Free Student and College Loan Cancellation – 10 Ways Biden Can Change Student Loans

President Joe Biden can change college debt in at least 10 ways.

Here’s what you need to know – and what it means for your student loans.

Student loans

Call it the pen stroke. Call it stand-alone legislation. Call it a component of the new stimulus package. No matter what you label, there can be upcoming changes to your student loans in 2021. Whether it’s through congressional legislation or executive action, here are some potential ways your student loans could be affected during the Biden administration:

1. Cancellation of student loan

Will your student loans be canceled? The news headlines were dominated by the cancellation of student loans. Whether through executive action or congressional legislation, borrowers and student loan advocates are lobbying for student loan cancellation. Biden wants to cancel student loans immediately. Senate Majority Leader Chuck Schumer (D-NY) and Senator Elizabeth Warren (D-MA) want Biden cancel up to $ 50,000 in student loans per borrower through executive action. however, Biden says he’s unlikely to do that, which means Congress should cancel student loans to provide student loan relief. Congress May Cancel Student Loans Under New Stimulus Package. That said, Biden did not include the student loan cancellation in his $ 1.9 trillion stimulus package proposal and Congress dropped student loan cancellation from latest stimulus package. Expect a big battle in Congress: While Democrats control Congress, Senate Republicans will oppose the cancellation of student loans and delay any proposed legislation.


2. Student loan repayment break

On his first day as president, Biden federal student loans have been suspended until September 30, 2020. This means that you will not be required to make federal student loan payments during this time. However, you have the option until September 30 to repay your student loans at any time without a prepayment penalty. There will also be no new interest accrued on your federal student loan balance, and student loan collections will be halted. Unfortunately, this suspension of student loan repayments only applies to federal student loans held by the US Department of Education. Therefore, FFELP loans and Perkins loans that are not held by the US Department of Education are not eligible.


3. No student loan repayment for some

Biden also wants change student loan repayment plans. Current income-based repayment plans include income-based repayment (IBR), payment as you earn (PAYE), revised payment as you earn (REFUND), and income-based repayment ( ICR). Under income-based repayment plans, it is possible – depending on your discretionary income, family size, and state of residence – to pay $ 0 each month for your federal student loans. Biden did not offer any federal student loan payments for borrowers with undergraduate student loans who earn less than $ 25,000 each year. With income-based repayment plans, remember that you can get federal student loan forgiveness after 20 years (undergraduate student loans) or 25 years (graduate student loans).


4. Lower monthly student loan payments

If you earn more than $ 25,000 each year, Biden wants to cap federal monthly payments at 5% of your discretionary income if you have federal undergraduate student loans. This is much less than 10-20% of discretionary income, which is the norm for current income-based repayment plans. Reforming income-tested repayment plans is another way to help struggling borrowers lower their monthly student loan payments and get their student loan canceled.


5. Discharge of student loans in bankruptcy

As a US senator, Biden opposed the release of student loans in bankruptcy. However, Biden supports canceling student loans in bankruptcy, and there may be bipartisan support in Congress. For example, Warren – who as a professor taught bankruptcy at Harvard Law School – advocated the release of student loans in bankruptcy as a tool to help distressed borrowers deal with student loan debt. Today, it is possible to get your student loans discharged through the bankruptcy process, although generally (according to the circuit court) you have to meet an undue financial burden standard.


6. Faster delivery of public service loans

Public Service Loan Forgiveness is a federal program that helps borrowers get their student loans forgiven after 120 monthly payments. Biden wants to change that program to allow student loans to get a student loan cancellation of $ 10,000 per year for five years. As a result, borrowers could have their student loans canceled every year, rather than waiting for the 120 monthly payments to end, which could take 10 years. The downside, however, is that this new plan may cap the amount of federal student loan forgiveness that a borrower could receive. Under the current rules, there is no limit to the amount of federal student loan forgiveness you can get under the public service loan forgiveness program.


7. Automatic registration for reimbursement based on income

Biden would remove a procedural hurdle to ensure more distressed borrowers have access to income-based repayment plans for their federal student loans. Income-based repayment plans set your monthly federal student loan payments based on your discretionary income, family size, and state of residence. However, in order to register, you must register proactively. Biden wants to make enrollment automatic, which means more borrowers can have a monthly student loan payment on the first day that matches their personal financial situation. While enrollment could become automatic, no borrower would be required to take out an income-based repayment. Borrowers could opt out, choose standard repayment, refinance student loans, or choose another option, for example.


8. College tuition-free

Biden wants all four-year and two-year public colleges and universities to be free for students with an annual family income of less than $ 125,000. It is one of the Three ways Biden wants to cancel student loans. Miguel Cardona, Biden’s candidate for US secretary of education, echoed Biden’s proposal this week. Unlike the one-off cancellation of a student loan, this proposal could help meet the cost of higher education for millions of families on an ongoing basis. Congress is expected to approve the proposal, which would likely take the form of federal grants to state governments. It’s unclear how much states are expected to contribute, which could be difficult in the wake of the Covid-19 pandemic when many states face a budget crisis.


9. Increased application of student loans

The Consumer Financial Protection Bureau, or CFPB, will play a larger role in monitoring student loans. Rohit Chopra, a consumer advocate and commissioner at the Federal Trade Commission, is expected to lead the CFPB and return to the office he helped create and build during the Obama administration as the first ombudsman of the United States. student loans. Expect increased scrutiny of lenders and student loan managers as well as better consumer protection. Examples may include tougher enforcement action against student loan managers who fail to address borrower complaints, properly process student loan payments, or properly place borrowers on the wrong loan repayment plan. students.


10. Tax-free student loan forgiveness

While student loan forgiveness through utility loan forgiveness is tax-free, student loan forgiveness through income-based repayment plans is not. For example, after 20 years of monthly student loan payments, your federal student loan balance may be canceled. However, you will have to pay tax on the remaining student loan balance equal to your tax rate then multiplied by the balance amount. For some borrowers, this amount can be significant. Biden wants to change that policy and make the forgiveness of student loans tax-exempt. If implemented, you would not be liable for tax on the amount of student loan forgiveness you receive.


Final thoughts

Biden has a bold program to help student borrowers. Most of these proposals may require legislation from Congress. Others can be done by decree, such as the temporary suspension of student loan payments. Some are a one-off help, like student loan cancellation. Other proposals, like the tuition-free university, are geared towards the long term. Still others may be simple solutions, such as automatic enrollment in income-based repayment plans. That said, even with Democrats controlling Congress and the White House, there isn’t necessarily bipartisan support for most of these proposals. Senator Bernie Sanders (I-VT) says Democrats can pass Student loan cancellation and $ 2,000 stimulus checks without republicans.


How to pay off student loans faster

What’s the best way to pay off student loans? Biden or Congress may pass some, all, or none of these changes for your student loans. It is possible that Congress will cancel student loans or pass the cancellation of student loans, but there is no guarantee that will happen this year, or at all. That’s why it’s essential to understand your student loan repayment options now. Start with these three options, all at no cost:


Related reading

5 student loan changes for 2021

Congress may cancel student loans as part of new stimulus package

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Paul Cox

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