October 16, 2020

Biden’s Student Loan Plan and Other Forgiveness Plans, Explained

Biden’s Student Loan Plan and Other Forgiveness Plans, Explained
Biden’s Student Loan Plan and Other Forgiveness Plans, Explained

Student loan forgiveness and student loan reform have become central policy discussion points for politicians on both sides of the aisle in recent years. And though legislation can often take years, the CARES Act, in response to the COVID-19 crisis, quickly took federal student loans into consideration, suspending payments and interest accrual.

The move pushed student loan forgiveness into the spotlight this election year, and both President Donald Trump and challenger Joe Biden have developed plans for student loan repayment.

Here are details about their plans, how they differ, and what legislation is in place that may affect student loans now or in the near future. Of course, if you have questions or are unclear about where you stand, it may be a good idea to contact your student loan servicer.

What Is Biden’s Student Loan Plan?

Biden has a robust education reform plan that could affect future degree seekers if he were to become president, and may have a direct effect on student loan holders if the plan is implemented. Here are proposals under a Biden administration:

•  Immediately canceling $10,000 of federal student loan debt for each federal student loan borrower as part of a COVID-19 response.

•  Eliminating loan payments and interest for people making under $25,000 a year.

•  People making over $25,000 would pay 5% of discretionary after-tax income above $25,000 toward student loans. The debt would be forgiven after 20 years. Currently, Pay as You Earn (PAYE) and Revised Pay as You Earn (REPAYE) plans are set at 10% discretionary after-tax income. Biden has also indicated that any money forgiven would not be taxed. Currently, PAYE and REPAYE forgiveness is treated as taxable income. Under the Biden plan, only undergraduate loans would be eligible for this program. Unlike today, the Biden program would be an automatic opt-in.

•  Overhauling the Public Service Loan Forgiveness (PSLF) program. Biden pledges to offer $10,000 of undergrad or grad debt relief for every year of national or community service, up to five years. In other words, five years of working in a qualifying public service role could reduce a federal student loan bill by $50,000. This also would apply to people who have worked in public service in the past.

•  Working to secure the What You Can Do for Your Country Act. The 2019 Democrat-led bill is designed to streamline Public Service Loan Forgiveness. Only a tiny fraction of applicants have been approved for forgiveness.The bill aims to reduce red tape and provide relief for borrowers.

•  Permitting student loan debt to be discharged during bankruptcy.

•  Empowering the Consumer Federal Protection Bureau to have tougher standards for private lenders and take action against unfair or predatory loan repayment practices. The plan is meant to encourage private lenders to create affordable pay-back programs for borrowers experiencing financial hardship.

Would Biden Eliminate Student Loan Debt?

It’s an impressive talking point, but Biden’s proposal applies to undergraduate debt from certain institutions only, and has an income qualification cap. A proposal like this would need to be approved by Congress and could be complicated to implement.

Biden has proposed eliminating undergraduate student loan debt for borrowers who attended public colleges and universities, historically Black colleges and universities, and certain private universities that serve primarily minority and Black students. The proposal would apply only to people who make less than $125,000 a year and would not apply to graduate student loan debt.

The proposal may not affect current borrowers, but it has implications for future college attendees: Biden proposes that public colleges and universities be free for individuals whose families make under $125,000 a year.

He also proposes two years tuition-free, regardless of income, at community college or another high-quality training program. Again, Congress would have to vet the plan.

What Is Trump’s Student Loan Plan?

Under the CARES Act, passed in response to the COVID-19 crisis in March, principal and interest on federal student loan payments were suspended through September 30, 2020. Trump signed an executive order extending the suspension until the end of 2020.

The suspended payments would count toward any student loan forgiveness program, and loan holders did not have to take any action to qualify.

Any payments made were to be applied to the loan principal, which could mean paying less money over the life of the loan. The CARES Act also enabled employers to contribute up to $5,250 toward an employee’s student loan debt.

In October stimulus negotiations over the next relief bill for the ongoing COVID-19 crisis, Trump proposed that $25 billion of a $1.8 trillion relief package be earmarked for student loan forgiveness. No details were given.

Trump has also announced several plans for student loan reform. They include:

•  Eliminating the Public Service Loan Forgiveness program. In its place, Trump would provide additional scaffolding for current income-driven repayment programs. The Senate indicated in February that it would not have a conversation about the topic when it was brought up in Trump’s budget earlier this year.

•  Restructuring income-driven repayment programs. The programs would last 15 years, with participants paying 12.5% of their discretionary income. This would lower the lifetime payment of the loan and raise monthly payments. Graduate loan repayment programs would extend up to 30 years.

Would Trump Cancel Student Loan Debt?

Trump’s recent inclusion of $25 billion for student loan forgiveness in the stimulus bill, as well as his executive order extending student loan payment suspensions, has led voters to question whether broader student loan forgiveness might occur under Trump.

Sen. Elizabeth Warren announced a resolution for the next president to cancel $50,000 in federal student loan debt by using executive authority. The Department of Education has broad legal authority to cancel student debt.

So far, there have been no indications that Trump and his secretary of education, Betsy DeVos, will take steps to adopt the resolution. The proposal would not only affect holders of federal loans but private-loan holders as well.

At this point, it seems unlikely that any steps toward the proposal will be adopted during the election season.

What Is the Government Doing About Student Loan Debt?

While the logistics differ, it’s clear that voters and lawmakers on both sides of the aisle care about student loan debt relief. A 2019 study by Quinnipiac University found that 57% of voters supported the idea of $50,000 of student loan debt forgiven for every person with a household income under $250,000, a notion discussed by multiple Democratic primary candidates. Even Wayne Johnson, the former federal student loan chief under DeVos and now a Republican running for the Senate in Georgia, is championing student loan forgiveness.

Although the CARES Act is perhaps the greatest recent example of bipartisan support for federal student loan relief, several bills introduced by Republicans and Democrats in Congress over the past few years have addressed the issue.

The legislation focuses on interest rates, loan forgiveness, increasing the offerings of employer programs, and making student loan debt eligible for discharge in bankruptcy.

Paying attention to news, keeping track of various laws, and connecting with your Congress member about the issues that mean the most to you regarding student loans are all ways to size up the direction of student borrowing.

State legislatures may also have student loan reform bills that could affect the status of your loans. For example, in response to the pandemic, California passed a complementary bill to the CARES Act, providing 90 days’ forbearance for private student loans.

California also passed a Student Borrower Bill of Rights that strengthens consumer protections for borrowers who use private student loans. State legislation can foreshadow potential changes on the federal level.

Biden’s Proposal and Future College Tuition

While proposals may take time to become law, parents or people who may be planning to go to college in the future may also be interested in platforms for college tuition. Biden’s plan includes these measures:

•  Free College. An undergraduate degree at a public college or university would be free for families making under $125,000 a year.

•  Double Pell Grant Values. Biden proposes doubling the value of a Pell grant. This value would automatically increase with inflation.

•  Expand Pell Grant Eligibility. Pell Grant eligibility would expand to include higher earners, as well as young immigrants living in the country illegally who were brought here as children and formerly incarcerated individuals.

•  Scaffold Support for Low-Income and Minority Students. Biden would establish a grant program to focus on schools with a large percentage of Pell grant eligible attendees. The grants would provide additional financial assistance, child care, and other support to help students achieve their degrees.

•  Provide a Clear Pathway Toward Employment. Job training, accelerated degree attainment, and work-study opportunities would be created for a more seamless transition to employment.

•  Free Two-Year Colleges and Training Programs. Attendance at a two-year community college or eligible training program would be free regardless of income.

Trump’s Proposal and Future College Tuition

As discussions about the student debt crisis swirl around candidates, Trump also has plans for how to reform tuition. These include:

•  Capping the Amount of Loans a Student Can Borrow. Trump proposes limits on how much students can borrow. The proposal did not indicate a number, but the current number is $57,500 in federal loans for undergraduates. This plan may affect PLUS loan programs, which are for parents of undergraduate students and graduate students. Currently PLUS programs are capped at the cost of attendance minus any financial aid.

•  Reform Work-Study. Trump has proposed shifting work-study funding allocations to serve institutions with larger percentages of lower-income students.

What May Change in the Near Future

When asking “Do these student loan plans mean my loan will get canceled?” the answer depends on the political machine and other factors. Paying attention to what legislation passes and what loans are and aren’t covered will likely be necessary for borrowers, who also can ask their loan servicers questions about loan suspension or forbearance.

Regardless of who wins the presidential election in November—and who controls the Senate —student loan forgiveness has become a bipartisan issue that is likely to get attention on the federal, state, and local levels in the coming years. Ongoing stimulus discussions may have the earliest impact on student loans.

Recent discussions surrounding student loans have also made it clear that legislators are listening to the concerns of their constituents. Understanding what’s on the table on the state and federal levels may help you share your concerns and wishes with your Congress member.

Finally, there are options when it comes to refinancing or consolidating student loans. Understanding the choices may help to chart a smoother course during legislative back-and-forth.

SoFi’s Student Loan Help Center offers education tools, guidance, and news around all things student loans.

And borrowers interested in student loan refinancing may want to consider SoFi®, one of the leaders in the student loan space. Checking your rate takes just two minutes.

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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article contains breaking news and events related to the current state of politics and the economy. While we try our best to keep our articles as up-to-date as possible, the ongoing effects of COVID-19 are happening in real time and information is subject to change.