Joe Biden’s Student Loan Plan: How It Could Affect Your Financial Future

The Democratic president-elect has proposed some student loan forgiveness and doubling Pell Grants.

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Joe Biden’s Student Loan Plan: What It Could Mean for You

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The student loan platform of President-elect Joe Biden could affect your financial future if you’re planning to attend college or have student loans to repay. Here’s where Biden stands on some of the biggest higher education issues, including student debt forgiveness, free college and Pell Grants.

Remember: Biden’s platform proposals may or may not happen. Those that are passed could evolve significantly between now and then.

Extending automatic forbearance past Dec. 31, 2020

The current federal student loan forbearance began in March and in August was extended by President Trump until the end of the year. It automatically puts most federal student loans under administrative forbearance, pausing payments, and waives new interest on the loan balance. It also halts all collection activities on loans in default.

Unless President Trump once again extends the forbearance during his final weeks in office, federal borrowers should count on making one or more payments when 2021 begins.

Biden's transition team has not responded to questions about whether he would use an executive order to renew the forbearance after he takes office in January and a Department of Education spokesperson would not comment on whether President Trump planned to extend the forbearance before then.

Canceling existing student debt

Biden has recommended canceling federal student debt in the following instances:

  • If you attended a public college or university. Attendees of private historically Black college and universities and additional minority-serving institutions would also be eligible.

  • If you used the loans for undergraduate tuition. Graduate student debt would not be canceled under Biden’s proposal.

  • If you earn less than $125,000. Biden’s plan references a phase-out of this benefit but does not offer further details.

Biden also supports forgiving $10,000 for all federal student loan borrowers as COVID-19 relief. That could wipe out debt completely for nearly 15 million borrowers who owe $10,000 or less, according to federal data. The majority of student loan borrowers (roughly 67%) have more than $10,000 in debt.

These proposals would not affect borrowers with private student loans, but Biden does support making discharge of private student debt in bankruptcy easier.

Any broad student debt cancellation plan is likely to face extensive negotiation and headwinds in Congress.

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Revised income-driven repayment

Biden has proposed a new income-driven repayment plan for federal student loans. Here’s how it would differ from existing options:

  • Only undergraduate loans qualify. Graduate student loans — for which the average student debt is $71,000, according to the National Center for Education Statistics — would be ineligible.

  • You’d pay 5% of discretionary income. Current income-driven options set payments between 10% and 20% of your discretionary income, depending on the plan.

  • Monthly payments would be $0 if you make less than $25,000. You can currently qualify for $0 payments based on your income, the federal poverty line and your family size.

  • Forgiveness won’t be taxed. Biden’s income-based plan would forgive any remaining undergraduate balance tax-free after 20 years. Existing options offer forgiveness after 20 or 25 years, depending on the plan, but tax that amount.

  • You’d have to opt out. All new and existing borrowers would be automatically enrolled in this new plan with the option to opt out.

Bigger Pell Grants

These grants, which are available to students who demonstrate financial need, are currently worth up to $6,345. That covers less than 60% of tuition and fees at public four-year colleges, according to a NerdWallet analysis. Biden would also expand eligibility to cover more of the middle class.

Student loan forgiveness programs

Biden would introduce a new student loan forgiveness program for borrowers who provide public service.

  • Up to $50,000 would be forgiven. Under Biden’s plan, $10,000 of your debt would be automatically canceled for each year you perform eligible service, for up to five years total.

  • It wouldn’t replace Public Service Loan Forgiveness. That program, which is available to government workers, teachers and other nonprofit employees, requires borrowers to make 120 eligible payments to have their remaining balance forgiven.

  • Biden would rework PSLF. Biden proposes qualifying additional federal loans and repayment options for PSLF. Half your balance would also be forgiven after five years. Roughly 98% of PSLF applications have been rejected to date, according to Department of Education data.

Frequently asked questions

In a November press conference, President-elect Biden said federal student loan debt cancelation figures into his plan. "It's holding people up," he said about student loan debt. "They're in real trouble. They're having to make choices between paying their student loans and paying their rent, those kinds of decisions. It should be done immediately." He has not formally stated whether he would take action via Congress or an executive order.

Biden's proposals would not affect borrowers with private student loans, but he does support making discharge of private student debt in bankruptcy easier.

Biden would introduce a new student loan forgiveness program for borrowers who provide public service that would forgive up to $50,000. It would not replace PSLF, which he has pledged to rework to improve low application approval rates.

Free college tuition

Biden has proposed making college tuition-free at some schools:

  • If you attend a public college or university. Tuition would be free for four years if your family has an income below $125,000.

  • If you attend a private minority-serving institution. Grants would cover up to two years’ tuition at private historically Black colleges and universities, tribal colleges and universities, and additional MSIs.

  • If you attend a community college. Tuition would be free for two years if you hadn’t previously pursued a postsecondary degree. You could also use these funds for a career-training program if it meets to-be-determined graduation and job placement rates.

As with existing free college options, you’d still need to pay non-tuition costs such as room and board and books. Those expenses averaged more than $14,600 and $16,000 in 2019-20 at two-year and four-year schools, respectively, according to the College Board.

Restored borrower defense to repayment rules

Experts say they expect the Biden administration to reinstate rules for borrower defense to repayment that the Trump administration restricted. The rule is used to forgive loans for borrowers who were defrauded by their schools.

Under guidelines effective July 1, 2020, it’s more difficult to be eligible for forgiveness since borrowers must prove their school intentionally misled them and they suffered financial harm, among other new requirements.

Additional proposals

Biden also hopes to invest $50 billion in workforce training, $8 billion toward community colleges and over $70 billion for minority-serving institutions, among other proposals.

Information in this article is based on the education plan listed on Biden’s official website, as well as the former vice president’s Unity Task Force Recommendations from July 2020. The Biden campaign did not respond to requests for comment.

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