What Biden’s presidency could mean for your student loans (and how to prepare)
No matter how much time and energy you invest in politics, you probably know that student loan debt has become just as much a political issue as it has become a financial issue. Both sides of the aisle have suggested student loan debt relief, including the current halt in the Trump administration’s payments and interest on most federal student loans until early 2021. Not only this, but President-elect Joe Biden has made sweeping promises in terms. write off student loan debt for a large number of borrowers.
But what exactly does a Biden presidency mean for your student loans? It really depends on what student loan relief measures his administration chooses to focus on, as well as who ultimately controls Congress once the second round of elections in Georgia ends on January 5.
While no one is sure what kind of relief could be provided to help solve our terrible student debt problem, here are some potential steps that could be taken – and what you can do to prepare for them.
Potential cancellation of certain student loan debts
With more than 45 million borrowers with a collective debt of $ 1.6 trillion in student loans, the cancellation of a certain amount of student loans is at the forefront of relief measures currently under discussion. However, the amount of debt that could be forgiven varies depending on who you ask.
At the top of the ladder, Democratic Senate Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) are calling on President Biden to provide relief that would write off $ 50,000 in federal student loan debt by borrower. They believe he could use the executive branch to write off so much debt for every American who owes money on his student loans, and all without any tax liability for those who receive forgiveness.
However, such a high pardon rate is incredibly unlikely if Republicans control the Senate after January 5. In addition, the Biden administration has offered to write off a lower amount of up to $ 10,000 per borrower in federal student loans, which is more likely to materialize.
Unfortunately, it is likely that some income limits would apply to this pardon, although there is no firm discussion yet. For example, Biden supports the HEROES Act, which would only offer forgiveness to financially troubled borrowers.
When can you expect the student loan forgiveness to pass? Unfortunately, it’s a waiting game at the moment.
Until then, you still don’t have to make a payment on most federal student loans until January 31, 2021. Plus, the interest rate on eligible federal student loans is still set at 0% until then. If the HEROES Act becomes law, payments and waived interest on federal student loans would also be extended until September 30, 2021.
Lower monthly payments on income-driven repayment plans
Income-based repayment plans allow borrowers to pay a percentage of their “discretionary income” on their student loans before having their remaining balance written off after 20 to 25 years. The catch is that any remaining loan balances will be treated as taxable income in the future, which means you could face a giant tax bomb later if you have a lot of forgiven debt.
On Biden’s website, a proposal to reduce monthly payments for low-income borrowers is presented. Due to suggested updates to income-driven repayment plans, people who earn $ 25,000 or less per year are not expected to pay any payments on their federal undergraduate student loans, nor would they increase interest. All other borrowers would only pay 5% of their discretionary income above the $ 25,000 threshold. Not only that, but Biden is proposing to change the tax code so that forgiven debts are not treated as taxable income later.
Expansion of Public Service Loan Remission (PSLF)
The Public Service Loan Forgiveness (PSLF) works pretty well for those who can actually qualify, although Biden hopes to simplify this program and cut the timeframe you need to participate in half. By Biden’s website:
Biden will create a new, simple program that will provide $ 10,000 in undergraduate or graduate student debt relief for each year of national or community service, up to five years. government and other non-profit institutions will automatically be enrolled in this forgiveness program; up to five years of prior national or community service will also be eligible. “
Better access to bankruptcy
The Joe Biden administration also believes that private student loan companies may “take advantage” of too many student borrowers. As such, they want to pass a law that makes it easier to settle private student loan debts in the event of bankruptcy.
In addition, he hopes to make it easier for the Consumer Financial Protection Bureau (CFPB) to punish private student loan companies that are not transparent with their clients, as well as those that do not offer flexible payment plans to borrowers facing financial difficulties. financial difficulties. .
What about future college students
With all the talk about wiping out current student debt, many are wondering what’s going on with prospective students across the country. Since canceling student loan debt does not solve the heart of the problem (rising college costs), the Biden administration has proposed another lofty goal there.
First, Joe Biden started a platform to make a two-year community college free for anyone who wants to attend. In addition, the hope is to make public colleges and universities free for families earning less than $ 125,000.
It remains to be seen whether a real “free college” could pass. However, the Biden administration also offered additional relief measures that could help, such as expanding the number of people eligible for Pell Grants and new grant programs for underfunded four-year institutions.
How can you prepare for changes to your student loans in 2021?
As for the student loan relief that may materialize once Joe Biden becomes President of the United States, no one knows what’s going to happen. With that in mind, you should probably avoid making too many moves with your federal student loans at this time, other than keeping up with monthly payments once the current forbearance ends. For example you may You want to wait for the refinancing of federal student loans with a private lender now, because there is a possibility that some of your federal debt will be canceled.
It is likely that the relief measures that could be adopted will become clear in the coming months, although there are no guarantees. Until then, all anyone can do is wait and hope for the best.