Joe Biden’s Student Loan Debt Forgiveness Plan Will Cancel up to $50,000 per Student

Rachel Morey
Last Update: November 21, 2020 Financial News

Joe Biden plans to offer relief to student loan borrowers. At this time, Americans carry $1.5 trillion in student loan debt.

Changes Ahead for PSLF: Department of Ed Currently Denies 98% of Pubic Service Loan Forgiveness Applicants

According to the Department of Education, 98% of Public Service Loan Forgiveness (PSLF) applicants are denied when they ask the program to make good on its promise. PSLF requires student loan borrowers to 120 on-time payments under a qualifying repayment plan. After meeting this burden, among others, the borrower technically qualifies for student loan forgiveness. So far, PSLF is a dead-end for the great majority of borrowers.

Under Biden’s plan, the PSLF program would forgive up to $10,000 of undergraduate student loan debt for every year of community service, up to five years. Workers employed by a school, non-profit organization or the government would be automatically enrolled in the program.

Here’s where Biden stands on some of the biggest higher education issues.

Free College

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

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

Canceling Existing Student Debt

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

  • Suppose you attended a public college or university. Attendees of private HBCUs and additional MSIs would also be eligible.
  • Suppose you used the loans for undergraduate tuition. Graduate student debt would not be canceled under Biden’s proposal.
  • Suppose you earn less than $125,000. Biden’s plan references a phase-out of this benefit but does not offer further details.

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, available to government workers, teachers, and other nonprofit employees, requires borrowers to make 120 eligible payments to have their remaining balance forgiven.

Student Loan Discharge Via Bankruptcy

It’s difficult to get student loans discharged through bankruptcy. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act made it nearly impossible to get student loans canceled in bankruptcy proceedings. Biden says he’ll enact the 2015 Obama-Biden proposal that expands allowances for student loan discharge in bankruptcy court.

Rewriting Student Loan Repayment Plans

The current Student Loan Repayment Plan system, run by the federal student loan system, is a confusing cluster of options that many graduates and former students can’t easily navigate. Biden plans to place borrowers with annual incomes above $25,000 on an income-driven repayment plan that caps monthly student loan payments at 5% of discretionary income. After 20 years, the remaining balance would be forgiven. Unlike current loan forgiveness programs, the canceled debt would not be taxable.

Borrowers with an annual income of $25,000 or less would have their student loan interest rates set to 0%. These low-income borrowers would not be required to make monthly student loan payments.

How Students Will Pay For Education in The Future?

While student loan forgiveness is a hot topic right now, there’s also a lot of talk about changing future students’ access to the money they need to pay for their education. Biden has proposed doubling Pell Grants, which currently pay for up to $6,345 of the cost of higher education for students who have demonstrable financial need.

Biden says he’ll also invest $50 billion in workforce training while supporting minority-serving institutions with more than $70 billion. Community colleges will get an $8 billion boost under Biden’s plan.

Existing Student Loan Debt Cancelled

If you attended a public university or college, used student loans to pay for undergraduate tuition, and currently earn less than $125,000 per year, you would be eligible to have your student loans canceled under Biden’s plan.

Biden can’t make his student loan forgiveness loans happen without approval from Congress. While he’s openly supported the idea of forgiving up to $10,000 per borrower in federal student loans as part of a Coronavirus economic relief plan, he faces significant obstacles in getting this and his other student debt relief measures signed into law.

MEET THE AUTHOR

Rachel Morey

Rachel Morey is a journalist specializing in automotive, insurance, and finance content. She has been writing professionally for nearly a decade and has projects in print and broadcasting. A native Iowan, Rachel as a special fondness for the open roads of rural America.

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