any relevant detail?
Nothing I have read indicates that your possibility #2 is correct. Many articles and discussions talk about debt being “completely wiped out” for folks with less than $10k in loans, so it certainly doesn’t seem like you need larger debts to be eligible.
For #1 I think it’s possible, but I doubt there will be a cut off between now and when the relevant legislation is passed (I think Executive Orders could only be used for longer forbearance, not cancelling debt).
A few other possible wrinkles that your relative may or may not need to be aware of - it’s possible (perhaps even likely) that this will only apply to public colleges and universities, and almost certainly only for undergraduate degrees. It will also phase out with higher incomes (it’s not clear to me how well off your relative is, but there will definitely be an income cap).
Finally, it only applies to federal loans, not any private loans.
It seems to me that with forbearance in place (meaning no interest will accrue) taking out a federal loan (assuming all other boxes are checked) with the plan of just paying it off in full once either forbearance expires or it is clear that cancellation won’t happen would be a reasonable course of action. I don’t believe there are any pre-payment penalties on federal student loans, so this should be risk-free.
ETA: I now see that there is about a 1% fee with getting the loan. So that’s the risk she would want to balance against the likelihood of getting it cancelled.