January 20th, 2021 brings a new presidential inauguration and whether Joseph R. Biden’s transition into office brings you joy, relief, or another emotion, it can mean a change in financial policies: chief among them student loans. So what can a Biden administration mean for your student loans?
Right now, it’s not entirely clear. Biden has proposed forgiving $10,000 in loans for all federal student loan borrowers as part of COVID-19 relief. For 15 million, of the estimated 45.3 million borrowers with federal debt, this would remove the entirety of their debt. This forgiveness could be contingent on engagement in public services, and max out around $50,000 of forgiveness or five years of service, and would exclude private loan borrowers. While this would cancel debt for approximately one-third of student loan borrowers, it would still leave many borrowers with large amounts of debt. However, this plan also allows up to five years of previous service to count towards Public Service Loan Forgiveness (PSLF).
Other propositions that Biden has proposed included: loan forgiveness if you attended a public college or university, a historically black college or university, took on only undergraduate debt, or earn less than $125,000/year. The Biden Plan for Education Beyond High School also reduces Income-Driven Repayment (IDR) plans to 5% of one’s monthly income (down from 10%) and no monthly payments required or interest accrual if you make less than $25,000 yearly. Forgiveness would also occur after 20 years of payment and without the addition of income tax on the forgiven amount.
Bankruptcy laws may also be modified to allow student loan discharge, which they currently do not. This could especially benefit private loan borrowers who frequently don’t have bankruptcy as an option, or even death and disability discharges. Any forgiveness also has to set precedent for preventing the accrual of more debt, whether this is in the way of tuition free public colleges (proposed for families with incomes below $125,000) for public, state, and community colleges, private Historically Black Colleges and Universities (HBCU), or Minority-Serving Institutions (MSI).
AOC, Chuck Schumer, and Elizabeth Warren have all recommended more aggressive plans including an executive order to cancel all student loans. Using an executive order would change how quickly the policies go into effect, as it allows bypassing of Congress who, historically, have an increased longevity in passing bills. Schumer and Warren both back $50,000 in student loan cancellation while AOC and Bernie Sanders are calling for total cancellation in all student loan debt.
There is, of course, a lot of polarization around the topic including the fact that cancellation of student loan debt would support high-income earners, particularly in health care and law, who conversely tend to saddle the highest amount of student loan debt. Extension of the CARES act is also still a possibility, which would continue to keep federal student loans at 0%.
Bottom line: there are lots of propositions and we don’t know who will control the Senate yet, and Congress controls the money. Therefore, keep making at least your minimum payments, but if you have federal loans, keep your benefits and wait out the re-financing until interest rates kick back in.