The incoming Biden administration proposals for student loans could affect over 42 million borrowers. The federal government is the predominant lender for students, and it currently holds more than $1.4 trillion in student debt. The CARES Act with coronavirus pandemic aid, has temporarily altered the student loan system. 22 million borrowers have had their monthly payments paused and interest waived through January 31st, 2021. With the new administration and a potentially divided congress, there is uncertainty about whether this relief will continue further into the new year.
Some in Congress have proposed an outright cancellation of student debt, a power of which is granted to the Education Secretary by The Higher Education Act of 1965. Two of these proponents are New York senator Chuck Schumer and Massachusetts senator Elizabeth Warren, who have called for the Biden administration to cancel up to $50,000 of student debt per borrower. The Biden Administration, however, has never publicly endorsed this idea. Instead, the Biden Administration has supported a proposal of cancelling $10,000 of student debt per borrower. This proposal’s success would be contingent upon Congressional approval.
Former Vice President Biden has also proposed adjustments to income-driven repayment plans, that helps those with student loans, by determining their monthly loan payment based on their income. Currently, the plans include roughly 8.5 million people, and are criticized for not being affordable to the most vulnerable borrowers. Under the proposal, individuals earning $25,000 or less annually will not owe payments or interest on their loans. All other borrowers above this income threshold will pay 5% of their discretionary income over $25,000. This is the amount of money left after basics like food and housing. This is a significant reduction from the 10%-15% of discretionary income that is required in most current plans. Mr. Biden has also discussed changing the taxation of erased debts, which could potentially alter the U.S. tax code.
The Public Service Loan Forgiveness Program was created in 2007 to attract workers to non-profit and government jobs by offering debt forgiveness to employees of these jobs. Participants of this program make monthly payments for ten years, and any amount owed after this time, would be forgiven. There is specific criteria that must be met for this program to work. Many people argue that the qualifications are too specific. The Biden Administration has plans to address these problems by passing a bill that would simplify the application process and provide partial forgiveness after five years. Mr. Biden has also proposed additional relief for workers in schools, government, and non-profit organizations. Under this plan, workers would be eligible to have $10,000 of their student debt dissolved for each year of service up to five years.
The Biden Administration may also reform borrower defense to repayment processes as well as The Education Department’s student loan servicing. The borrower defense to repayment process allows students who were misled by their institutions to seek relief on their federal student loans. Many submitted claims have been denied under the current Secretary of the Department of Education. Those students whose claims were denied, hope the incoming Education Secretary will overturn these denials and begin processing applications. Mr. Biden himself, has vowed to forgive the debt of borrowers who were deceived by for-profit colleges. The Education Department currently outsources the task of servicing the mass amounts of student loans. Government auditors have criticized contractors for doing a bad job. Many students are hopeful the incoming administration can successfully address the program’s weaknesses.