Update: In keeping with his campaign promises, President-elect Joe Biden reaffirmed his support to forgiving $10,000 in student loans per borrower through Congressional action in early January. This would unburden almost 15 million student loan borrowers and reduce debt balances for millions more. Furthermore, on inauguration day, Joe Biden is expected to direct the Department of Education to extend the pause on student loan payments and interest accruals through September 2021 as the country continues to deal with the economic challenges of the Covid-19 pandemic.
As of 2020 a collective 45 million student loan borrowers owe $1.6 trillion in federal and private student loan debt. The average borrower owes upwards of $30,000, requiring them to make loan payments of $400 on average. Student loan repayments cause a significant dent in many Americans’ disposable income. Joe Biden’s rise to the presidency has stirred up rumors of a revamp in the student loan repayment system.
Here’s how Biden’s plan would affect student loan debt:
- Some student loans may be canceled. On the campaign trail, candidate Biden acknowledged that millennials and other student debt holders bore the brunt of the economic crisis in 2008. To prevent them from suffering further due to the economic impact of the Covid-19 crisis, as part of the ‘Emergency Action Plan to Save the Economy,’ Biden’s campaign proposed canceling a minimum of $10,000 of federal student loans per person.
- Tuition-free higher education The Biden administration aims to incorporate Senator Bernie Sanders’ proposed plan to make two-year and four-year public colleges and universities tuition-free. For students to qualify for this benefit, their family income would have to be less than $125,000 – an initiative expected to benefit about 80% of the population.
- Reduced need for student loans Furthermore, if a student qualifies for tuition-free college they would have to take out loans only for non-tuition expenses such as room and board. Removing the need to borrow for tuition expenses significantly reduces the loan amount and the impending repayment burden after graduation.
- Income-based repayment plan Under the Biden plan, new and existing student loan borrowers will be automatically enrolled in an enhanced income-based repayment plan. Individuals with undergraduate federal student loans making $25,000 or less will not owe any payments and will also not accrue any interest on those loans.
- In a shift from prior iterations, where borrowers are required to pay 10-20% of their discretionary income over $25,000 towards their loans, the proposed plan would require them to pay only 5%.
- For people diligently making payments through this program, the remaining loan balances would be forgiven and they wouldn’t owe taxes on the amount forgiven after 20 years.
- Public service loan forgiveness To improve the current Public Service Loan Forgiveness program, Biden aims to offer $10,000 in undergraduate or graduate student loan forgiveness for every year of national or community service, up to five years. Individuals working in schools, governments, and other non-profit settings will be able to benefit from this program.
This plan is still just a plan based on campaign promises; how and when it might be implemented by the Biden administration remains uncertain and a key area of interest for policymakers, economists, and the overall population. Undoubtedly some or all of the proposed measures will have both supporters and opponents, and be much debated. After the damage caused by 2020’s economic downturn, it is now more crucial than ever to address and mitigate the rapidly worsening student debt crisis in this country, especially for millennials who were already drowning in debt.