Joe Biden’s Student Loan Plan: What can Change in 2021?

biden's student loan plans

Many borrowers struggle to make payments due to the negative effects of the pandemic on the economy. Previously, the government started a temporary non-payment (forbearance) period, which is expected to end on January 31, 2021. Currently, total student debt is more than $1.6 trillion, and more than 45% of borrowers do not know whether they will be able to continue payments after the forbearance period ends. Unfortunately, the student loan problem continues growing, and people hope Joe Biden will bring solutions to this never-ending debt spiral.

So far, Joe Biden’s student loan plan involves some benefits to borrowers, whether in the form of direct forgiveness or by easing the debt repayment process. In this guide, we will present expected changes and their consequences for student loan borrowers. However, keep in mind that these changes are only proposed, and they will be effective if Congress approves them.

$10,000 Debt Forgiveness 

In March 2020, Joe Biden tweeted that it is necessary to cancel the minimum $10,000 for federal borrowers. Previously, Democrats proposed such a change to be in CARES Act. However, it was not accepted.

Currently, House Democrats also urge Joe Biden to cancel an even higher amount- up to $50,000- to bring economic justice. Yet, these claims got opposing reactions from various groups. Some experts think that student debt is more visible in the middle and upper classes. Hence, forgiveness will not be able to solve poor people’s problems. Additionally, it was claimed that it is not fair to forgive the debt with the funds of taxpayers who did not even get higher education. 

As it is visible, this change involves different opinions, and it is still debatable whether such direct forgiveness for all federal borrowers will happen.

Easy Repayment for Financially Struggling Borrowers

One of the greatest benefits expected under Joe Biden’s student loan plan is that financially struggling people will not be required to make payments. In more detail, if you earn $25,000 or less per year, the debt collection process will stop for undergraduate federal loans. Even better, during this period, interest will not continue to accrue. Others who earn more than this amount can be obliged to pay only 5% of their discretionary income. Currently, under the different repayment plans, this rate is between 10-20%. In this way, borrowers will be able to meet their obligations easily. If Joe Biden can realize these expected changes, the low-income student loan borrowers will finally breathe a sigh of relief. 

Benefits with Income-Based Repayment

Currently, there exist different types of repayment plans which might confuse the borrowers. Under Joe Biden’s student loan plan, it is proposed that borrowers will enroll in an income-based repayment plan automatically. This change will apply both to existing and new loan borrowers. If one makes payments for 20 years, the rest of the outstanding balance will automatically be forgiven. 

Another concern about this forgiveness program is tax. Biden proposes to change the tax code so that borrowers do not need to pay additional taxes for forgiven debt. 

Simpler Public Service Loan Forgiveness

Joe Biden’s student loan plan puts huge attention on the struggles of public servants. According to the plan, public servants are an essential part of the workforce, and existing federal assistance programs should be easily accessible. Biden plans to make changes to one of the common, most useful forgiveness programs- Public Service Loan Forgiveness. This program requires making 120 qualifying payments to get forgiveness for the rest of the debt. Hence, it takes around 10 years of qualifying service. However, Joe Biden’s plan aims to grant $10,000 forgiveness for every year of service. This benefit will be accessible for 5 years, for both graduate and undergraduate students. Even better, 5 years of prior qualifying service will also qualify. 

More Accessible Borrower’s Defense to Repayment Program

Borrower’s Defense to Repayment program gives borrowers a chance to get forgiveness if they face the school’s fraudulent activities. If the enrollment members lie about the true cost of student loans or use misleading advertisement techniques, the students can be eligible for such forgiveness opportunities. However, in recent years, debates were going on Borrower’s Defense rule. It was claimed that the Education Department and Secretary Betsy DeVos deliberately delayed the applications to this program and saw this opportunity as “free money.” In short, it was getting even tougher to take advantage of this program. However, Joe Biden’s student loan plan includes returning the Borrower’s Defense to a Repayment plan and benefiting debtors who faced unfair treatment. 

Extending Pell Grant Value

Each year, around seven million students benefit from the Pell grants to afford the cost of education. However, during the last decades, Pell grants’ value declined and became only 30% of the true cost of education. Joe Biden’s student loan plan involves doubling the maximum limit of the Pell grant. Plus, it will be adjusted to inflation rates. Even the formerly incarcerated people will be eligible to get Pell grants, under the expected changes in Biden’s plan.

Changes for Private Borrowers

Joe Biden’s Student Loan Plan

Luckily, Joe Biden’s student loan plan does not only consider federal borrowers and involves some advantages for private debtors, too. Joe Biden wants to return the legislation that allows private student loan borrowers to discharge debt through bankruptcy. The plan aims to empower the Consumer Financial Protection Bureau to investigate and take actions against private lenders, which mislead borrowers.

Slowing Down the Demand for Loans

Besides proposing changes to help borrowers repay the existing loans, Joe Biden’s student loan plan also aims to solve the problem’s root cause. People undertake debt because they lack the financial resources to get higher education. Biden’s plan aims to eliminate the need for debt by making public education free for some students in colleges or universities. Under this plan, individuals in families earning incomes less than $125,000 will get tuition-free education. If such a change is passed in Congress, it will have a huge effect on slowing down the student debt growth rate.

How should Borrower’s Respond to Expected changes?

Borrowers should not rely on expected changes heavily. Again, keep in mind that the mentioned changes are only proposed. If Congress approves them, they will become a law. However, it is advisable to keep track of the student loan update news. 

Meanwhile, it will be more useful to develop a plan on how to repay the debt. Currently, there is a forbearance period till the end of January. Hence, it can be a good opportunity to develop a repayment solution while you do not make any payments. Analyze your income, expenses, debt obligations, and find a working solution. There are different debt repayment options, including forgiveness and discharge programs, consolidation, refinancing, or even loan bankruptcy. You need to get familiar with your options and not wait for a magic wand to make the debt disappear. Alternatively, you can contact a debt specialist to share your challenge and get expert recommendations on how to move on.