When the CARES law was passed in March, payments were suspended and the interest rate was temporarily set at 0% for federal student loans. The student loan relief will expire on January 31, 2021. Will President-elect Joe Biden extend the temporary relief? Nobody knows.
While there is uncertainty about what will happen after Jan. 20, 2021, we have some idea of the long-term changes that could occur in student loans when Biden takes office.
These proposals will need to be approved by Congress to become law, but here is a summary of what Biden has proposed so far in regards to student loans.
At March 22, 2020, Biden tweeted that it would write off up to $ 10,000 for each federal student loan borrower. This cancellation was originally proposed by Democrats for inclusion in the CARES law. That was not made into law, but it is possible that the Biden administration will include the cancellation of $ 10,000 as part of a future stimulus package.
Biden’s plan for education beyond high school includes changes to current federal loan repayment and forgiveness programs. Currently, borrowers on an income-based repayment plan (IDR) are required to pay 10-20% of their income above the federal poverty line for their student loans. The Biden plan would limit that to 5% of income over $ 25,000. In addition, there would be no monthly payment required and no accrued interest for those earning less than $ 25,000 per year.
New and existing federal student loans will automatically be enrolled in the IDR plan. Borrowers have the choice to opt out. This is a major change from the current complex system. In the current federal system, borrowers choose and enroll in one of the many plans available, which can be confusing. According to the proposed plan, the remaining loan balance will also be automatically written off after 20 years of payments. There would be no income tax on the amount remitted under this new long-term rebate program.
Biden’s proposal suggests putting a cap on the amount of forgiveness a borrower can get under the Public Service Loan forgiveness program (PSLF). Again, PSLF registration is automatic for “people working in schools, government and other non-profit institutions”. However, the remission amount of the PSLF is $ 10,000 in undergraduate or graduate debt for each year of qualifying service, up to five years, which means that the maximum remission amount would be $ 50,000. , unlike the unlimited amount under the current rules. While this may be bad news for borrowers hoping to get more than $ 50,000 in tax relief, the proposed plan allows for up to five years of tax relief. before national or community service to count for the PSLF.
It has generally been very difficult to obtain the discharge of student loans in bankruptcy.
Biden has promised to enact Obama-Biden administration legislation to allow the release of private student loans in bankruptcy.
The Biden plan also includes ideas for reducing the need for some students to take out student loans in the first place. The plan proposes to make public colleges and universities free for all families with incomes below $ 125,000. These tuition-free colleges and universities would include community colleges and state colleges and no private colleges except historically black private colleges and universities (HBCU) or institutions serving minorities (MSI). Only tuition and related expenses would be free. Students and their families would still pay for other expenses, such as accommodation and food.
Again, these plans will not become law unless approved by Congress. But it’s good to keep track of changes in the law that may affect your student loans and your repayment strategy. If you need help developing a strategy, contact a student loan professional for help!